A combination of economic recovery and central bank support that has steered the bull market into its sixth year came together again this week to power the Dow Jones Industrial Average over 17,000 (INDU) for the first time.
More than $200 billion was added to U.S. equities during the week as job creation surged beyond expectations in June while central banks in the U.S. and Europe repeated vows to support growth. Micron Technology Inc. and Netflix Inc. advanced at least 6.9 percent as the Russell 2000 (RTY) Index recovered nearly all its losses from a two-month selloff of Internet and small-cap shares. The Dow Jones Transportation Average (TRAN) rallied 1.5 percent to a record on the strength of global manufacturing.
The Dow rose 216.42 points, or 1.3 percent, to 17,068.26 for the holiday-shortened week. The Standard & Poor’s 500 Index climbed 1.3 percent to a record 1,985.44. The Russell 2000 jumped 1.6 percent, reaching an intraday high on July 1. The MSCI All-Country World Index increased 1.4 percent over four days to reach an all-time high.
The Dow record is “a nice round number,” Philip Orlando, the New York-based chief equity-market strategist at Federated Investors Inc., said by phone. He helps oversee around $400 billion. “The catalyst is that we have a terrific jobs number. If folks finally understand that the great recession is behind us, maybe they’ll crawl out of their beds and take their money out of bonds and put it into stocks.”
It took the Dow 227 days to cross the 17,000 mark after surpassing 16,000 for the first time on Nov. 18. Caterpillar Inc., the world’s largest maker of construction and mining equipment, Walt Disney Co., the biggest entertainment company, and computer-chip maker Intel Corp. led the advance, rising more than 20 percent.
The pace compared with a faster 199 days for the Dow’s 1,000 point march to 16,000. While the S&P 500 has rallied 7.4 percent this year, the Dow has gained only 3 percent, weighed down by declines of more than 4.2 percent in Boeing Co., Goldman Sachs Group Inc. and General Electric Co.
GE was one of the original members of the Dow average, which was devised in 1896 by Charles H. Dow, co-founder of Wall Street Journal publisher Dow Jones & Co. Goldman Sachs was introduced in September, when the 30-member gauge was reshuffled to also include Nike Inc. and Visa Inc.
The Dow rallied during the week along with small caps and transportation stocks in a pattern that chart analysts consider bullish. Simultaneous gains in different industries are sometimes cited by such analysts as evidence economic growth is pervasive enough to fuel additional gains.
Stock indexes reached all-time highs as data showed job growth blew past expectations and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago, creating a firm foundation for a stronger U.S. economic expansion. Other data during the week indicated service providers expanded in June while factories sustained gains, propelled by the strongest orders of the year.
“The jobs report was pretty darn good,” Jeff Saut, the St. Petersburg, Florida-based chief investment strategist at Raymond James Financial Inc., said in a phone interview. He helps oversee about $450 billion. “We’re going to get a multiple expansion. Earnings are going to continue to come in better than expected. We’re in a secular market that has years left to run.”
Central banks weighed in to support the global economy. European Central Bank President Mario Draghi reiterated that he’ll keep interest rates low as officials try to revive the region’s economy with a new round of emergency measures.
Federal Reserve Chair Janet Yellen said on July 2 that concerns about financial stability shouldn’t prompt a change in current policy. She said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth after a 2.9 percent contraction in gross domestic product during the first quarter.
Three rounds of monetary stimulus from the Fed and better-than-forecast corporate earnings have driven the S&P 500 up 190 percent from its March 2009 bottom.
The S&P 500 trades at 16.7 times the projected earnings of its members, its highest valuation in four years.
Volatility is evaporating amid stock gains. The U.S. market has gone more than two years without a 10 percent drop. The Chicago Board Options Exchange Volatility Index (VIX), a gauge of option prices for the S&P 500, dropped 8.4 percent for the week to 10.32, the lowest level since February 2007.
“We have one green light and one yellow light,” said Kevin Caron, who helps oversee $170 billion as a portfolio manager at Florham Park, New Jersey-based Stifel Nicolaus & Co. “As far as valuations are concerned, I think we’re a little ahead of where we ought to be. But, the other light, growth in the economy, happens to look quite solid.”
Investors will get a chance to assess economic strength when companies begin releasing financial results next week. Alcoa Inc. unofficially starts the earnings season when it reports after the market close July 8. Earnings for S&P 500 companies probably grew 5 percent during the second quarter while sales rose 3 percent, analyst estimates compiled by Bloomberg show.
Health-care companies gained the most among 10 major groups in the S&P 500 during the week, advancing 2 percent. Consumer-discretionary and technology shares climbed more than 1.7 percent. Utilities had the only decline, with a 3.2 percent loss.
Netflix jumped 6.9 percent, touching a record and recovering all its losses from a 31 percent plunge during March and April.
An S&P index of homebuilders rose 1.6 percent, with D.R. Horton advancing 4.2 percent and PulteGroup Inc. adding 1.3 percent. Data showed the number of contracts to purchase previously owned U.S. homes jumped 6.1 percent in May, the most in more than four years, a sign the residential-real estate market is rebounding after a slow start to the year.
General Motors Co. shares rose 3.1 percent after posting a surprise increase in June U.S. vehicle sales in the industry’s best month since July 2006.
PetSmart Inc. shares surged 10 percent for the week after hedge fund Jana Partners LLC disclosed an activist stake in the pet-care company and urged it to undertake a strategic review, including a potential sale.