U.S. Stocks Rise in Week Despite Need to for Earnings Growth

Updated on
  • ‘This has been a violent shift up, animal spirits are dancing’
  • Energy shares fall as Saudi Arabia quits Russia oil talks

U.S. stocks rose Friday on light post-Thanksgiving trading as the four major equity indexes reached all-time highs.

S&P 500 Index added 0.39 percent to 2,213.35 at 1 p.m. in New York, and the Dow Jones Industrial Average rose 0.36 percent to 19,152.14. The Nasdaq 100 gained 0.33 percent to 4,870.02. And the Russell 2000 increased 0.38 percent to 1347.20. Trading volume was nearly half the average over the past 30 days. Markets closed at 1 p.m. New York time.

Defensive plays dominated with utilities stocks up 1.4 percent and telecommunications service providers rising 1.05 percent. Energy stocks were the only group in the S&P 500 to decline, falling 0.4 percent after oil dropped when Saudi Arabia pulled out of talks with non-OPEC nations, including Russia.

“This has been a violent shift up, animal spirits are dancing,” said Humberto Garcia, head of asset allocation at Leumi Investment Services in New York. “There is a lot of optimism that tax reform will lead to growth.”

On Wednesday, the Dow closed above 19,080 for the first time while the S&P 500 extended its first monthly gain since July and the Russell 2000 Index rallied for a 14th straight day to add to its record. Investors are betting President-elect Donald Trump’s pledges to boost fiscal spending and cut taxes will lift firms that benefit from a stronger economy.

“We’re still seeing money coming out of bond funds and into stock funds and it’s interesting the perspective investors are taking,” said Eric Wiegand, senior portfolio manager at the Private Client Reserve of US Bank in New York, which oversees $128 billion. “To sustain any meaningful advances from here, we need to see earnings growth. The big watch will be for inflation expectations because that tends to be a bit of a weight on market multiples.”

Traders also are pricing in a 100 percent chance that the Federal Reserve will raise interest rates next month, compared with a 68 percent probability at the start of November. U.S. companies recently ended a five-quarter drop in profits, and next week’s reports on gross domestic product, payrolls and manufacturing will offer further clues on the strength of the recovery.

“The kind of valuation you’re seeing are not justified by corporate profits,” Leumi’s Garcia said. “It makes sense to have some precaution.”