Dow Near 17,000 as Record Transports Rise With Small Caps

The Dow Jones Industrial Average is within reach of surpassing 17,000 for the first time, rallying along with small caps and transportation stocks in a pattern that chart analysts consider bullish.

The Dow average climbed 0.8 percent to 16,956.07 yesterday, while the Dow Jones Transportation Average gained 0.7 percent to 8,261.70, the first time in almost a month that both indexes reached records on the same day, data compiled by Bloomberg show. Smaller companies tracked by the Russell 2000 Index rallied 1.1 percent. The Dow average rose 0.1 percent to 16,976.24 at 4 p.m. in New York.

Simultaneous gains in different industries are sometimes cited by chart analysts as evidence economic growth is pervasive enough to fuel additional gains. Global equities may rally as much as 9 percent in the next year as the U.S. and Europe strengthen, Mark Haefele, global chief investment officer of UBS AG’s wealth management unit, said yesterday in Singapore.

“The tone of the market is more risk-on,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., said by phone. Her firm oversees over $1 trillion. “It’s suggestive of investors or traders beginning to believe that at least on the margin, that global growth is gaining momentum.”

Dow Theory

Gains yesterday were fueled by data showing a pickup in factory output. In the U.S., the Institute for Supply Management’s manufacturing index was 55.3 last month, near a five-month high. China’s Purchasing Managers’ Index was at 51.0, matching analysts’ median estimate. Readings greater than 50 indicate expansion.

Investors who subscribe to Dow Theory, which says transportation and industrial stocks must advance together for market gains to last, may gain confidence in the bull market after yesterday. International Business Machines Corp. and Delta Air Lines Inc. led gains in the two Dow gauges with rallies of more than 2 percent.

“There’s nothing more bullish than both averages closing at all-time highs on the same day,” Richard Moroney, chief investment officer at Horizon Investment Services in Hammond, Indiana, and editor of the Dow Theory Forecasts newsletter, said in a phone interview. “It might be a little bit of a catalyst for people who might’ve been on the fence to bite the bullet and put money in there.”

Netflix, GoPro

Netflix Inc., the largest Internet subscription service, jumped 7.4 percent yesterday, helping leading gains in the S&P 500 after Goldman Sachs Group Inc. recommended the stock, citing higher profit margins. GoPro Inc., a maker of wearable cameras, is up 103 percent since its initial public offering last week.

The Chicago Board Options Exchange Volatility Index, derived from S&P 500 options prices, dropped 3 percent to 10.82. The gauge has closed below 14, its average over the past year, for 47 straight days, the longest such streak since February 2007.

About 417,000 calls on the iShares Russell 2000 exchange-traded fund changed hands, 86 percent more than the average this year. Bullish options volume on the technology-heavy Powershares QQQ Trust Series ETF was about 212,000 today, the most since June 19.

Stocks are extending a rebound from the selloff that started with biotechnology and small-cap stocks about three months ago. Equities have rallied since the S&P 500 reached a two-month low in April as central bank stimulus spread from Europe to Japan and the U.S. and economic data suggested global growth is strengthening.

Good Day

The Russell 2000 has retraced almost all of its losses after a 9.3 decline through May 15. The Nasdaq Biotechnology Index, which tumbled 21 percent from February to April, soared 2.3 percent today.

“It’s a good day in the market,” John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $220 billion worldwide, said by phone. “With the economic news fairly positive and expectations high for the second quarter, the market is having a bit of a run.”

Individuals coming to stocks now are buying into a rally that is more than 5 years old, exceeding the average length of 4.1 years for bull markets since the end of World War II, according to data compiled by Bloomberg.

The S&P 500 trades at 18.1 times reported earnings, the highest valuation in four years. Stocks last saw a decline of more than 10 percent between April and June 2012 from intraday levels. This year, the closest it came to a similar drop was a 6.1 percent slide from the middle of January to February, data compiled by Bloomberg show.

Earnings Season

The earnings reporting season is starting soon with Alcoa Inc. scheduled to give second-quarter results next week. S&P 500 profits probably rose 5.2 percent from March to June, according to analyst estimates compiled by Bloomberg. For the full-year, the predictions show income will increase 7.4 percent.

Almost 400 stocks in the gauge rose yesterday, the broadest advance in two weeks. The S&P 500 is up 6.8 percent this year, as data from employment to housing have fueled confidence that the U.S. economy is rebounding after the worst contraction in gross domestic product since 2009.

“The breadth sends a message about the strength of the bull,” Rex Macey, chief allocation officer at Wilmington Trust in Atlanta, said in a phone interview. The firm oversees $82 billion. “People are comfortable with the story of the economic backdrop that we’ve got going on. People feel like they’re missing the boat and they want to get on.”

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