The S&P 500 rose to a record high on Tuesday — ahead of a key Federal Reserve decision — as strong corporate earnings gave investors confidence in a year-end rally.
The Dow Jones Industrial Average rose 138.79 points to 36,052.63 to close at a record. The S&P 500 added 0.3% to 4,630.65, closing at an all-time high. The tech-focused Nasdaq Composite gained 0.3% to 15,649.60. This is the third session in a row that all three major averages closed at a record.
The small cap benchmark Russell 2000 rose slightly to close at an all-time high.
"Fundamentals are probably at the epicenter of why the stock market keeps rising," said Jim Paulsen, chief investment strategist for the Leuthold Group.
"The earnings season overall is turning out to be much stronger than anticipated," he added. "While many companies are warning that supply restrictions are a problem, most have nonetheless been able to raise prices, maintain strong profit margins, and take full advantage of healthy demand with greater sales results. Fears of overwhelming profit margin erosion simply did not happen."
Pfizer shares rose 4.1% after the drug maker's third-quarter profit topped expectations. It also raised its 2021 revenue and EPS outlook.
Better-than-expected corporate earnings results boosted the U.S. stock averages to finish October at record highs, with the S&P 500 and Nasdaq posting their best months since November 2020.
As of Tuesday at the close, according to FactSet, 83% of S&P 500 companies that have reported earnings have topped analysts' earnings expectations.
Meanwhile, Tesla shares cooled off Tuesday after popping during the end of October. Shares of the electric automaker dipped 3%, though they are up more than 50% over just the past month. The drop follows a report that the carmaker is recalling 11,700 of its vehicles due to a communications error, and a Monday night tweet from company founder Elon Musk that Tesla has yet to sign a contract with rental giant Hertz.
The series of record highs comes as investors continue to bet on a year-end rally despite supply chain issues, Covid risk and a Federal Reserve that's about to indicate it's going to pull back on some stimulus. The Fed's two-day meeting begins Tuesday.
The S&P 500 has averaged gains of 1.1% in November and 2.3% in December since 1936, notes Bank of America. The final month of the year is in the green 79% of the time, the firm notes. However, Bank of America is cautious.
"We continue to see downside risks ahead," wrote Savita Subramanian, the bank's head of U.S. equity and quantitative strategy. "Despite a strong 7% beat, 2021-22 EPS remains largely unchanged, suggesting the upward revision cycle has likely peaked."
The Fed at the conclusion of its two-day meeting on Wednesday is expected to announce it will begin unwinding its $120 billion in monthly bond purchases implemented during the pandemic.
The October jobs report is on Friday.