S&P 500 Hits Record High
Kurt Brouwer October 5th, 2007
Now that the pressure on stocks has eased a bit due to lower interest rates and the fading of the subprime lending crisis, stock prices are moving up. In fact, the S&P 500 closed at a record high today. Joanna Ossinger at the Wall Street Journal reports [subscription may be required--emphasis added]:
‘The S&P 500 gained 14.75 to 1557.59, above its record close of 1553.09 set on July 19. It also surpassed its old intraday record of 1555.90, set July 16. The Dow Jones Industrial Average rose 91.70 to 14066.01, ending below its record of 14087.55, hit Monday. However, it was trading above that level much of the day, and set a new intraday record of 14124.54. The Nasdaq Composite Index gained 46.75, or 1.7%, to 2780.32, a level it hasn’t achieved since Feb. 1, 2001.
“The fuel behind the rally is all this morning’s employment report,” said Larry Peruzzi, equity trader at Boston Company Asset Management. “This is a relief rally” that the economy may not be in as bad shape as people had thought, “and there may be some short covering as well.”
The Labor Department said Friday that September nonfarm payrolls climbed 110,000, better than expected but generally in line with estimates. However, there was a positive surprise, too — the revision of August payrolls to an 89,000 rise from a previous estimate of a 4,000 decline.
The encouraging data provided further evidence that, while the economy may slow due to the housing crunch, it appears likely to skirt outright recession. It also led investors to rein in hopes for further aggressive easing by the Federal Reserve. Trading in fed-funds futures showed reduced expectations for a cut at the Fed’s Oct. 30-31 meeting, though activity also indicated that investors remain convinced the central bank will lower the fed-funds rate by another quarter percentage point by the end of the year.
The unexpectedly poor jobs report last month caused stocks to tumble, and may have spurred the Fed to slash rates by a bigger-than-expected half-percentage point in mid-September. After stocks hit record highs in mid-July amid a wave of deals and liquidity, the housing sector spiraled downward and credit markets froze in a general pullback from risk. The August jobs report, which arrived in early September when markets were still extremely fragile, seemed to indicate that the credit crunch was pushing the broader economy toward recession. Now, it looks as though the hand-wringing about those data may have been unnecessary.
The revisions to the August data “have everybody’s attention. Maybe the economy is in better shape than everyone thought it was,” said William Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons. “People are really rethinking Fed policy, and bonds are selling off because of the idea that the Fed may not be as aggressive at cutting rates again.”
Treasury yields, which move inversely to prices, jumped strongly. The 10-year yield was around 4.64%, and the 30-year yield neared 4.86%. However, stocks — which usually suffer when odds of Fed rate cuts decrease — didn’t appear to be feeling many negative effects from lowered rate-cut expectations on Friday.
One area of concern in the report was wage growth, which was up 4.1% year over year, the highest annual gain since February. Especially after the Fed’s half-point cut, and with oil and other commodities prices at high levels, some analysts have expressed concern about inflation.
However, right now those worries seem to be taking a back seat to renewed enthusiasm about the health of the economy and the credit markets. The move back into record territory seems to indicate that Wall Street thinks the worst is past from the credit crunch, and may be looking for new upward momentum.
“The market is relatively happy that the economy continues to grow, and there are a lot of people who don’t want to be on the sidelines if the market is going to move higher,” said Joe Keating, chief investment officer at First American Asset Management…’
No doubt there are plenty of troubles ahead for our economy and the financial markets, but the resilience of both the economy and the stock market this year has been amazing.