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Stocks Get Off to a Strong Start in 2018 -- WSJ

6 Jan 2018 7:32 am

Dow industrials gain 2.3% during the week; S&P 500 posts four records in a row
By Corrie Driebusch and David Hodari 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 6, 2018).

The Dow Jones Industrial Average notched its best start to a year since 2003 as further signs of a solid economic backdrop helped push stocks to new highs during the week.

The strong start to 2018 builds on last year's remarkable gains, which were powered by investors' optimism over the global economy and a belief that central banks won't hurt markets and economic growth by withdrawing stimulus too quickly.

The S&P 500 posted four fresh records in four consecutive trading sessions in the past week, rising 2.6%, its biggest weekly gain since December 2016 and its best start to the year since 2006. The Dow, which catapulted above 25000 for the first time Thursday, ended the week up 2.3%, its best four-day start to the year since 2003.

On Friday, the Dow industrials rose 220.74 points, or 0.9%, to a record close of 25295.87. The S&P 500 gained 19.16 points, or 0.7%, to 2743.15. The Nasdaq Composite also ended the week at a record, adding 58.64 points, or 0.8%, on Friday to 7136.56 as technology stocks continued to rise sharply. Technology companies in the S&P 500 ended the week 4.2% higher, making the sector one of the best-performing groups in the index.

"Over the last year or so, we had low interest rates, low inflation, accelerating global growth, stellar earnings, and all that translated to a perfect environment for stocks," said Tim Courtney, chief investment officer of Exencial Wealth Advisors, which oversees more than $2 billion in client assets.

Those factors aren't showing many signs of changing in early 2018, analysts say.

On Friday, data showed the pace of U.S. hiring slowed in December even as the unemployment rate held at a 17-year low. Wage growth, which many investors look to as a sign of inflation, remained relatively subdued, with hourly wages improving modestly last month and rising 2.5% from a year earlier.

Despite the weak December jobs number, analysts and traders said they don't expect the disappointment to halt stocks' run higher or significantly change expectations for interest-rate increases in 2018.

The yield on the benchmark 10-year U.S. Treasury note climbed to 2.476% from 2.452% on Thursday. Yields rise as bond prices fall. So far this year, Treasury yields have risen slightly, and U.S. policy makers have signaled that three short-term interest-rate increases are on tap for 2018.

The jobs report was "not a big driver," said Justin Wiggs, managing director in equity trading at Stifel Nicolaus, adding that with leadership changes pending at the Federal Reserve, it could take several meetings to ascertain where the central bank is going in terms of its rate-increase policy.

Some money managers are more concerned about stock-market valuations. Mr. Courtney said he is increasingly worried about how pricey certain companies have become relative to their earnings and is considering moving money from U.S. markets to international stocks.

Companies in the S&P 500 currently trade at an above-average price relative to their past 12 months of earnings.

International stocks joined the U.S. in the early-year rally over the past week. The Stoxx Europe 600 rose 0.9% Friday, putting its weekly gain at 2.1%.

Japan's Nikkei Stock Average closed up 4.2% for the week at another 26-year high. South Korea's Kospi gained 1.3% Friday after falling Thursday, putting its weekly advance at 1.2%. China's Shanghai Composite ended the week up 2.6%, its largest weekly rise since July 2016. Meanwhile, Hong Kong's Hang Seng Index rose 3% in the past week, reaching a fresh 10-year high.

The dollar rose against both the euro and the yen on Friday. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was up less than 0.1%.

U.S.-traded crude oil for February delivery slipped 0.9% Friday to $61.44 a barrel after closing at a three-year high on Thursday. Recent gains in the price of oil have boosted shares of oil-and-gas companies, lifting the S&P 500's energy sector 3.9% in the past week.

Lucy Craymer contributed to this article.

Write to Corrie Driebusch at corrie.driebusch@wsj.com and David Hodari at David.Hodari@dowjones.com

(END) Dow Jones Newswires

January 06, 2018 02:32 ET (07:32 GMT)

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