By Sue Chang and Ryan Vlastelica
The Dow reclaimed the 25,000 mark Thursday after more than a week of volatile trading as U.S. stocks were poised for their fifth straight daily advance.
Wall Street opened solidly higher but subsequently lost ground before recouping losses, supported by latest data on inflation and the labor market, which pointed to an economy that was growing but in no imminent danger of overheating. Strong results at Cisco also underlined how American corporations continue to fare well in the current environment.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, +1.06% rose 218 points, or 0.9%, to 25,111. The S&P 500 SPX, +1.07% added 22 points, or 0.8%, to 2,721. The Nasdaq Composite Index COMP, +1.46% gained 87 points, or 1.2%, to 7,231.
So far this week, the Dow and the S&P are both up more than 3% and on track for their biggest weekly percentage rise since November 2016. The Nasdaq is up over 5%, which represents its best week since October 2014.
Those gains come after sharp losses seen earlier this month, which pushed the Dow and S&P into correction territory, or a 10% drop from a peak. The three gauges stand between 4% and 6% below last month’s all-time highs. The selloff was sparked in part by rising bond yields amid signs of an uptick in inflation, with the higher yields luring money out of equities. Strategists have said the selloff was overdue, but it became overdone.
What are strategists saying?
“This is a year of recalibration. In January we recalibrated to higher earnings, and now we’re doing it for higher bond yields, which have been led by potentially higher inflation,” said Leo Grohowski, chief investment officer of BNY Mellon Wealth Management. “Market participants are correctly focusing on inflation, because a rise in inflation can preface an economic slowdown, or an increase in interest rates that could lead to one.”
Grohowski remains optimistic about the market, noting that his firm’s year-end target for the S&P 500 was 2,850. However, he expects the recent volatility to persist as investors struggle between the prospect of higher rates on one hand, and strong fundamentals on the other.
“This tug of war will be with us for the year, but I think the market is becoming more comfortable with the idea that a little bit of inflation will be OK,” said Grohowski, who helps oversee $238 billion in total client assets.
”Volatility could remain a staple of the markets in 2018, but there is no need to panic. Non-recessionary market pullbacks tend to be relatively short-lived, while major one-day market selloffs, historically, are typically followed by better-than average returns,” Joe Quinlan, head of thematic strategy at Bank of America Global Wealth and Investment Management, said in a note to investors.
Quinlan shared the following chart which shows how market declines tend to be short-lived when the economy is not in a recession.
Market peaks from 1945-2017
Bank of America Global Wealth and Investment Management
What could help drive markets?
In the latest economic data, initial jobless claims rose by 7,000 to 230,000 in the latest week, as had been expected, but claims remain near multidecade lows. Separately, wholesale prices rose 0.4% in January, led by a rise in oil prices, though core producer prices were also up by 0.4%. The figure was the latest view on inflation, following Wednesday’s consumer-price index.
Two gauges of manufacturing sentiment underscored solid growth in February. The Philadelphia Fed manufacturing index rose to a reading of 25.8 in February from 22.2 in January. Economists had expected a slight retreat to 21. The Empire State Index, meanwhile slowed to a reading of 13.1 in February from 17.7 in January, the New York Fed said. While the Empire State index was well above the level indicating improving conditions, this was a weaker reading than had been anticipated, and it represented the fourth straight monthly rise.
Mortgage rates have climbed to the highest level in close to four years, according to data released Thursday.
What are other assets doing?
European stocks SXXP, +0.53% closed in positive territory across the board, while Asian markets were sharply higher, though volumes in much of the region were capped with some Asian markets closed for Lunar New Year holiday.