Wall Street extended its record march on Friday, buoyed by strong investor inflows and ahead of a major shake-up of key S&P 500 sectors and the expiry of option contracts.
In mid-morning trade in New York, the S&P 500 was up 0.3 per cent at 2,938, after touching a record intraday high of 2,940.91 shortly after the open. The Dow Jones Industrial Average also rose 0.3 per cent to a fresh all-time peak.
The US stock market’s march to record highs was driven by investors shrugging off trade tensions and rising interest rates and focusing on the strong growth outlook for the US economy. As the third quarter comes to an end, investors also widely expect another round of double-digit earnings growth to be reported by companies.
“The market is just underpinned by relentlessly strong and broad-based earnings growth,” said Richard Turnill, global chief investment strategist at BlackRock.
European stocks followed Wall Street’s lead, extending their rally on Friday. All of the major European indices other than Spain’s IBEX were trading higher by mid-afternoon in London. The Euro Stoxx 50 was up 0.6 per cent while Germany’s Xetra Dax index was 0.5 per cent higher. The FTSE 100 outperformed with a rise of 1.7 per cent as sterling fell sharply.
US investor sentiment this week was also bolstered after trade tariffs imposed by the Trump administration — and by Beijing in retaliation — this week were less severe than some had expected.
“This week the markets are happy with certainty,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. “We have the tariffs. We know what they are . . . The market hates uncertainty.”
Investors pumped $14.5bn into US equity funds for the week ending Wednesday, according to EPFR Global. That represented the largest weekly inflow into such funds since the middle of March.
Just shy of the 3,000 point mark, the S&P 500 is up nearly 10 per cent this year and higher by almost 12 per cent including the reinvestment of dividends. This year’s gains have been driven by high-profile tech companies in the technology and consumer discretionary sectors, which face an overhaul at the close of trading.
Index provider S&P Dow Jones Indices will transform the existing telecommunications sector with major implications for the technology and consumer discretionary groups. The new communication services sector will include AT&T, Verizon and CenturyLink; consumer discretionary names such as Comcast, 21st Century Fox, Netflix and Walt Disney and tech groups, such as Alphabet and Facebook.
As a result of the switch, the telecoms sector, which represents just 2 per cent of the S&P 500, will swell to 10 per cent.
The switch comes ahead of the expiry of equity options contracts.
JJ Kinahan, chief market strategist at TD Ameritrade said: “I would expect volatility on the open and at the close’’ and he added that the normal quarterly expiration may be a ‘’slower than normal’’ due to the fact that with the movement people have had time to unwind their positions.’’
Emerging markets have also enjoyed some respite this week, aided by a weakening dollar. The MSCI Emerging Markets index rose 1.5 per cent for the week ending Wednesday.
But investors still withdrew $962m from globally focused EM funds, the sixth consecutive week of outflows for the group, according to EPFR.
“We think you will see flows returning to emerging markets,” said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. “If you start to see currencies turn we think you will see investors refocus on the value proposition that EM represents.”
Additional reporting by Federica Cocco
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