NEW YORK — The stock market marched back into record territory Tuesday as investors seized on the latest encouraging news about the economy. This time, it was a report on the health of small businesses.
Small business owners were slightly more optimistic in April, according to a survey released by the National Federation of Independent Business before the stock market opened. That helped push the Russell 2000, an index of small-company stocks, up 1.3 percent, ahead of other major indexes.
"Small businesses are in many ways the backbone of the economy ... to see that index move up was a positive surprise," said Quincy Krosby, market strategist for Prudential Financial. "Overall, the market wants to move higher and it's hard to fight that."
The Russell index is 16.1 percent higher since the start of the year, and is up more than the Standard & Poor's 500 index, which includes larger, global companies. Small stocks are doing well partly because they are more focused on the U.S., which is recovering, and don't get as much revenue from recession-plagued Europe as larger companies do.
The advance in small-company stocks is another sign of how optimistic investors have become. Smaller stocks are more risky than large ones, but also offer investors the prospect of greater returns in a rising market.
Another closely watched stock market indicator has also been on a tear: transportation stocks. The Dow Jones transportation average rose 1.9 percent Tuesday and is up 21.8 percent this year, far more than other major indexes. Investors often see these stocks as an indicator of where the economy is headed. When companies make and ship more goods, the thinking goes, truckers, airlines and railways do more business.
The market rose from the opening of trading and climbed steadily throughout the day.
It got support early after hedge fund manager David Tepper said that he is still bullish on stocks. Speaking on CNBC before the market opened, Tepper said that investors shouldn't worry about the Fed tapering its stimulus program. The money manager has about $18 billion dollars under management, according to the broadcaster.
The Dow Jones industrial average rose 123.57 points, or 0.8 percent, to 15,215.25. The S&P 500 index rose 16.57 points, or 1 percent, to 1,650.34. Both closed at all-time highs after stalling on Monday.
The Dow has gained for 18 straight Tuesdays. The only day with a longer streak of consecutive gains is Wednesday, with 24 back in 1968, according to Schaeffer's Investment Research.
May has been a strong month for the market. The S&P has risen eight of the past nine days, the Russell and Dow transportation average have risen seven.
The prospect of continued stimulus from the Federal Reserve has also supported the market's run-up.
For stock investors, the U.S. economy is "not too hot, not too cold," said Michael Sheldon, chief market strategist at RDM Financial. It's weak enough that the Fed will continue its $85 billion-a-month economic stimulus program, but strong enough for companies to generate healthy earnings.
"There is a lot of momentum in the market right now," Sheldon said. "It's largely being fueled by the Federal Reserve and modest growth in the U.S."
The U.S. economy grew at an annual rate of 2.5 percent in the first quarter. While hiring has picked up, the unemployment rate is still at 7.5 percent, above the 6.5 percent rate that the Fed is targeting. As a result, the central bank is expected to keep buying bonds to hold down long-term interest rates and encourage more borrowing and spending.
Earnings of companies in the S&P 500 index, meanwhile, increased about 5 percent in the first quarter, and are expected to grow even faster in the second half of the year, according to S&P Capital IQ.
All 10 industry groups in the S&P 500 index rose Tuesday, led by a 1.7 percent increase in banks and insurers. Financial stocks are up the most in the past month, 6.1 percent.
Bank of America climbed to its highest in more than two years. The stock rose 36 cents, or 2.8 percent, to $13.34. JPMorgan rose 56 cents, or 1.1 percent, to $50.23.
The Nasdaq composite index rose 23.82 points, or 0.7 percent, to 3,462.61.
The Dow has risen 16.1 percent this year, the S&P 500 index 15.7 percent.
BIG MOVERS IN STOCKS:
_ Sony's U.S.-listed shares jumped 10 percent after hedge fund manager Daniel Loeb called for the company to sell part of its entertainment business and use the money to shore up its struggling electronics business. The stock rose $1.87 to $20.76.
In government bond trading, the price of the 10-year Treasury note fell and its yield rose to 1.97 percent from 1.92 percent late Monday, as investors shifted money out of bonds and into riskier assets like stocks. It's the highest level for the yield since mid-March.
The yield on the note hit a low for the year of 1.63 percent on May 1. It began surging two days later after the government reported a strong increase in hiring over the past three months.
The yen weakened against the dollar. One dollar bought 102.24 Japanese yen as of late Tuesday, up from 101.93 yen late Monday. The dollar surged above 100 yen last week for the first time in four years. Japan's currency has been falling as the country's central bank floods the Japanese economy with cash in an effort to revive it from a two-decade slump. The euro edged down to $1.294 from $1.297.
The strengthening dollar weighed on commodities. When the dollar rises, it makes dollar-denominated commodities like crude oil more expensive to investors using other currencies, like yen and euros. That tends to decrease demand for those goods, driving their prices lower.
The price of crude oil fell 96 cents, or 1 percent, to $94.21 a barrel. Oil has lost $2.41 a barrel over the past four days. On Tuesday, a leading global energy agency raised its forecast for U.S. oil production and cut its forecast for worldwide demand.
Gold fell $9.80, or 0.7 percent, to $1,424.50.
Copper dropped the most among major commodities. The July contract fell 7.2 cents, or 2.1 percent, to $3.288 a pound.
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10. Gilead Sciences
<strong>10. Gilead Sciences Opening price: $41.86. Dec. 26 price: $72.48. Growth: 73 percent</strong> As a <a href="http://www.amazon.com/gp/product/038549081X/ref=as_li_ss_tl?ie=UTF8&tag=slatmaga-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=038549081X">Handmaid’s Tale </a>fan, I can’t help but feel this is a creepy name for a biotech company, but in many ways it’s the happiest story on our list. Gilead makes a number of drugs, including the influenza treatment Tamiflu and Cayston for cystic fibrosis. But its strong 2012 was driven primarily by the Food and Drug Administration’s approval of Gilead’s tenofovir/emtricitabine combination drug marketed as Truvada—the first prophylactic pharmaceutical shown to substantially reduce the risk of HIV infection among high-risk populations. This is good, old-fashioned, innovation-driven growth, where firms prosper by inventing useful new things. This year clearly isn’t going to go down in the history books as the greatest year in American economic life. The unemployment rate was high, and most Americans’ earnings were flat. But the list of top-performing S&P 500 stocks shows unmistakable signs of an economy on the rebound. Players in housing, appliances, finance, and travel all benefited from a general return to economic normalcy with other standout performers scattered across sectors whenever they caught a lucky break. Not the best of times by any means but something like a normal time. If things get even better in 2013, expect to see fewer firms on the list that benefit from generic growth and more stand-out innovators driven to the top by new products rather than a simple increase in production.
9. Seagate Technology
<strong>Opening price: $16.40. Dec. 26 price: $30.38. Growth: 85 percent</strong> This company makes hard drives, which actually isn’t much of a booming sector because PC sales have stagnated in the face of the iPad and ever-smarter smartphones. The optimistic corporate line is that the strong year reflects successful reorganization after the return of former CEO Stephen Luczo. The more cynical take is that their main competitor, Western Digital, <a href="http://www.channelregister.co.uk/2012/02/29/seagate_bouyed_by_thai_floods/">had a lot of factories destroyed by floods in Thailand</a>. Lefty Gomez famously said he’d rather be lucky than good, and the same thing applies in the business world.
8. Tesoro Corporation
<strong>Opening price: $24.47. Dec. 26 price: $43.34. Growth: 77 percent</strong> Tesoro is another energy player, an independent refinery and gas station operation headquartered in San Antonio, Texas. Its seven refineries in the western United States have benefitted from the combination of increased gasoline production and not-so-large increases in the country’s refining or crude oil export capacities.
7. Marathon Petroleum
<strong>Opening price: $33.41. Dec. 26 price: $61.66. Growth: 85 percent</strong> Last year was all about growth in the oil and gas industry. This year has seen broader economic growth and a more diverse set of winners. But the technological innovation driving increased oil and gas production in the United States marches on. Marathon Petroleum was one of the biggest beneficiaries this year, especially since its summer 2011 spin-off of Marathon Oil left it focused exclusively on the booming refining and pipeline sectors.
6. Lennar Corporation
<strong>Opening price: $19.89. Dec. 26 price: $38.01. Growth: 91 percent</strong> Another homebuilder, Lennar is an even bigger company than Pulte though with a slightly less booming year. Homebuilders across the board had a strong year, re-enforcing the breadth of the housing recovery.
5. Expedia Inc.
<strong>Opening price: $29.66. Dec. 26 price: $57.93. Growth: 95 percent</strong> Expedia launched the year by spinning off its TripAdvisor group of travel-related media sites and focusing on its core set of online travel tools. That’s Expedia itself, but also Hotels.com, Hotwire.com, the corporate travel agency Egencia, and a travel website in China called eLong. A good position in the Chinese marketplace is an asset for any company these days, but travel in general is, like appliances, something that fluctuates with the overall ups and downs of the economy. Firms and households have a relatively easy time cutting travel spending when they need to tighten their belts, but an overall better outlook had those belts loosening this year instead.
4. Bank of America
<strong>Opening price: $5.80. Dec. 26 price: $11.54. Growth: 99 percent</strong> The most troubled of America’s troubled big banks had a very solid if belated comeback year. That said, this is more a case of the shares being nearly worthless a year ago than of anything extraordinary happening today. The company is still trading well below a notional book value of $20 per share worth of assets, reflecting ongoing concerns about legal liability and a perception that the company is simply too large and diverse to be managed properly.
3. Whirlpool Corporation
<strong>Opening price: $48.51. Dec. 26 price: $99.74. Growth: 106 percent</strong> At the intersection of the underhyped housing recovery and the overhyped manufacturing recovery lies Whirlpool Corporation, America’s leading manufacturer of the big stuff you put in your house. This is a bigger company than you think, since they make Maytag, KitchenAid, Jenn-Air, and Amana appliances along with the ones that actually bear the Whirlpool name. They also make some Ikea-branded appliances, as well as producing for the Sears and Home Depot house brands. Home appliances aren’t sexy, but that’s exactly what makes them a great indicator of core economic well-being. A sexy company can thrive even in a bad economy. To sell washer, dryers, and stand mixers, you need a climate of reasonably broad prosperity.
<strong>Opening price: $6.37. Dec. 26 price: $13.37. Growth: 110 percent</strong> This isn’t a household name, but as a major homebuilder, the PulteGroup is a decent bellwether for the American economy. Construction activity closed 2012 at what’s still a very low level by historical standards, but it’s way up from where it was a year ago. After years of stagnation, we’re back to adding houses faster than we add people—meaning folks are finally moving out from their parents’ basement or their sister’s spare room.
1. Sprint Nextel
The extraordinary performance of the third banana of American wireless telephony was less about anything Sprint did than about Japanese telecom giant SoftBank’s decision to purchase 70 percent of the outstanding shares for $20.1 billion. Conventional wisdom panned the move as ego-driven and doomed to failure, and <a href="http://www.slate.com/blogs/moneybox/2012/10/16/softbank_buys_sprint_japanese_wireless_carry_buys_ailing_american_company.html">I have no contrarian Slate-y rebuttal</a>, but as a citizen, it’s good to know that when rich Japanese egomaniacs want to make a foolish investment, they still think of America as the place to do it.