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Dow closes in on 17,000 as stocks reach record high

Traders work on the floor of the New York Stock Exchange Tuesday, July 1, 2014. The stock market climbed to all-time highs after reports showed that manufacturing in the US and China expanded in June, boosting the outlook for global growth. Netflix jumped after analysts at Goldman Sachs raised their outlook on the stock.

Richard Drew/AP

U.S. stocks kicked off the second half of the year by pushing further into record territory, defying predictions that the current rally doesn't have much longer to run.

The Dow Jones Industrials Average rose 0.8 per cent to 16,956, an all-time high that brings the blue-chip benchmark to within striking distance of the 17,000 mark. The Standard & Poor's 500 stock index also climbed to a new record, gaining 0.7 per cent.

Stocks were buoyed by economic data out of the U.S. and China, which showed expansion in the manufacturing sectors of both countries in June.

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Auto sales in the U.S. also surged to their highest pace in eight years, a sign that consumers are willing to spend. Sales at General Motors Co. rose 1 per cent – in spite of millions of recalls that have dominated headlines. The company's shares jumped more than 3 per cent on Tuesday.

Yet investors remain uneasy about what lies ahead for stocks in the latter half of the year. The current bull market has already run longer than the historical average and shares are no longer seen as a bargain. For the past several months, stocks have barely managed gains in thin, sleepy markets.

"The path of least resistance continues to be up," said Art Hogan, chief market strategist at Wunderlich Securities. But three things could stop the market in its tracks, he said: a new recession, an error by policymakers, or an external shock. Mr. Hogan rates the third as the most likely candidate.

On the positive side, the U.S. economy appears to have bounced back from a serious stumble in the first quarter of 2014. The current recovery, which is middling rather than stellar, could lay the groundwork for further gains in stocks, though they're unlikely to be dramatic. A new round of earnings starting later this month will provide fresh cues for investors.

In recent months, the stock market has grown unusually tranquil – for some, worryingly so. Since the middle of April, the Standard & Poor's index has not risen or fallen more than 1 per cent on any trading day, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. The last time U.S. markets experienced such an extended period of calm was in 1995.

The Standard & Poor's index is up 7.9 per cent this year and on Tuesday, it touched a high of 1,973, close to the symbolic watershed of 2,000. In a note, Mr. Silverblatt questioned whether investors are "pushing our luck." Reaching such a milestone is one thing, he noted, but maintaining it is another.

Another sign of the calm that now prevails in financial markets: A popular measure of volatility, or market fluctuations, is near is lowest point in more than 7 years. The Chicago Board Options Exchange Volatility Index – referred to as the "VIX" – is considered a gauge of investor fear; it dropped on Tuesday.

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Trading volumes have also slumped lately. Intercontinental Exchange Inc., the parent company of the New York Stock Exchange, reported that the average daily volume of stocks traded on the NYSE fell 13 per cent in May compared to a year earlier.

Some investors feel the current rally is overdue for a correction, defined as a fall of 10 per cent or more. Since 1949, there have been 11 bull markets, lasting an average of 58 months, according to a recent note from S&P Capital IQ. By contrast, the current bull market has already lasted 63 months.

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About the Author
U.S. Correspondent

Joanna Slater is an award-winning foreign correspondent for The Globe based in the United States, where her focus is business and economic news and New York City.Her career includes reporting assignments in the U.S., Europe and Asia. In 2015, she was posted in Berlin, Germany, where she covered Europe’s refugee crisis. More


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