Coverage: Market indexes party like it’s 1999

The Dow Jones Industrial Average, the S&P 500 Index and the Nasdaq index all posted record closing highs on Thursday, the first time that’s happened since 1999, right before the Internet bubble burst.

Riva Gold and Timothy Puko of The Wall Street Journal had the news:

The rally was sparked by higher oil prices and earnings reports from U.S. retailers that weren’t as weak as feared.

Consumer-discretionary and energy stocks led broad gains across the market. The Dow industrials rose 118 points, or 0.6%, to 18614, above its previous record close of 18595 hit July 20. The S&P 500 gained 0.5% and topped its Aug. 5 record. The Nasdaq Composite added 0.5%, surpassing its previous high set at Tuesday’s close.

Investors are “into stocks because there’s nowhere else to go,” said Tim Rudderow, president of Mount Lucas Management, which oversees $1.6 billion.

Shares of Macy’s rose 17% as the department-store operator reported better-than-expected sales and said it plans to close 100 stores. Kohl’s gained 16% after reporting a surprise increase in profit even as it cut its earnings forecast for the year.

Noel Randewich of Reuters points out that some investors are worried about the high valuations:

A stock market rally since late June has pushed the S&P 500 index up 7.0 percent in 2016, helped by better-than-expected quarterly earnings and low interest rates, but some investors are worried about high valuations.

Beating its previous record high from last Friday, the S&P 500 is priced at about 17 times expected earnings, compared with a 10-year average of 14 times expected earnings, according to Thomson Reuters data.

“I’m a bit surprised to see us hitting record highs again,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin. “We are pretty topped out and we should move sideways for a while.”

Robust U.S. economic data also helped on Thursday, with a report showing the number of Americans applying for unemployment benefits fell to 266,000 from 269,000 the previous week.

Eric Platt of The Financial Times reports that investors have left bonds in search of higher returns:

But a sharp drop in sovereign bond yields — as central banks in Europe, the UK and Japan unleash fresh stimulus in an attempt to propel economic growth — has pushed a growing population of investors into the US market.

“There is a growing sense that these seemingly stretched valuations are more justified … if interest rates stay this low for long,” said Jack Ablin, chief investment officer of BMO Private Bank. “Given that we haven’t seen any rubber band snaps as a result of these policies, central banks are becoming more emboldened and will likely try more things. Investors are sensing that and they themselves are becoming more emboldened.”

The stimulus measures, including outright bond-buying programmes, have pushed prices on nearly $13tn of debt so high that they trade with a yield below zero. Bond yields fall when the price rises.

Investors have turned to equities in their search for income as they are crowded out of the market for sovereign bonds, with the S&P 500 offering a dividend yield above 2 per cent. The 10-year US Treasury trades with a yield of 1.56 per cent by contrast. Equity portfolio managers in the US say they have seen strong foreign demand for domestic stocks, as policies between central banks diverge further.