NEW YORK – Stocks roared back to record highs on Thursday, driven by good news on the economy.
The Standard & Poor’s 500, the Dow Jones industrial average and the Russell 2000 index set all-time highs. The S&P broke through 1,700 points for the first time. The Nasdaq hit its highest level since September 2000.
The gains were driven by a steady flow of encouraging reports on the global economy.
Overnight, a positive read on China’s manufacturing helped shore up Asian markets. An hour before U.S. trading started, the government reported that the number of people applying for unemployment benefits last week fell sharply. At midmorning, a trade group said U.S. factories revved up production last month. And while corporate earnings news after the market closed Wednesday and throughout Thursday brought both winners and losers, investors were able to find enough reports that they liked, including those from CBS, MetLife and Yelp.
“It’s just a lot of things adding up,” said Russell Croft, portfolio manager of the Croft Value Fund in Baltimore. “It’s hard to put your finger on why exactly, but basically it’s a bunch of pretty good data points coming together to make a very good day.”
Overall, analysts said, the news was good but not overwhelmingly so. Enough to suggest that the economy is improving, but not enough to prompt the Federal Reserve to withdraw its economic stimulus programs.
Earnings results covered a wide range. Boston Beer, which makes Samuel Adams, and home shopping network operator HSN rose after beating analysts’ estimates for earnings and revenue. Kellogg, health insurer Cigna and cosmetics maker Avon were down after beating earnings predictions but missing on revenue.
It’s becoming a familiar template this year. Stock indexes have been setting record highs since April even while the underlying economy is often described as improving, but hardly going gangbusters.
While layoffs are steadily declining, companies aren’t hiring as quickly as they did before the financial crisis and Great Recession. The economy is growing, but not fast enough to drive significant job growth. The Commerce Department reported this week that gross domestic product, or GDP, the broadest measure of the economy, grew at a tepid annual rate of 1.7 percent in the second quarter.
“They’re not great numbers, but they’re positive and they’re continuing to grow,” said Tim Courtney, chief investment officer of Exencial Wealth Advisors in Oklahoma City. “That’s about all the market needs to hear.”
Because the stock market often looks ahead 6-9 months, it’s not unusual for stock indexes to be ahead of economic indicators when the economy is improving or worsening. Right now, stock investors may be anticipating a stronger economy and better earnings next year.
Investors said Thursday that the S&P’s crossing over 1,700 points might give consumers a psychological boost, but they were hardly crowing about a new era in stocks. Turns out it’s quite common for indexes to hit records. Since 1950, the S&P has hit a high about 7 percent of the time, or an average of about every 15 days, Courtney said. The S&P’s last record close was just eight trading days earlier, on July 22.
The S&P made the jump from 1,600 to 1,700 in less than three months. The index first traded above 1,600 on May 3. The first close above 1,500 was in March 2000. The market’s sharp advance Thursday was a stark contrast with the previous two days, when the S&P 500 moved less than a point each day. On Tuesday, investors didn’t want to make big moves ahead of the Federal Reserve’s policy announcement the next day. On Wednesday, the Fed didn’t make much news after all. The central bank said, unsurprisingly, that the U.S. economy was recovering but still needed help.
Among the good economic and corporate news Thursday:
• China’s purchasing managers’ index – a gauge of business sentiment – rose to 50.3 in July from 50.1 in June.
• The Labor Department said that the number of Americans applying for unemployment benefits fell 19,000 to 326,000. That was the fewest since January 2008, one month after the Great Recession started in December 2007.