Font size
Shares rose to new highs as the Dow and S&P 500 hit record closings. Investor confidence was boosted by economic data points.
Stocks rose to new highs on Friday as a result of two major developments, boosting investor confidence in the economy.
The
Dow Jones Industrial Average
rose 164.68 points, or 0.48%, to close at 34,200.67, and the
S&P 500
Added 15.05 points, or 0.36%, to end at 4,185.47; both indexes notched closing records. The
Nasdaq Composite
stuck at 13.58 points, or 0.10%, to close at 14,052.34. The biggest asset in the S&P 500 was the chemical company
PPG Industries
(ticker: PPG), which saw stocks rise 8.9% on strong gains.
Pfizer
(PFE) CEO Albert Bourla said patients who are fully vaccinated will likely require annual booster shots to protect against new strains of Covid-19. He compared the virus and the required flu injections. This hint of confidence in Pfizer’s ability to protect people from the virus gives investors confidence that the virus can be kept at bay, reopenings can remain intact, and the trajectory of the economy will continue on the upward path. The Pfizer share increased by 2.5%.
Another positive point: China’s gross domestic product growth was 18.3% in the first quarter of the year, its fastest on record, although it missed the 19.2% estimates. Yet the latest figure reflects an economy that is recovering more than sharply. That bodes well for global economic growth in general, but it can also be interpreted as an encouraging signal about US economic demand as the US imports from China in large quantities.
The internal movements of the stock market confirmed the optimism; value stocks – representing mature companies in their early earnings numbers – were the top performers. The
Vanguard S&P 500 Value
ETF (VOOV) rose 0.6%, beating it
growth counterpart
(VOOG), which rose 0.2%. Growth companies, betting on a longer timeframe for full profitability, are less sensitive to the perceived condition in the current economy.
Value’s outperformance on Friday was also helped by a rebounding 10-year government bond yield. Higher long-term returns, which erode the value of future cash flows, put current valuations of growth companies under great pressure.
“Yesterday’s 10-year revenue decline isn’t sustainable,” Tom Essaye, founder of Sevens Report Research, wrote in a note on Friday.
Yield fell to 1.55% on Thursday after hitting 1.74% in mid-March, but it’s no surprise to see a rebound on Friday to 1.58%; returns are still below expected long-term inflation and historically often above inflation.
We’ll see if the optimism continues from weekend to Monday.
Write to Jacob Sonenshine at [email protected]