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U.S. stocks soared Thursday, with the S&P 500 closing above the landmark level of 1,700 points for the first time in history, boosted by a batch of better-than-expected economic data and the Federal Reserve's reassurance.
"Certainly, 1,700 is both a psychological and technological level people have been looking at. I think the significance is we actually managed to close above it," Mark Otto, managing director of securities lending firm J. Streicher, told Xinhua Thursday.
The S&P 500 ended at near session high, leaping 21.14 points, or 1.25 percent, to 1,706.87 points. The Dow Jones Industrial Average also set a record high, surging 128.48 points, or 0.83 percent, to 15,628.02 points. The tech-heavy Nasdaq Composite Index jumped 49.37 points, or 1.36 percent, to a fresh 13-year high of 3,675.74 points.
"The next resistance level is going to be like 1,715 and then 1,725," Otto said.
Economic data fuel market rally
Economic data came in better than expected Thursday, fueling the stocks rally.
Last week, the number of American people who applied for jobless benefits dropped to 326,000, the lowest level since January 2008, the Labor Department reported Thursday.
The Institute for Supply Management's U.S. manufacturing index jumped to 55.4 in July, the highest level since June 2011.
Moreover, a report released by the Commerce Department on the previous trading day showed the U.S. economy grew at an annual rate of 1.7 percent, beating market consensus of 1.1 percent, but the first-quarter growth was revised down to 1.1 percent from a previous estimate of 1.8 percent.
"The economy has not improved markedly...with the first reading of the second-quarter GDP and the downwardly revised first-quarter GDP data," Gregory J. Keating, managing director of James E. Coffey Securities Inc, told Xinhua.
"That mixture I believe tells the market that the Fed will continue on with its accommodative policies for the near term, which continues to be bullish for the market," Keating added.
Overseas encouraging manufacturing data out of the eurozone and China added some momentum to the equity market.
The eurozone manufacturing purchasing managers' index (PMI) expanded for the first time in two years. China's PMI for the manufacturing sector rose slightly to 50.3 percent in July, official data showed.
The U.S. market has rallied so fast, with the Dow Jones, the S&P 500 and the Nasdaq soaring year to date 19.3 percent, 19.7 percent and 21.7 percent respectively.
It is worth noting that the broader S&P 500 climbed up to 1,700 points from 1,600 points within less than three months after it first hit the 1,600 level on May 3 this year. In comparison, it took the benchmark index more than 13 years to rise to 1,600 points from 1,500 points.
Continuation of support to market
Another major catalyst of the stocks record run is the Fed's decision to continue its monetary stimulus after a two-day policy meeting ended Wednesday.
The Fed reaffirmed its view in a statement following the meeting that to support continued progress toward maximum employment and price stability, a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.
However, the central bank slightly downgraded its view of the U.S. economy, saying economic activity was expanding at a "modest" pace compared to "moderate" in its June meeting statement. The downgrade fueled investors' expectations that the bank will not end its monetary stimulus any time soon.
"Right now the market has certainly felt at ease and is comforted by the fact that the Fed is not going to taper right away," Mark L. Newton, chief technical analyst at Greywolf Execution Partners Inc., told Xinhua.
"So when you have factors like the Fed is going to continue to buy the mortgage backed securities and there will be no tapering, that's certainly bullish for asset prices," Newton said, admitting that the Fed's quantitative easing has not been all that effective outside of raising asset prices more recently.
Views divided on market outlook
Otto believes that there is potential that the S&P 500 will make further gains if Friday's non-farm payrolls employment turns out to be better than expected.
"The recent average of non-farm payrolls over the last couple of months has been about 202,000, so analysts are projecting a 185,000. Most people are confident that it's actually going to be above that number," Otto said.
Talking about the impacts of the Fed's possible tapering on the market, Otto said if it gives a definitive timeline and number of its tapering plan, it is more than likely that there will be some sort of "knee-jerk reaction" on the front end.
"However, people should look at it as a fact that the economy is strong enough to stand on its own," he added.
In Keating's view, even when the Fed starts tapering its asset purchases, there will not be a large sell-off in the market, as the central bank will be very calculated in its actions and communication of tapering to avoid any shock waves through the market.
Alan Valdes, director of floor trading at DME Securities, predicted the S&P 500 will rise to 1,750 by the end of this year because there is a large sum of cash that left the bond market two weeks ago looking for investment opportunities in the stock market for better returns.
Yet, Newton gave a more bearish view in the intermediate term.
"Recent rally from late June should be used to sell as we approach August for a 10 percent to 15 percent correction into late October of the third quarter," Newton said in a note on Friday.
"This is now about the fifth longest rally on record. We've been up over 140 percent from the March 2009 lows, and so that means that we are very late in the game in terms of this bigger cycle," Newton told Xinhua.
From a technical perspective, the market is likely to move higher but is now "very stretched" and "very overbought," therefore "it's important to be not complacent at this stage of the rally," Newton said.
"Eventually, if there is any mention of tapering either at the August meeting or September, that would certainly be a shock to the market," he said.
