Last Friday, the much better than expected labor report triggered a strong buying action for the stock market. This effect continued to this Monday where we saw a historical high index. The S&P 500 climbed 0.5% to 2141.02 early Monday, exceeding its intraday record of 2134.72 hit in May 2015. The Dow Jones Industrial Average rose 106 points, or 0.59% to 18252. The gains left the S&P 500 on pace to close at a record, with the Dow Industrials within 1 percentage point of the blue chip index’s record close of 18312.39.
Some investors and analysts said the rally highlights the appeal of U.S. equities at a time when the global economy faces an uncertain future in the wake of the U.K. vote to leave the European Union. At the same time, central banks are continuing extraordinary efforts to promote growth and inflation that have helped send government bond yields to historic lows.
While the market obtained a terrific performance, huge capital are flowing into gold and government bonds which are considered as a safer place for the capital.
Yet despite two sharp selloffs this year alone, the S&P 500 has kept recovering, with investors retreating into stocks known for relative stability, such as utilities. Analysts and money managers said there are few alternatives to stocks, with government bond yields at historic lows, propelled by central bank bond buying and easy money policies.
Technology stocks led Monday’s gains, which some analysts said was an encouraging sign of investors’ increased willingness to embrace risk. Technology shares in the S&P 500 rose 0.8%, while the tech-heavy Nasdaq Composite Index was up 0.8%.
That is a reversal from recent weeks, when analysts noted that the 2016 rise in utilities and telecommunication stocks, considered bond proxies because they pay high dividends, hasn’t been matched by strength in technology or consumer discretionary shares, where investors typically turn when they expect growth. Gold, traditionally a haven in times of fear, is up roughly 28% in 2016.
That risk aversion, along with persistent demand for government debt, underscores the continuing concerns that continue to work against the index’s climb. Those include persistent wariness about the pace of U.S. growth, stocks that are more expensive than usual and multiple quarters of weak corporate earnings.
Analysts and investors said maintaining these heights will require signs of improvement in earnings, with companies including Alcoa, BlackRock, J.P. Morgan and Wells Fargo scheduled to report this week.
As of June 30, analysts expected corporate profits to fall 5.3% in the second quarter compared with the prior year, a fifth consecutive quarter of contraction, FactSet data show.
Several analysts said they expect earnings to improve later in the year, lifted by the stabilization in energy prices, job growth and a weaker dollar that could help exporters’ profits.
“Earnings are going to decide it,” said Tom Carter, managing director at JonesTrading. “That is the next big mountain we’re looking at.”
U.S. crude oil fell 0.6% at $45.15 a barrel Monday.
Shares in Asia and Europe also rose after Japanese Prime Minister Shinzo Abe’s ruling coalition won more seats in the upper house, making it easier for policy makers to approve a bigger fiscal stimulus package. Labor policy or structural reforms could lift the region’s stock prices, analysts said.
The Nikkei Stock Average added 4%, its biggest one-day gain since March. The dollar jumped 2.1% against the yen to ¥102.6450, according to FactSet, bolstered by Friday’s U.S. jobs report. Shares in Australia rose 2% and stocks in Hong Kong added 1.5%.
The Stoxx Europe 600 rose 1.6% and the FTSE 100 was up 1.3%, on track to close in bull market territory. The export-oriented large cap index has profiting from steep declines in the British currency even as the more domestically-oriented FTSE 250 remains down around 4% since the U.K. referendum.