Evidence the US economy is churning out jobs salvaged the week for equities, sending the Nasdaq Composite Index to its first record close in a year and handing the S&P 500 Index its fifth weekly advance in six since the start of July.
The benchmark for American equity climbed 0.4 per cent over the five days to 2,182.87, its eighth record close in the last month, while the Nasdaq extended its six-week gain to 11 per cent and closed at 5,221.12. Boosted by earnings, technology companies and banks led the advance, while defensive industries such as utilities and phone companies slipped.
In a week that saw the biggest one-day decline for the S&P 500 in a month on Tuesday, bulls were energised by data showing US employers added 255,000 jobs in July, tempering concern that economic growth is slowing. Stocks continued to rise from already-high valuations after the S&P 500's price-earnings ratio last month climbed above 20 for the first time since 2009.
The S&P 500 is up 6.8 per cent in 2016, three times its gain at this time last year, as stocks enter a month that has seen of some of the biggest losses since the bull market began seven years ago. The gauge fell 6.3 per cent in August 2015, the worst monthly decline since 2012, as concern mounted about the pace of global economic growth.
Reasons for caution abound this year, as well, among them the suddenly bearish orientation of Wall Street equity strategists, many of whom have seen their 2016 projections for the S&P 500 surpassed by a rally that has now added $3.6 trillion to U.S. share prices since markets bottomed in February.
The average year-end target among 20 brokerages surveyed by Bloomberg for the S&P 500 was 2,146 on August 1, a level that after this week's 9-point advance is 37 points below the index's closing level. It's the first time since 2014 that the benchmark has been above the level expected by analysts.
A brighter message formed in corporate profits, which showed signs of resilience even though they're in the process of falling for a fifth consecutive quarter.
With the earnings season more than three-quarters done, about 77 per cent of S&P 500 firms beat profit projections and 56 per cent exceeded sales forecasts. Analysts have tempered their estimates for a decline in second-quarter net income to 2.7 per cent, from 5.8 per cent less than a month ago.
"The most important catalyst for higher equity prices are higher earnings. If economic growth is slowing then stock prices will eventually run out of upside trajectory," said Scott Colyer, chief executive of Advisors Asset Management in Colorado. "However, markets tend to discount the future and will move in advance of the reported data. That is what we believe is happening here."
A period of relative calm has also permeated the equity market, with the CBOE Volatility Index falling to a two-year low and sitting more than 30 per cent below its five-year average. The measure of market turmoil known as the VIX fell 4 per cent in the five days to extend its consecutive weekly declines to six, the longest in eight years.
To Colyer, that's a sign of complacency. "We think the market is well overbought and due for a correction," he said.
A correction was the last thing on investors' minds Friday, especially with hiring extending its rebound after a letdown in May.
The benchmark for American equity climbed 0.4 per cent over the five days to 2,182.87, its eighth record close in the last month, while the Nasdaq extended its six-week gain to 11 per cent and closed at 5,221.12. Boosted by earnings, technology companies and banks led the advance, while defensive industries such as utilities and phone companies slipped.
In a week that saw the biggest one-day decline for the S&P 500 in a month on Tuesday, bulls were energised by data showing US employers added 255,000 jobs in July, tempering concern that economic growth is slowing. Stocks continued to rise from already-high valuations after the S&P 500's price-earnings ratio last month climbed above 20 for the first time since 2009.
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"What we've seen is it's the economic data that's really coming to offset other negatives," John Stoltzfus, chief market strategist at Oppenheimer & Co in New York, said by phone. "Every so often you get a disappointment, but the overall trend remains positive. This week was a combination of economic data as well as earnings that have overall surprised even more than expected after expectations were stripped to the bone."
The S&P 500 is up 6.8 per cent in 2016, three times its gain at this time last year, as stocks enter a month that has seen of some of the biggest losses since the bull market began seven years ago. The gauge fell 6.3 per cent in August 2015, the worst monthly decline since 2012, as concern mounted about the pace of global economic growth.
Reasons for caution abound this year, as well, among them the suddenly bearish orientation of Wall Street equity strategists, many of whom have seen their 2016 projections for the S&P 500 surpassed by a rally that has now added $3.6 trillion to U.S. share prices since markets bottomed in February.
The average year-end target among 20 brokerages surveyed by Bloomberg for the S&P 500 was 2,146 on August 1, a level that after this week's 9-point advance is 37 points below the index's closing level. It's the first time since 2014 that the benchmark has been above the level expected by analysts.
A brighter message formed in corporate profits, which showed signs of resilience even though they're in the process of falling for a fifth consecutive quarter.
With the earnings season more than three-quarters done, about 77 per cent of S&P 500 firms beat profit projections and 56 per cent exceeded sales forecasts. Analysts have tempered their estimates for a decline in second-quarter net income to 2.7 per cent, from 5.8 per cent less than a month ago.
"The most important catalyst for higher equity prices are higher earnings. If economic growth is slowing then stock prices will eventually run out of upside trajectory," said Scott Colyer, chief executive of Advisors Asset Management in Colorado. "However, markets tend to discount the future and will move in advance of the reported data. That is what we believe is happening here."
A period of relative calm has also permeated the equity market, with the CBOE Volatility Index falling to a two-year low and sitting more than 30 per cent below its five-year average. The measure of market turmoil known as the VIX fell 4 per cent in the five days to extend its consecutive weekly declines to six, the longest in eight years.
To Colyer, that's a sign of complacency. "We think the market is well overbought and due for a correction," he said.
A correction was the last thing on investors' minds Friday, especially with hiring extending its rebound after a letdown in May.