By Sara Sjolin, MarketWatch , Ryan Vlastelica
Semiconductor stocks boost tech sector to best single-session gain since November
U.S. stocks kicked off 2018 on a positive note Tuesday, with major indexes rallying to record levels in a broad rally that saw five of the 11 primary sectors gaining more than 1% on the day.
The energy sector was a particular outperformer, jumping 1.8%, while both consumer discretionary and material names were up 1.5%. Technology stocks, the best-performing sector of 2017, extended their advance by rising 1.4%, a rally that helped give the Nasdaq its biggest one-day percentage rise since Nov. 16.
What are stock indexes doing?
The Dow Jones Industrial Average rose 105 points, or 0.4%, to 24,824. The S&P 500 rose 22 points, or 0.8%, to 2,696. The Nasdaq Composite Index gained 103.5 points, or 1.5%, to 7,007.
Both the S&P and the Nasdaq hit intraday records in the final minutes of trading. They also ended at closing records, with the Nasdaq finishing above 7,000 for the first time in its history. The Dow is less than half a percentage point below its own record.
The three indexes are coming off strong gains in 2017; the S&P 500 rose 19.4% for the year, the Dow gained 25.1% and the Nasdaq added 28.2%. All three posted their best year since 2013, and they continue to trade within 1 percentage point of records.
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What drove the market?
Chip makers were among the biggest boosts to the technology sector. Advanced Micro Devices (>> Advanced Micro Devices, Inc.) jumped 6.8%, while Micron Technology (>> Micron Technology) was up 6.2%. Nvidia Corp.(>> NVIDIA Corporation) gained 3%. The PHLX Semiconductor Index rose 2.8%.
Meanwhile, the Dow Jones Transportation Average jumped 1.9% and hit an all-time intraday high.
The day's gain came despite ongoing geopolitical uncertainty. Iran was in focus after nine people were reported dead after overnight clashes between protesters and security forces. The protests started last week over rising inflation and corruption, but focus has since shifted to a wider discontent with Iran's ruling system and Supreme Leader Ayatollah Ali Khamenei. The wave of unrest is now seen as the largest since a disputed 2009 presidential election, and it could filter into markets if it results in any kind of disruption to the region's oil industry.
In North Korea, leader Kim Jong Un said in a speech Monday that Pyongyang had completed its nuclear weapons program , which he claimed would allow a missile to reach any point in the continental U.S. Kim, however, also suggested he was willing to engage in talks with South Korea, saying North Korea would be open to sending a delegation to the Winter Olympics in the South next month.
The government in Seoul welcomed Kim's suggestion on Tuesday. Its unification minister proposed holding high-level talks with North Korean officials on Jan. 9 to discuss the country's possible involvement in the Winter Games and Kim Jong Un's nuclear program.
One factor supporting equities was a slumping U.S. dollar. The ICE U.S. Dollar Index fell for a fifth straight session, down 0.3% at 91.886 to trade around its lowest level since September. A weak dollar is considered a tailwind for the profitability of large U.S. multinationals.
What are strategists saying?
"The gains we saw last year were pretty amazing, and it's hard to imagine that we could replicate that success. However, growth has been subpar and we just got a fundamental change to the tax code. As those themes mature, we could see the rally persist, and it's reasonable to believe we could have another up market this year," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
Battle said that "all valuations are really high," but that "you can make a reasonable case that the tech sector has more upside in it given the pervasiveness of tech in the modern economy." Chipmakers, in particular, he said, "are going to lead the charge this year," calling them "a foundational building block" in the market's biggest sector.
Optimism over U.S. markets has been rising despite valuations that are seen as stretched by many measures. The latest AAII investor sentiment survey indicates that 50.5% of polled investors are bullish on the market, meaning they expect prices will be higher in six months. That's the highest level in nearly two years, and significantly above the 38.5% historical average. The number of bullish investors has gone up by 5.5 percentage points in the past week alone, while the percentage of bearish investors has dropped to 25.6%, down 2.5 percentage points over the past week.
Read more: Stock optimism swells as S&P 500 hits most overbought level in 22 years
Which stocks are in focus?
Shares of Abbott Laboratories(>> Abbott Laboratories) rose 3% after J.P. Morgan lifted the health care company to overweight from neutral.
Netflix Inc.(>> Netflix) rose 4.8% after Macquarie lifted the online-streaming company to outperform, according to Dow Jones Newswires.
Incyte Corp. (>> Incyte Corporation) climbed 6.5% after RBC Capital Markets raised its rating on the biotech company to outperform from sector perform.
Among the most active stocks in the energy space, Noble Energy Inc.(>> Noble Energy, Inc.) rose 3.6% while Chesapeake Energy Corp. (>> Chesapeake Energy Corporation) was up 3.5%. Marathon Oil Corp.(>> Marathon Oil Corporation) was up 2.7%.
What does the economic data say?
The final reading of the U.S. manufacturing purchasing manager's index for December came in at 55.1, compared with a preliminary reading of 55.0. A figure of more than 50 indicates an expansion in activity.
What are other markets doing?
Stock markets in Asia closed mainly higher, while European equity markets kicked off the new year on the back foot.
Metals were mostly higher. Gold prices rose 0.8%, while copper rose 0.2%.
Bitcoin futures rose 3.6% to $14,990.
Stocks mentioned in the article : Advanced Micro Devices, Inc.
, Noble Energy, Inc.
, Abbott Laboratories
, NVIDIA Corporation
, Micron Technology
, Chesapeake Energy Corporation
, Incyte Corporation
, Marathon Oil Corporation