The stock market had an impressive Thursday. Everything—from earnings, to economic data, to the move in interest rates—went equity investors’ way. Both the Dow Jones Industrial Average and the S&P 500 index surged to close at records.
The Dow rose 305.10 points, or 0.91%, to close at 34,035.99, and the S&P 500 added 45.76 points, or 1.11%, to end at a record 4,170.42. The Nasdaq Composite tacked on 180.92 points, or 1.31%, to close at 14,038.76. The biggest gainer in the S&P 500 was chip giant Advanced Micro Devices (AMD), which saw shares soar 5.7% on upbeat remarks from an analyst.
First-quarter earnings reports are beating estimates handily. Bank earnings, in particular, have contributed to some investor optimism; Bank of America (BAC) beat revenue and earnings-per-share expectations, and the bank released $2.7 billion previously set aside to absorb potentially bad loans. The stock fell 2.9%, though other bank shares have risen after earnings, such as Wells Fargo (WFC), which posted a beat. Strong bottom lines from the nation’s financial institutions paint a positive picture of the economy’s rebound. Other sectors are also showing strong reports. S&P 500 companies are beating EPS estimates by 36%, with almost 7% of the index’s market capitalization having reported thus far, according to Credit Suisse data. Some wondered if a hot stock market would mean earnings beats can’t move stocks higher from here, but those beats have been marked with convincingly wide margins.
Economic data also impressed. Retail sales for March came in at 9.8% over February, beating the consensus estimate of 5.8%. Spending rose 17% year-over-year as consumers are showing the propensity to spread stimulus money, Citigroup economists wrote in a note. That serves as confirmation that trillions of dollars of fiscal stimulus will help power consumer spending as states reopen and people become more confident in the future.
In addition, initial jobless claims for the past week were 576,000, far less than the expected 710,000, and better than the previous week’s result of 769,000. People are indeed getting back to work as small businesses, too, have stimulus cash for rehiring workers.
“Economic activity remains a tailwind on stock prices, as growth remains solid,” Tom Essaye, founder of Sevens Report Research, wrote in a note.
Indeed, the rally was broad, signifying the move up in the major indexes truly centered on general optimism on the economy and corporate earnings. Three quarters of S&P 500 stocks ended in the green for the day, according to FactSet.
The edge on outperforming, however, belonged to growth stocks because interest rates took a nosedive. Lower rates on long-dated bonds boost the value of future cash flows, a particular positive for growth companies, which expect to see the bulk of their profits potentially years from now. The 10-year Treasury yield fell steeply to 1.55% from 1.63%. The yield has been on a tear, up from 0.91% to begin the year, pricing in higher inflation and economic demand.
Evercore’s head of portfolio strategy research, Dennis DeBusschere, wrote in emailed reports to the press that a short squeeze could be on, in which investors buy up the bond—sending the price higher and yield lower—after a massive run-up. Regardless, rates did tumble and the Vanguard S&P 500 Growth ETF (VOOG) rose 1.7%, beating the gain of its value counterpart (VOOV), which rose 0.5%.
As growth stocks continue to gather strength, it may be only a matter of time before the Nasdaq Composite is back to setting records along with the other two major indexes.
Write to Jacob Sonenshine at email@example.com