S&P 500 has best week since 2013

by 

 

Tom Huddleston, Jr.

The stock market proved more or less immune to Ebola on Friday, as the three major U.S. indices rose sharply in what was one of the market’s strongest weeks this year.

The Dow Jones Industrial Average gained almost 128 points, or 0.8%, on Friday to close at 16,805, finishing the week up by 2.6%. The S&P 500 improved by 0.7%, to 1,965, and was up by 4.1% for the week in what was the index’s best weekly showings since last year.

Meanwhile, the Nasdaq composite also gained 0.7% Friday, or 5.3% for the week, closing at 4,484. The big gains came despite the tech-heavy index suffering from an 8% drop by Amazon  AMZN -8.34%  after the online retail giant reported disappointing third-quarter earnings Thursday afternoon.

The strong week follows on the heels of more than a month of volatility during which the markets dropped sharply. Earlier this month, a massive market-wide sell-off briefly turned the Dow Jones negative for the year as investors grew concerned about global economic growth and potential interest rate hikes by U.S. Federal Reserve.

Friday’s gains come one day after the market opened higherthanks to a handful of strong earnings reports from 3M  MMM 2.44% , Caterpillar  CAT 0.17% , General Motors  GM -2.88% , and Under Armour  UA -0.14% . Investors were also encouraged by a dip in jobless claimsand news from Europe about a spike in German manufacturing and a drop in Spain’s unemployment.

However, Thursday’s gains – which had seen the Dow Jones spike by more than 300 points early on – tailed off a bit at the end of the day after news broke that a doctor in New York City had tested positive for Ebola. The Dow closed Thursday up by 217 points while the Nasdaq and S&P 500 added gains of 2% and 1%, respectively, but there was some concern that fears of a more widespread Ebola outbreak would put a damper on the market on Friday.

Fortunately, Ebola concerns subsided enough to allow for another positive day to close out the week. SodaStream International  SODA 15.38%  was one of Friday’s biggest winners as the carbonated beverage company’s shares jumped more than 15% on a report that it is testing PepsiCo  PEP 0.90%  products.

What will make stocks go even higher?

Stocks hit fresh records last week and the S&P 500 is up nearly 9% this year.

The bull market just keeps going higher and higher.

Stocks hit fresh records last week after the Federal Reserve soothed investors' concerns by indicating that it's probably not going to raise interest rates anytime soon.

With the S&P 500 up nearly 9% this year, traders warning of a market pullback seem wrong, at least for now.

Related: Most loved and hated stocks right now

Here's what needs to happen for stocks to climb even higher:

1. A 'not too hot, not too cold' economy: For stocks to keep going up, the Fed has to cooperate and not hike interest rates before investors expect it to, which right now is the summer of 2015.

The Fed is likely to play along if the economy continues moving at a "not too hot, not too cold" rate, according to Jim Russell, Senior Equities Strategist for U.S. Bank Wealth Management..

"The economic numbers are really coming in right on script," he said.

In Russell's mind, if the economy started to look too weak, investors would start to fret about the prospects for the recovery. On the other hand, if it was looking incredibly robust, there could be some concern that the Fed would need to hike interest rates earlier than most strategists are currently forecasting.

Related: More US families own cats than stocks

2. Real earnings growth: In addition to the Fed, earnings have been the mother's milk of the bull market. Companies are growing their bottom lines, but most of the healthy profits of the past few years have come largely through cost-cutting.

As the overall economic picture gets better, stocks could see a real boost if companies can show that they're actually growing revenue because people are buying more things.

"If the economy continues to improve, I want to see organic top line growth from corporate America," said Robert Landry, a money manager with USAA investments in San Antonio, Texas.

 

Rich get richer in bull market

3. Geopolitical stability: Geopolitical risk has been responsible for various market shocks this year, but they have all been short-lived. That trend should continue as long as the these situations don't spin out of control.

The current crises may sound nerve wrecking with the United States getting ready for an extended campaign against ISIS and turmoil between Russia and the West over Ukraine still tense even after the cease-fire. But Landry claims that most times these things blow over quickly as far as the markets are concerned.

"Sometimes there's pretty negative reactions to these events when they occur, but the most typical reaction is that markets tend to rebound fairly quickly," he said.

Related: Why investors remain unfazed by ISIS

What could trigger a market descent? Of course, market drops are never easy to predict, and there are plenty of things that could cause stocks to reverse course.

For one, stock valuations are pretty steep. The S&P 500 is trading at 15.6 times next year's earnings compared to its 10-year price to earnings ratio average of 14.1.

And there's some worry that economic woes in Europe could curtail corporate profits. Russell noted that the market should get a better of idea of what effect Europe is having on business fortunes when companies start to release pre-earnings announcements in the coming weeks.

At the same time, even if stocks were to take a breather, that wouldn't necessarily be a bad thing, according to Landry.

"Pullbacks tend to be healthy, especially when you have some outsize gains within a short period of time," he said. 

S&P 500 tops 1,900 for first time

By Matt Egan  @mattmegan5 

Don't blink -- or you might miss another record.

Wall Street barreled toward its third consecutive record session on Tuesday, highlighted by the S&P 500 climbing above the 1,900 level for the first time ever.

The Dow Jones industrial average and the S&P 500both hit new records this morning, although they have since retreated from their earlier peaks. The Nasdaq is bouncing between small gains and losses.

The S&P 500 has achieved recent milestones at a very fast pace.

After first crossing over the 1,500 line in March 2000, it took the S&P 500 13 years to eclipse the 1,600 mark, according to S&P Dow Jones Indices. But the broad index then logged the next four round number milestones all in the past year.

Related: CNNMoney's Fear & Greed Index back to neutral

The Dow and S&P are still up for the day, although early enthusiasm in the market was muted a bit by an economic report that showed consumer spending slowed in April. Despite warmer weather in the spring, consumers didn't open up their wallets as much as Wall Street hoped. U.S. retail sales inched up just 0.1% last month, trailing forecasts for a 0.4% rise.

In response to the disappointing data, consumer discretionary stocks were among the weakest performers on Tuesday.

Investors shed exposure to a number of retail stocks, including Dollar Tree (DLTR,Fortune 500), Target (TGT, Fortune 500) and Kohl's (KSS, Fortune 500). Earnings reports from J.C. Penney (JCP, Fortune 500) and Nordstrom (JWN, Fortune 500)are due out later this week.

Related: Caution! Avoid J.C. Penney stock

The government also said electronics and appliance store sales slid 2.3% last month, driving shares of Whirlpool (WHR, Fortune 500) almost 3% into the red.

Investors continue to see many power plays at the stock level. They guzzled down shares of Keurig Green Mountain (GMCR), which soared 10% after Coca-Cola (KO,Fortune 500) announced plans to boost its stake in the company to 16%. The move represents a vote of confidence from the world's largest beverage maker and follows an initial 10% stake acquired in February.

StockTwits user KidDynamiteBlog said: "if $KO wanted to buy $GMCR couldn't they have done it cheaper by bidding all at once? ie - they're running up their own eventual cost?"

Related: Fear & Greed Index

Elizabeth Arden (RDEN) plummeted 16% after disclosing a 20% sales tumble and a surprise loss amid weak store traffic. The cosmetics company also tapped Goldman Sachs to explore a possible sale or other options.

Shares of DirecTV (DTV, Fortune 500)ticked higher on reports that AT&T (T,Fortune 500) could quickly clinch a $50 billion bid to buy the satellite TV company. Rival Dish Network (DISH, Fortune 500) was among the worst performers in the Nasdaq 100, losing about 1%.

 

A DISH left out in the cold?

Other Nasdaq stocks struggling include Vodafone (VOD) and TripAdvisor (TRIP).

Mergers and acquisitions continue to drive a lot of the upbeat mood on Wall Street.Valeant Pharmaceuticals (VRX) signaled plans to raise its $46 billion offer to acquireAllergan (AGN, Fortune 500), which the Botox maker formally rejected on Monday.

Investors will also be focusing on developments in the pharmaceutical industry. The American drug maker Pfizer (PFE, Fortune 500) wants to buy Britain's AstraZeneca(AZN) and both CEOs will appear before a U.K. parliamentary committee to answer questions about the potential takeover.

Otherwise, the earnings front was largely quiet, but Fossil (FOSL) and Take-Two Interactive (TTWO) are on tap to report results after the closing bell.

Related: CNNMoney's Tech30

European markets ended mostly higher after reports that Germany's central bank supports additional stimulus measures from the European Central Bank. Germany's Daxindex advanced 0.5%.

In Asia, India's benchmark Mumbai Sensex index surged to a record high Tuesday after election exit polls indicated that voters will deliver a mandate to Narendra Modi and the pro-business Bharatiya Janata Party.

Most other regional markets ended with gains. The Nikkei in Japan jumped by 2%.