By Joe Wallace and Paul Vigna
U.S. stocks inched ahead to fresh records amid another volley of
blue-chip earnings and more signs of economic growth.
The Dow Jones Industrial Average rose 0.5% to 34202, its third
straight day of gains a day after it hit 34000 for the first time
Thursday. The S&P 500 rose 0.4% after posting its 22nd all-time
closing high of 2021. The Nasdaq Composite rose 0.1%, but remained
shy of its closing record set in February.
All three indexes ended the week with gains of more than 1%.
The long, steady rise for U.S. equities this year is itself a
sign that the march can continue, said LPL Financial strategist
Ryan Detrick. Since 1950, when the S&P 500 was up between 5%
and 10% in the first quarter, it was up for the next three quarters
nearly 90% of the time, he said, with the average gain about 12%.
The index gained 5.8% in the first quarter.
"Think about it, we don't want things to get too hot," he said.
The current trajectory "tends to suggest the market will continue
to have an upward bias."
A strong start to earnings season from banks and other financial
companies has combined with data showing the economy is growing at
a rapid clip to propel stocks higher this week. Adding to the
momentum: A drop in yields on U.S. government bonds that has
surprised some investors in its size and speed.
Shares of Morgan Stanley fell 3.7% even after the investment
bank said profit more than doubled in the first quarter, becoming
the latest Wall Street firm to report a blowout start to the year.
Citizens Financial Group, Bank of New York Mellon, PNC Financial
Services Group and custodian and fund manager State Street also
posted quarterly results.
Data out Friday showing the Chinese economy grew at a record
rate of 18.3% in the first quarter will add to optimism about the
U.S.'s economic prospects, said Remi Olu-Pitan, multiasset fund
manager at U.K. investment firm Schroders.
"Maybe we should notch up our expectations a bit in the U.S. and
even in Europe," she said.
Asian indexes rose on the back of the data. China's Shanghai
Composite Index climbed 0.8%, and Japan's Nikkei 225 edged up
0.1%.
While the S&P 500 rose in eight of the past 11 sessions
heading into Friday, that masks some of the weakness under the
surface, said Frank Cappelleri, the executive director at brokerage
Instinet. Tech stocks have lost ground and some of the more
speculative trades that drove the market earlier have also
faltered.
"The thing the market has been able to do is put on blinders to
underperforming areas and let the leaders dictate," he said.
One sign of flagging demand has come in the market for new
issues. Shares of Coinbase Global rose 31% in their first day of
trading on Wednesday, but that was marked against their reference
price. The stock is down from its opening trading price of $381,
trading Friday around $338. On Thursday, shares of AppLovin fell
19% and TuSimple fell 4% on their first day of trading.
Meanwhile, comments from the Securities and Exchange Commission
concerning one of the hottest bets on Wall Street, special-purpose
acquisition companies, has resulted in a slowdown in new SPAC
issues and lower prices.
Investors being so sanguine also suggests that they may not be
accurately pricing in market risk, said Jason Brady, the president
and chief executive of Thornburg Investment Management.
Stocks ran up ahead of an economic recovery in anticipation of
it, he said. Now that it is seemingly here, stocks are still
rising. That could leave investors vulnerable to not just bad news,
but even a lack of good news, he said. Rising bond yields. any
pandemic-related setbacks, labor shortages or even disappointing
economic growth isn't priced in right now, he said.
"Obviously, it's been a great ride, but it's going to be a rocky
ride," Mr. Brady said.
Among other movers in the U.S., PPG Industries rose 9% after the
paint manufacturer said improving industrial demand would boost
profits in the current quarter. DraftKings shares climbed 1.6%
after it was named an official sports betting partner of the
NFL.
J.B. Hunt Transport Services, considered a transportation
bellwether, gained 1.3% on higher profits and revenue for the first
quarter. Meantime, Alcoa said it expected strong results in the
second quarter, lifting the aluminum maker's shares 8.3%.
Overseas, the Stoxx Europe 600 rose 0.9%, led by shares of banks
and makers of cars and car parts. Daimler gained 2.7% after the
German auto maker said sales of Mercedes-Benz cars would push
first-quarter results above analysts' forecasts.
The yield on 10-year Treasury notes rose to 1.568%, up from
1.531% Thursday but was still down from 1.664% at the end of last
week. Yields move in the opposite direction to bond prices. Rising
yields injected volatility into the stock market in the first
quarter by knocking shares of large technology companies.
Daniel Morris, chief market strategist at BNP Paribas Asset
Management, said falling yields call into question some aspects of
the "reflation trade," in which investors bought stocks that stood
to gain from a burst of inflation and economic activity.
Yields have fallen because the Federal Reserve has started to
convince investors that it won't bump up interest rates to ward off
higher inflation, Mr. Morris said. "The Fed's been messaging this
for a while but the market finally seems to be believing it."
Other investors, such as Ms. Olu-Pitan, say yields have fallen
because overseas money managers, especially in Japan, have made
large purchases of U.S. government debt.
Write to Joe Wallace at Joe.Wallace@wsj.com and Paul Vigna at
paul.vigna@wsj.com
(END) Dow Jones Newswires
April 16, 2021 16:19 ET (20:19 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.