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Stocks close above 1,700 for first time ever

4:19 PM, Aug 1, 2013   |    comments
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By Adam Shell, USA TODAY

Stocks kicked off August on a bullish note Thursday, with major indexes breaking closing records and the Standard & Poor's 500 index crossing the 1,700 milestone for the first time ever.

Key U.S. indexes broke closing records on the first trading day of the new month, following a very bullish July in which the S&P 500 gained nearly 5%.

Investors were encouraged by the Department of Labor's weekly jobless claims report. Initial claims for unemployment insurance fell to their lowest point since 2008. And new economic data out of China was somewhat encouraging, boosting global markets overnight. A better-than-expected reading on U.S. manufacturing in July released at 10:00 a.m. ET, was also an upside surprise.

The Dow Jones industrial average jumped 128.48 points, or 0.8%, to 15,628.02. The Standard & Poor's 500 added 21.14 points, up 1.3%, to 1,706.87, and the Nasdaq composite index gained 49.37 points, up 1.4%, closing at 3,675.74.

Investors are in a buying mood a day after the Federal Reserve kept its "easy money" policies steady. Boosting investor sentiment: Thursday's jobless claims figures, which dipped by 19,000 to 326,000, and a slight improvement in a Chinese manufacturing gauge last month.

The S&P 500's benchmark high comes just 90 days after the index hit 1,600, making it its third-fastest 100-point climb ever, according to S&P Dow Jones Indices. The fastest advance came in March 1998 when it rallied from 1,000 to 1,100 in 50 days.

How high the S&P 500 can climb is anyone's guess. But seven of the 17 strategists tracked by Bloomberg have year-end price targets of 1700 or higher. Tony Dwyer of Canaccord has the highest target of 1760.

The S&P 500's rapid rise to 1,700 "speaks to the market's momentum," says Chris Bouffard, chief investment officer at The Mutual Fund Store, and investment advisory firm.

Bouffard says the rally is a sign that money is finally flowing back into the stock market after years in which investors preferred the perceived safety of bonds and cash. The first day of the month is always a big day for inflows, he says, as automatic deposits to IRAs and 401(k) plans kick in.

"The rally is a testament to how many people have been caught out of the market and are trying to get back in," Bouffard says, adding that he always gets "a little leery when the market rises that fast."

Despite the recent strength, he stresses that the market has not had a sizable drop of 10% or more since late 2011 and is heading into a seasonally weak period of the year. The Dow, according to Bespoke Investment Group, has posted flat gains on average in August over the past 50 years. And September is the only month that has posted average losses over the past 100, 50 and 20 years.

Looking at the bigger picture, Bouffard says investors are getting more comfortable with the idea of the Fed pulling back on its stimulus and gaining confidence in the economy's slow but steady recovery.

Thursday's strong economic data pushed bond prices down, which caused the yield on the 10-year Treasury note to climb to 2.72% from 2.59% Wednesday.

Wall Street is coming off a very bullish July. The Dow charged ahead 4% and the S&P 500 gained 5%. The tech-heavy Nasdaq composite rose 6.6% and the small-company Russell 2000 index soared 6.9%.

On Wednesday, the Dow slipped 0.1% to 15,499.54. The S&P 500 index dropped marginally to 1,685.73. The Nasdaq composite index rose 0.3% to 3,626.37.

Regional markets across Europe moved higher Thursday. The German DAX added 1.3%, the French CAC 40 was up 0.6% and Britain's FTSE 100 rose 0.3%.

In China, a government report released Thursday on the manufacturing sector showed a gain of 50.3 last month from June's 50.1.

Japan's Nikkei 225 index gained 2.5% to 14, 005.77. Electronic giant Sony's earnings swung back into profit for the quarter, boosted by a weak yen.

Benchmark crude for August delivery was up $2.72 to $107.75 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.95 to close at $105.03 a barrel on the Nymex on Wednesday.

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