/US stocks rally again to record highs as earnings smash expectations — Is it different this time?

US stocks rally again to record highs as earnings smash expectations — Is it different this time?

The Charging Bull statue, also known as the Wall St. Bull, is seen in the financial district of New York City, U.S., August 18, 2018. Picture taken August 18, 2018. REUTERS/Brendan McDermidReuters

  • A raft of strong US earnings sent the S&P 500 and Nasdaq to record closes on Tuesday.
  • Coca-Cola, United Technologies, Twitter, Hasbro and Lockheed Martin all delivered earnings beats. More than 78% of S&P 500 earnings have beaten Wall Street forecasts this quarter.
  • While those earnings reports provided the final push, it’s really the Federal Reserve that deserves credit for sending stocks to new records.
  • Watch the S&P 500 and Nasdaq trade live.

US stocks closed at all-time highs on Tuesday on the strength of a series of blockbuster earnings reports.

Coca-Cola, United Technologies, Twitter, Hasbro and Lockheed Martin all reported profits that beat expectations, sending the S&P 500 up 0.9% and beyond its previous high of 2,930.75. The Nasdaq Composite index climbed 1.4% to reach a record as well. And both indexes got a boost from higher oil prices, which helped energy stocks.

But while it was this streak of strong earnings reports that ultimately provided the final push for stocks, investors should really be thanking the Federal Reserve for catalyzing the market’s 2019 surge — the strongest to start a year since 1987.

The ongoing rally dates back to comments made by Fed chair Jerome Powell on Jan. 4, on the heels of a major Christmas Eve sell-off that pushed US equities to the brink of a bear market. He stressed patience and said the central bank was willing to reconsider it’s monetary-tightening plan.

And with that, the rebound began. Then, when the Fed said in March that it won’t raise interest rates at all for the rest of 2019, it continued in earnest.

Both decisions marked a stunning reversal from guidance the Fed gave at its December, when it said it would slow its pace of interest-rate hikes, but still raise them twice at some point in 2019. That didn’t meet the expectations of the market whatsoever, and a period of sharp selling began.

Those instances were just the latest examples that the market has been taking its cues from the Fed for the better part of the past 18 months, for better or for worse.

Now, as investors enjoy a record high, skepticism persists.

“The big question facing investors as the S&P 500 makes its third big high – is it different this time?,” said Neil Wilson, chief market analyst for Markets.com. “Is there fresh impetus to drive the market higher from here? Do we have the animal spirits?”

The S&P 500 fluctuated around little changed on Wednesday.

The good news in the US  didn’t translate to Asian equities, however, as the MSCI’s broadest index of Asia Pacific shares outside Japan fell 0.3%. The slide reflected weak earnings in South Korea and mounting doubts about further government stimulus in China given recent signs of an economic recovery.

“It does not look like the all-time highs for the US market is a catalyst for a ramp elsewhere,” Wilson said. “It does rather look like US exceptionalism at work.”

Here’s the market roundup as of 10:35 a.m. ET:

  • Asian stocks were mixed as Japan’s Nikkei slid 0.3% and Hong Kong’s Hang Seng fell 0.5%, while the Shanghai Composite inched up 0.1%.
European stocks were mostly lower. Britain’s FTSE 100 slid 0.8%, France’s CAC 40 fell 0.5%, and the Euro Stoxx 50 dipped 0.2%.
  • Major US stock indexes edged slightly higher, with the Dow, S&P 500 and Nasdaq all up roughly 0.1%.
  • Oil gave up some of its recent gains, as Brent crude slid 0.1% while WTI crude fell 0.2%.
  • Facebook, Tesla and Microsoft are among companies reporting earnings after the market close on Wednesday.  

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