US Stocks Hit Record Highs as Corporate Earnings Strengthen
The U.S. stock market reached new heights on Tuesday, with the S&P 500 climbing 0.6% to set a record, surpassing its previous all-time high from August. Despite ongoing challenges such as war, high inflation, and rising bond yields, the index has surged 23% since its low in late March. The Dow Jones Industrial Average gained 253 points, or 0.5%, while the Nasdaq composite added 0.4% to its own record set the day before. These gains come as investors grapple with economic pessimism and rising living costs.
Despite fears that have materialized, such as high oil prices due to the war with Iran and rising bond yields, corporate profits have remained a strong support for the market. Companies like Lamb Weston, which sells frozen french fries, reported better-than-expected earnings, boosting its stock by 7.5%. CEO Mike Smith noted unexpected increases in freight and other expenses but raised the company’s profit forecast for the fiscal year. Analysts expect S&P 500 companies to report nearly 30% earnings growth year-over-year, marking the third straight quarter of growth over 25%.
This earnings growth is crucial, as corporate profits are a key driver of stock prices alongside interest rates. High bond yields have made investors cautious about paying high prices for non-bond investments, but strong corporate profits are helping the market stay elevated. However, the market’s record highs depend on companies meeting these profit expectations. Some critics warn of a potential bubble in artificial-intelligence stocks, which have surged significantly, with Nvidia up 28.3% this year.
In other news, Constellation Energy jumped 12.2% after securing a deal to supply Google with electricity for AI data centers. Option Care Health soared 32.6% following its acquisition by CD&R and McKesson for $5.8 billion. The S&P 500 closed at 7,818.93, the Dow at 51,521.28, and the Nasdaq at 27,599.79. Bond yields eased slightly, with the 10-year Treasury yield dropping to 5.28% from 5.31%. Oil prices also steadied, with Brent crude settling at $100.58 per barrel, down from recent highs.