The S&P 500 touched a new record on Thursday, joining the Dow Jones Industrial Average in wiping out a two-month swoon amid strong profits and year-end optimism.
The S&P 500 rose 0.3% to notch a record close of 4,549.78. It also hit an intraday high of 4,551.44. The Nasdaq Composite rose 0.6% to 15,215.70. The Dow Jones Industrial Average shed 6.26 points to close at 35,603.08, dragged down by a steep decline in IBM's shares.
Tesla helped lift the S&P 500 after strong earnings from the electric vehicle maker. The S&P 500 has mounted a comeback this month as booming profit reports trumped worries about inflation and a potential end to Federal Reserve bond buying. The S&P 500 is now up 1.75% for the week and 5.62% on the month.
Liz Young, head of investment strategy at SoFi, said an end-of-year rally is possible but may require that earnings come in solidly and positively across the board.
"We're in this precipice of handing the baton from policy back to company fundamentals," she told CNBC's "Squawk Box" Thursday. "That's going to be a little bit bumpy, but it's like watching a baby try to walk. If we hold it up the whole time we're going to delay its progress, so you have to let the market fall down and know it's not going to get hurt, and have it find its own balance."
Corporate America has so far had a solid profit performance for the third quarter, even as higher costs prove to be persistent.
Tesla shares closed 3.2% higher on Thursday. Analysts raved about the electric vehicle maker's strong margins, with Morgan Stanley's Adam Jonas saying that the firm may be on the path to becoming "the world's most profitable mass auto company."
HP Inc. jumped 6.9% on strong earnings and raised guidance for 2022.
Outside of tech, American Airlines added 1.9% after it posted a profit due to federal aid for the third quarter.
Jim Paulsen of the Leuthold Group noted that correlation between the inflation rate and profit margins has been positive for the past 20 years so companies may be better off than feared as they raise prices.
"Investors are understandably concerned about reports that inflation pressures are eroding profit margins and what that may mean for the stock market," he said in a note Thursday. However, "elevated inflation appears to bolster S&P 500 EPS on the whole."
On the economic front, investors were encouraged by strong jobs data. Jobless claims fell to a new pandemic low of 290,000 last week, the Labor Department reported Thursday. That's down from the previous week by 6,000 and lower than the 300,000 estimated by economists surveyed by Dow Jones.
Despite optimism and momentum behind strong earnings, IBM reported a revenue miss late Wednesday that sent its shares tumbling 9.5%, making it a notable laggard on the Dow. Its top two business segments — global services and the Cloud & Cognitive Software business — fell short of estimates.
However, investors looked at IBM as an isolated case. Investors have been monitoring the third-quarter earnings season to assess profit growth as well as signs of cost pressures and supply-chain disruptions for the rest of the year.
"There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on," Jim Reid, head of thematic research at Deutsche Bank, said in a note.
Shares of WeWork jumped 13.4% in their trading debut on Thursday. The office start-up went public through a special purpose acquisition company more than two years after its failed IPO.