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Record-breaking day on Wall Street as Dow Jones reaches new heights

Published 12/07/2016

Records were broken on Wall Street
Records were broken on Wall Street

The US stock market reached another milestone on Tuesday as the Dow Jones industrial average closed at a record high.

A day earlier, the broader Standard & Poor's 500, a widely used benchmark for index funds, also reached a record-high close. Both indexes beat peaks set in May 2015.

The Dow, which is made up of just 30 stocks, is an older and better-known barometer of the market than the S&P 500, but professional investors generally pay much closer attention to the S&P 500.

The Dow rose 120.74 points, or 0.7%, to 18,347.67. That is 35 points higher than its previous closing high set on May 19 last year.

The S&P 500 gained 14.98 points, or 0.7%, to 2,152.14. The Nasdaq composite rose 34.18 points, or 0.7%, to 5,022.82.

The Nasdaq is still lagging the other two main US stock market indexes. The index, which is heavily weighted with technology and biotech stocks, erased its losses for the year on Tuesday.

The Dow and S&P 500 are each up 5.3% for 2016, having roared back following a big drop in January and early February. The S&P has soared 17.7% since reaching a low of the year of 1,829 on February 11.

Investors continued to show an appetite for taking on risk. The biggest gainers included energy companies, which have been benefiting from a recovery in the price of oil, materials companies and banks.

Financial companies, which have lagged the market this year, have been rising in recent days as long-term interest rates move higher in the bond market. Higher rates mean banks can make more money from lending. Citigroup gained 93 cents, or 2.7%, to 43.44 dollars.

Despite recent increases, however, bond yields remain near historic lows, a worrisome sign to many analysts. Just last week the yield on the 10-year Treasury note touched an all-time low. Bond yields tend to fall when demand for bonds rises, which can indicate that investors are seeking safety.

"I wish we can be celebrating, but it's a little disconcerting," said Rob Bartenstein, chief executive of Kestra Private Wealth Services. "You've got government bonds at historical lows and equity markets at historical highs. That's not something you see at the same time. ... I feel underinvested, but I'm not willing to chase stocks."

Sectors that investors tend to favour when they are nervous, including utilities, phone companies and makers of consumer staples, all fell as investors moved money out of lower-risk assets. Bond prices also fell sharply, sending yields higher.

Aluminium maker Alcoa kicked off the second quarter earnings season on a positive note by reporting revenue and profit that beat Wall Street expectations. The stock jumped 55 cents, or 5.4%, to 10.69 dollars. Earnings for companies in the S&P 500 are expected to fall compared to the year ago period, but then rise in the next quarter.

Seagate Technology surged 5.26 dollars, or 21.8%, to 29.35 dollars after forecasting strong sales. It also announced it will cut 6,500 jobs, about 14% of its total.

Benchmark US crude added 2.04 dollars to close at 46.80 dollars a barrel in New York. Brent crude, a standard for international oil prices, rose 2.22 to 48.47 dollars a barrel in London. In other energy trading in New York, wholesale petrol rose five cents to 1.43 dollars a gallon, heating oil rose five cents to 1.46 dollars a gallon and natural gas rose three cents to 2.73 dollars per 1,000 cubic feet.

In Japan, the Nikkei 225 index jumped 2.5%, a day after soaring 4%. Premier Shinzo Abe has promised new government spending to help jolt Asia's second-biggest economy back to life now that his Liberal Democratic Party has won in parliamentary elections. Investors are betting he'll keep flooding the market with money by expanding bond purchases.

Elsewhere in Asia, Korea's Kospi edged up 0.1% and Hong Kong's Hang Seng added 1.7%. In Europe, France's Cac 40 rose 1.6% and Germany's Dax added 1.3%. Britain's FTSE 100 was flat.

Shares of Nintendo jumped 12.7% in Tokyo, fuelled by the craze for Pokemon Go, a smartphone game that's become the top grossing app in the iPhone store less than a week after its release in the US, Australia and New Zealand.

US government bond prices fell. The yield on the 10-year Treasury note rose to 1.50% from 1.43%. The yield plunged last week as low as 1.32%, an all-time low, according to Tradeweb.

The dollar rose to 104.79 yen from 102.77 yen. The euro rose to 1.1067 from 1.1058 US dollars.

The price of gold fell 21.30 dollars to 1,335.30 dollars, silver fell 13 cents to 20.17 dollars an ounce and copper rose seven cents to 2.21 dollars a pound.

AP

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