US Markets

S&P closes at record high, stocks hit 4 straight weeks of gains

Sechan on the markets: Sit tight
Sechan on the markets: Sit tight

U.S. stocks closed higher for the fourth straight week Friday, with the S&P hitting a new record high as investors waded through mixed earnings and an upbeat U.S. manufacturing report.

The Dow Jones industrial average closed about a quarter of a percent higher as IBM added the most gains and Apple had the biggest negative dollar-impact. The blue-chip index notched its tenth positive day in 11.

The S&P closed at a new record level, with utilities leading all ten sectors in the green. The Nasdaq composite ended the day about a half of a percent higher.

"Earnings are painting a pretty good picture of where the economy is," said JJ Kinahan, chief market strategist TD Ameritrade. "What we saw from Microsoft and IBM gives us a sense that things in the U.S. are going well."

Despite beating Wall Street consensus estimates, General Electric was the biggest laggard on the Dow after reporting a 2 percent drop in orders for the second quarter.

GE, often looked at as a bellwether for the overall economy, posted earnings five cents a share above estimates and revenue was up 15 percent from a year ago, the company said in a statement. Earnings were helped by its aviation, health care and power businesses, GE said, but the current business environment is being affected by a "volatile and slow growth economy."

"They did say they have some problems going forward, that's not what people wanted to hear necessarily," Kinahan said.

American Airlines was among the biggest gainers on the S&P, leading transports higher after meeting second-quarter estimates. Honeywell, Stanley Black & Decker, and Whirlpool also topped estimates, while Starbucks, Chipotle, and Skechers were among the misses.

Of the S&P 500 companies reporting as of Thursday, roughly 65 percent beat estimates, according to Thomson Reuters.

"Earnings are coming in better than people expected," said Peter Cardillo, chief market economist at First Standard Financial. "But it's the no-alternative factor that continues to aid equities domestically."

Investors are searching for an alternative, pouring into U.S. stocks as global interest rates hover at record lows, Cardillo said. The threat of European economic contraction and continued monetary easing has also upped the appeal for U.S. equities.

Data out of the United Kingdom Friday showed a significant slowdown in the services sector.

The services and manufacturing composite index in the U.K. fell to its weakest level since early 2009, to 47.7 from 52.4 in June. The PMI decline adds to expectations that the Bank of England will up stimulus when policymakers meet next month.

The British pound fell to $1.31 against the dollar after the release.

But data was slightly more positive out of the eurozone.

The preliminary reading of manufacturing and services activity showed business activity in the eurozone fell less than expected in July. Eurozone PMI rose to 52.9 in July, above expectations of 52.5 according to analysts polled by Reuters.

Friday's eurozone data and recent U.S. data are lifting investor sentiment and U.S. markets, said Art Hogan, chief market strategist at Wunderlich Securities.

"To me the macro picture is improving here and in Europe," Hogan said, adding that low global yields helped this week's rally. "That whole conception that Brexit's going to happen and we have to go into recession is disappearing."

U.S. manufacturing in July hit its best level since October, according to data provider Markit. The purchasing manager's flash index compiled by Markit rose to 52.9 from 51.3.

"July saw manufacturers battle against a strong dollar, the ongoing energy sector downturn and political uncertainty ahead of the presidential election, yet still achieved the best growth seen since last year," said Chris Williamson, chief economist at Markit.

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The expectations of a rate hike from the Federal Reserve have increased on the back of strong U.S. data, including recent jobless claims. The Federal Open Market Committee meets next week, and recent Fed funds futures rates showed an uptick in investors' rate hike expectations, according to the CME Group's FedWatch tool.

"We're back to a coin toss for the Fed," said David Rosenberg, chief economist and strategist at Gluskin Sheff. "The markets are priced almost 50-50."

Rosenberg pointed to some evidence in S&P sectors.

"You've seen this move out of sectors like utilities and telecom, and a move into into areas that would benefit from an interest rate hike, like financials and the tech space," he said.

Financials was one of the worst performing sectors of the year, but is trending positive for the week and up nearly 3.5 percent month to date after the increased expectations and strong bank earnings.

Morgan Stanley joined Goldman Sachs, Citigroup, JPMorgan Chase, and Bank of America on the list of U.S. financial institutions topping second-quarter profit forecasts this week.

The pan-European STOXX 600 index closed a quarter of a point lower Friday after European data. Sectors were mostly negative but telecoms posted solid gains. London's FTSE closed down 0.43 percent and France's CAC ended the day down 0.11 percent. Meanwhile, Germany's DAX fluctuated, ending down 0.09 percent.

In Asia, Japan's Nikkei closed 1.09 percent lower on Friday and China's Shanghai Composite closed 0.87 percent lower.

The dollar was stronger against a basket of currencies. The euro traded at $1.10 while the yen traded at 106.12 yen.

Oil markets were lower after the number of rigs operating in the U.S. rose for a fourth consecutive week to 371, according to Baker Hughes. U.S. WTI crude futures settled down 56 cents, or 1.25 percent, at $44.19 a barrel. Brent crude was down 45 cents, or 0.97 percent, at $45.75 after hitting its lowest level since May 11.

Yields on U.S. sovereign bonds were mixed Friday The 10-year note rose, yielding 1.57 percent and the U.S. 30-yield fell with a 2.28 percent yield.

U.S. gold slipped about $8 to $1,323 an ounce.

Major U.S. Indexes

The Dow Jones Industrial Average closed up 0.29 percent to 18,750.85. Visa led gainers on the blue-chip index and General Electric was the biggest laggard.

The S&P 500 ended the day 0.46 percent higher for a new record close of 2,175.03. This was the index's fourth consecutive weekly gain for the first time since its 5-week winning streak in March. Utilities and telecoms led all ten sectors in the green. Industrials was the biggest laggard, brought down by GE.

The Nasdaq ended more than half a percent higher at 5,100.16 and hit a new intraday high. The index also notched its first weekly gain for the first time since March.

Russell 2000 small-caps ended the day up 0.75 percent.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, hit a low of 11.4 this week, its lowest level since last summer.

Advancers led decliners on the New York Stock Exchange, with an exchange volume of 741.05 million and a composite volume of 2.99 billion. This was one of the lowest volume days of the year, with 5.62 billion shares traded so far.