The Dow Jones industrial average returned to a record Monday, joining other market gauges at all-time highs, as the stock market’s rally carried into a fifth week.
Oil producers and banks — along with other “cyclical” stocks that do well when the economy is strengthening — again led the way. It’s a notable shift in leadership following months of struggles for those stocks, which lagged due to worries about trade wars and the slowing global economy.
Behind their resurgence are rising hopes that the United States and China are making progress in negotiations on their trade dispute, or at least that they’re no longer making it worse. Reports last week also showed that the job market is continuing to grow, corporate profits aren’t doing as badly as Wall Street expected and interest rates will probably remain low for a while.
Even in manufacturing, which has been hit particularly hard by President Trump’s trade war, investors saw some hopes that things may be hitting bottom soon.
The Dow climbed 114.75 points, or 0.4%, to 27,462.11, surpassing its prior all-time high set in July.
The Standard & Poor’s 500 index rose 11.36, or 0.4%, to 3,078.27. The Nasdaq composite climbed 46.80, or 0.6%, to 8,433.20. Those are new record highs for both indexes.
The biggest decliner in the S&P 500 was Under Armour. The athletic apparel company’s class A shares plunged 18.9% after it said it has been cooperating with federal regulators for two years on an investigation into its accounting practices.
The indexes’ gains show “investors are doing what we’re theoretically supposed to be doing: We’re looking out at the next 12 to 18 months and investing on the basis of where it’s going, not on where we’re at today,” Tom Stringfellow, chief investment officer at Frost Investment Advisors.
“We are investing on expectations that whatever the worst is, we’re there now.”
All that optimism could wash away quickly if U.S.-China trade talks take yet another turn for the worse, Stringfellow said. But, he said, investors probably need to see only incremental improvements, rather than comprehensive deals, to keep the momentum going.
Rising optimism was evident not only in U.S. stock indexes but also in higher yields for Treasurys. When investors feel less need for safety, the crowd thins to buy Treasury bonds. And when prices fall for Treasurys, their yields rise.
The yield on the 10-year Treasury climbed to 1.77% from 1.72%. And the gap between the yields of the 10-year and two-year Treasurys widened, which many on Wall Street see as a sign of increased confidence in the economy.
The two-year yield rose to 1.57% from 1.55%, and the gap between it and the 10-year yield is close to its largest since late July.
Such a widening spread helps banks, which make money by borrowing money at short-term rates and lending it out at longer-term rates.
Financial stocks in the S&P 500 climbed 0.9%, aided by a 1.9% jump for Bank of America and a 1.8% gain for Citigroup.
Energy and industrial stocks also led the pack. Chevron jumped 4.6%. Exxon Mobil rose 3%. Energy stocks overall climbed 3.1% as the price of oil rose.
A stronger global economy would mean more demand for energy, and benchmark U.S. crude rose 34 cents to $56.54 a barrel. Brent crude, the international standard, rose 44 cents to $62.13 a barrel.
Defensive stocks, meanwhile, lagged. Utilities fell 1.3% — the largest loss among the sectors in the S&P 500. Real estate stocks fell 1.1%.
It’s a reprieve for cyclicals, which have been becoming a smaller part of the stock market. Investors instead have focused on defensive stocks that can do well even when the economy is turning sour. They’ve also focused on companies that can grow almost regardless of the economy, such as Amazon.com, Apple and other big tech firms.
Cyclical companies recently made up about 34% of the S&P 500, down from 41% in early 2018, according to James Paulsen, chief investment strategist at the Leuthold Group.
Part of the reason for the shift into cyclical stocks may simply be the calendar. It’s what typically happens late in the year, said Sam Stovall, chief investment strategist at CFRA.
But the shift doesn’t necessarily mean the all-clear for the economy and the market. Barry Bannister, head of institutional equity strategy at Stifel, sees cyclical stocks doing better than defensive stocks into the middle of 2020, but he sees the S&P 500 falling back to 3,050 by the end of the year and rising modestly to 3,100 in 2020.
Wholesale gasoline was unchanged at $1.66 a gallon. Heating oil climbed 1 cent to $1.94 a gallon. Natural gas rose 11 cents to $2.82 per 1,000 cubic feet.
Gold was unchanged at $1,508.00 an ounce. Silver rose 1 cent to $18.01 an ounce. Copper rose 2 cents to $2.67 a pound.