U.S. stocks closed higher again Friday, ending the week at new record highs, helped by more data suggesting the economy and corporate profits are in good health.
The rally this week has also been supported by at least a partial resolution of the U.S. - China trade dispute and the passage of the U.S., Mexico, Canada trade deal by Congress.
How are benchmarks faring?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -3.15% gained 50.46 points, or 0.17%, to 29,348 while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -3.03% rose 12.81 points, or 0.39%, to 3,329.62. The Nasdaq Composite index /zigman2/quotes/210598365/realtime COMP -2.77% advanced 31.81 points, or 0.34%, to 9,388.94.
On Thursday, the Dow gained 267.42 points, or 0.92%, to 29,297.64, the S&P 500 advanced 27.52 points, or 0.84%, to 3,316.81, while Nasdaq Composite Index added 98.44 points, or 1.06%, to 9,357.13.
For the week all three benchmark indexes posted their largest percentage gains since August 30 last year. The Dow has been up for five of the past six weeks, with a year-to-date return of 2.84%. The S&P 500 has been up for two consecutive weeks, with a year-to-date return of 3.06% and the Nasdaq has risen for six straight weeks, with a year-to-date return of 4.64%, according to Dow Jones Market Data.
What’s driving the market?
Wall Street is in rally mode, with sentiment boosted Friday by data on U.S. December housing starts that showed home constructing rising 16.9%, to annual rate of 1.608 million units, to the fastest pace since 2006.
“This read blows expectations out of the water,” Mike Loewengart, vice president of investment strategy at E-Trade wrote in an email. “Housing is one of the most critical metrics to gauge the health of the US economy, and combine this with the low interest rate environment and the future looks like it will continue to shine bright for home buyers.”
“Taking this in aggregate with the other fundamental reads we’ve seen this week, it’s hard to argue that this expansionary phase can’t keep going,” he added.
Investors optimism wasn’t dented by China reporting its worst annual growth in three decades of 6.1% though China’s economic growth picked up in December, marking the fastest pace monthly expansion since last March.
On Thursday stocks had extended gains after the signing of the first phase of a Sino-American trade agreement in Washington but also investors were also encouraged by Congress passing a revised trade deal between the U.S., Mexico and Canada.
George Mateyo, chief investment officer at KeyBank said that reduced trade tensions, indications by the Federal Reserve that interest rates will remain low for the foreseeable future, and earnings results that have so far come in better than expected, have all conspired to drive stocks consistently higher.
At the same time, stock market valuations have risen markedly in recent weeks, with the forward price-to-earnings ratio for the S&P 500 reaching 18.8, well above historical averages. “We’re getting into thin air, so we might get a pullback, Mateyo said. “The problem is everyone is waiting for it and when everyone is waiting for it tends not to happen.”
In other U.S. economic data, the Federal Reserve reported that industrial production fell 0.3% in December. Capacity utilization fell to 77% in December, the second lowest reading in 27 months.