Nasdaq rises to record close as Wall Street bets on strong earnings season

  • Corporate earnings for the S&P 500 have been strong in the previous three quarters.
  • Wall Street's betting on further strength in earnings growth.

U.S. stocks reached record highs on Friday as investors bet on another strong earnings season.

The Nasdaq composite advanced 0.2 percent to 6,605.80 and notched intraday and closing records.

The S&P 500 finished 0.1 percent at 2,553.17 and hit an all-time intraday high, with information technology and materials leading advancers.

The Dow Jones industrial average closed 30.71 points higher at 22,871.72. The 30-stock index also hit an intraday record.

Bank of America jumped 1.5 percent on better-than-expected earnings. Netflix added 1.9 percent, crossing above $200 for the first time to an all-time high as investors bought the stock ahead of its earnings next week.

The three major indexes posted slight weekly gains. The S&P 500 and the Dow recorded their fifth consecutive weekly gains, while the Nasdaq has completed three.

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"People are generally expecting a strong earnings season," said Tom Martin, senior portfolio manager at Globalt. He also said investors were worried about the market slipping as earnings season moved forward.

Earnings season has gotten off to a good start, with 87 percent of the companies that have reported topping bottom-line expectations, according to Nick Raich, CEO of The Earnings Scout.

A trader works on the floor of the New York Stock Exchange (NYSE).
Lucas Jackson | Reuters
A trader works on the floor of the New York Stock Exchange (NYSE).

"The good news is the number of companies currently beating estimates, and the margin by which they are doing so, is running at a clip well above what these same 31 companies have recorded, on average, over the past three years," Raich said in a note to clients.

"The bad news is the rate of 3Q 2017 vs. 3Q 2016 earnings and sales growth has slowed from last quarter, and as more companies report the growth rates will drop more," he said.

Corporate earnings for the S&P 500 grew by 6.1 percent, 15.5 percent and 10.8 percent in the fourth quarter of last year and the first and second quarters of 2017, respectively.

"We've had three good quarters in a row for earnings, if you go back to the fourth quarter of 2016," said Ernie Cecilia, CIO at Bryn Mawr Trust. "Last quarter, we also saw an improvement in revenue growth as it moved ahead of its long-term trend, which is a positive."

Earnings are expected to grow by 4 percent for the third quarter, according to S&P Capital IQ.

Bank of America reported earnings and revenue that topped expectations, despite a sharp decline in fixed income trading revenue. JPMorgan Chase and Citigroup also posted stronger-than-expected quarterly results on Thursday.

Streaming giant Netflix is set to report its quarterly results Monday after the bell and Goldman Sachs is betting on a strong report.

Analysts at Goldman raised their price target on Netflix shares to $235 from $200 a share, noting: "We believe consensus subscriber estimates for Netflix ahead of Monday's earnings remain too low, particularly for the quarter, 4Q, and beyond."

Wall Street also digested lighter-than-expected economic data in the form of inflation and retail sales numbers. The consumer price index rose 0.6 percent last month, below the expected gain of 0.7 percent. Retail sales, meanwhile, gained 1.6 percent, while analysts polled by Reuters expected a gain of 1.7 percent.

Treasury yields fell on the news, with the benchmark 10-year yield trading at 2.28 percent.

Correction: A previous version of this story stated the Dow Jones industrial average posted a record close.