By Sara Sjolin, MarketWatch , Ryan Vlastelica
Semiconductor stocks boost tech sector
U.S. stocks rallied on Tuesday, with Wall Street starting 2018 on a positive note despite ongoing geopolitical concerns over Iran and North Korea.
Gains were broad, with eight of the 11 primary S&P 500 sectors in positive territory. Technology, consumer discretionary, health care and energy stocks were among the biggest outperformers, with the trio rising at least 1% on the day. The gains in tech delivered an outsize boost to the Nasdaq.
What are stock indexes doing?
The Dow Jones Industrial Average rose 66 points, or 0.3%, to 24,786. The S&P 500 rose 17 points to 2,691, a rise of 0.7%. The Nasdaq Composite Index was up 85 points, or 1.2%, at 6,989. Tuesday represented the biggest one-day percentage gain for the Nasdaq since November.
The 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's driving the market?
A sinking dollar has grabbed the limelight to start 2018, kicking off the new year the same way it ended, slumping.
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. The weakness came as investors expressed doubts that major U.S. tax reforms written into law late December would have on economic growth, interest rates and inflation.
Outside the U.S., 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.
In North Korea, leader Kim Jong Un said in a speech on 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.
What are strategists saying?
"There's an unusual combination of strength in economies around the world, a pretty strong backdrop for commodities and exports. There's so much going right, even before the jolt of pro-business tax reform, that we think equity markets will continue to be strong in major markets in 2018," said Humberto Garcia, head of asset allocation for Bank Leumi.
"We think a lot about what could trigger the next downturn, and political issues are something that come up. However, with all the economic strength we see, we think that even if you had a scare, markets would recover fairly quickly," he said.
Optimism over U.S. markets have 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 3.1% after J.P. Morgan lifted the health care company to overweight from neutral.
Netflix Inc.(>> Netflix) rose 4.1% after Macquarie lifted the online-streaming company to outperform, according to Dow Jones Newswires.
Incyte Corp. (>> Incyte Corporation) climbed 5.8% after RBC Capital Markets raised its rating on the biotech company to outperform from sector perform.
Cabot Oil & Gas Corp.(>> Cabot Oil & Gas Corporation) fell 0.1% after Raymond James cut the energy company to underperform from outperform.
Chip makers were among the biggest boosts to the technology sector. Advanced Micro Devices (>> Advanced Micro Devices, Inc.) jumped 5%, while Micron Technology (>> Micron Technology) was up 4.5%. Nvidia Corp.(>> NVIDIA Corporation) gained 2.2%. The PHLX Semiconductor Index rose 2.1%.
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.
Oil prices declined, with West Texas Intermediate crude falling from its highest level since June 2015 that was reached on Friday.
Metals were mixed. Gold prices rose 0.3%, while copper fell 0.4%.
Bitcoin futures lost 4.8% to $13,780.