Stocks have sold off sharply in the springtime over the past three years, but 2013 is emerging as a notable exception: Major U.S. indexes surged to record highs on Friday, pushing above key thresholds.
The Dow rose above 15,000 on Friday and the S&P 500 crossed the 1,600-point mark – in both cases for the first time, reflecting investor confidence that efforts by central banks to stimulate the economy will have an impact.
The latest gains followed reports from the U.S. Labor Department showing that employers added 165,000 jobs in April and the unemployment rate fell to 7.5 per cent, its lowest since December 2008. The results topped consensus expectations.
Economists had been expecting far more modest job gains of 140,000, with the unemployment holding steady at 7.6 per cent. Even more impressive, February and March’s payrolls were revised higher, by an impressive 114,000 jobs.
As as good as the numbers were, they weren’t good enough to raise concerns that the U.S. Federal Reserve will ease back stimulus in the form of bond-buying, or quantitative easing (QE) – a powerful elixir that is largely credited for extending the bull market, now in its fifth year.
Andrew Grantham, an economist at CIBC World Markets, said in a note that the payrolls report will reassure markets “that the U.S. economy is not as weak as it may have seemed given some of the earlier data, although it may not be strong enough on its own to see renewed talk of tapering QE.”
Two reports also released on Friday back up this idea. The ISM non-manufacturing index, reflecting activity in the services sector, slipped to 53.1 from 54.4. Factory orders fell 4 per cent in April.
The U.S. economy expanded by just 2.5 per cent in the first three months of 2013, while China’s growth is slowing and the euro zone remains stuck in recession.
But the stock market has shown little or no concern for this sluggish backdrop, instead focusing on efforts to fix it.
Earlier this week, the European Central Bank cut its key lending rate to a record low 0.5 per cent and said it was prepared to do more. Japan’s central bank has embarked upon stimulus efforts of its own, which has helped drive up the benchmark Nikkei 225 by nearly 32 per cent this year.
On Friday, the Dow had risen to an intraday high of 15,009.59, up 178 points or more than 1 per cent. In midday trading, the broader S&P 500 was up more than 18 points or 1.1 per cent, to 1616.
The S&P 500 has now risen more than 13 per cent in the first four months 2013, putting it on track for its best yearly performance since 2009, when stocks were in the early stages of recovering from a deep bear market. Overall, it is up nearly 139 per cent since the start of the bull market.
“No one knows if the QE experiment will ultimately prove to be successful,” said Michael Hartnett, chief investment strategist at Bank of America, in a note. “But we do know the ‘journey’ involves asset price inflation.”
The S&P 500 is now well above the targets issued by Wall Street strategists at the start of the year. On average, strategists had seen the S&P 500 rising to 1,534 by the end of 2013. Citigroup was the most bullish, with a target of 1615, or roughly where the index is today.
The strong gains come with some concerns about a potential setback, though. The S&P 500 has not suffered so much as a 5 per cent dip since November. The biggest decline of the year was in April, when the index fell 3.3 per cent, but recovered quickly.
That modest decline arrived at a typical rough patch for stocks, based on recent years. Last year, the S&P 500 fell nearly 10 per cent between April and June. In 2011, it fell more than 19 per cent between April and October. And in 2010, it fell about 16 per cent between April and July.
With markets roaring into the start of May, 2013 is set to break the pattern – even as observers point out that stocks rarely enjoy such a smooth ride.