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 The Standard & Poor's 500 index closed above 1,800 for the first
time, capping seven straight weeks of gains.
The broader index is on track for its best performance in 15 years
as a combination of solid corporate earnings, a strengthening
economy and easy-money policies from the Federal Reserve draw
investors to stocks. Stocks have also gained because they offer an
attractive alternative to bonds, where interest rates remain close
to all-time lows.
"You can't really get better returns other than in the stock
market," said Peter Cardillo, chief market economist at Rockwell
Global Capital. "It's been a quality run-up in stocks."
The S&P 500 index rose 8.91 points, or 0.5 percent, to 1,804.76. The
index has advanced 26.5 percent in 2013. If it finishes at that
level, it would be its strongest year since a 26.7 percent gain in
1998.
The Dow Jones industrial average also continued its upward march
after finishing above 16,000 for the first time Thursday. The index
gained 54.78 points, or 0.3 percent, to 16,064.77.
The Nasdaq composite rose 22.49 points, or 0.6 percent, to 3,991.65.
On Friday, health care stocks led the market's rise. Biotechnology
company Biogen Idec surged on reports that it won market exclusivity
for its top-selling multiple sclerosis drug in Europe. The company's
stock jumped $33.19, or 13 percent, to $285.62.
Health care stocks have also led gains in the S&P 500 this year,
rising 38 percent. The industry is attractive to investors. Some of
its companies, like Biogen Idec, offer the possibility of explosive
growth. Others are established players like Pfizer, which pays big
dividends. Health insurance companies have also done well this year
as the Affordable Care Act rolls out.
Despite their big gains, stocks could continue to rise. The economy
is forecast to keep recovering and that helps companies increase
their earnings. And while stock valuations have risen, they are
still attractive compared with bonds.
However, investors will likely have to look harder to find winning
stocks next year, said Paul Hogan, co-manager of the FAM
Equity-Income Fund.
"We've had the rising tide, but going forward, it's the stock
pickers that will tend to do better."
Among single stocks that have done well this year, there are two
standouts, Netflix and Best Buy.
Netflix has surged 276 percent as the video steaming service and DVD
rental company continues to add subscribers. Best Buy has surged 232
percent as the company's turnaround strategy appears to be working
after a tough 2012.
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Still, there are also grounds for caution.
Given the strong gains this year, stocks are no longer a bargain.
"I'm not pounding the table anymore saying this is the cheapest U.S.
equity market in decades," said Andres Garcia-Amaya, a global market
strategist at J.P. Morgan Funds.
While investors shouldn't necessarily sell, they should temper their
expectations for the level of returns, he said.
The price-earnings ratio of S&P 500 companies, a measure of how much
investors are willing to pay for a stock in relation to its
earnings, has climbed to 14.9 from 12.6 at the start of the year.
Also, the rally in stocks is getting long in the tooth. The S&P 500
has surged more than 160 percent, since the bull market for stocks
began 56 months ago — in March, 2009. Since the Great Depression,
the average bull market for stocks has lasted 57 months.
Investors will also have to deal with the end of the Fed's stimulus
program, possibly this year.
The central bank is currently buying $85 billion of bonds a month to
hold down long-term interest rates, help support the stock rally.
The stock market's only two months of decline this year, in June and
August, came when investors fretted that the central bank was poised
to start reducing, or tapering, its stimulus. Investors sold
Treasury notes, long-term interest rates rose and stocks fell.
"The clear headwind that is on everyone's radar screen is the pace
and the timing of the Fed's taper," said Jim Russell, regional
investment director at US Bank. "That will prove to be a little bit
of an adjustment."
In government bond trading, the yield on the 10-year Treasury note
fell to 2.75 percent from 2.79 percent on Thursday. The yield
climbed as high as 3 percent Sept. 5, on concern that Fed policy
makers were poised to cut their stimulus.
[Associated
Press; STEVE ROTHWELL, AP Markets Writer]
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