US stocks soar to new record as growth accelerates

Traders wear hats that say "DOW 18,000" as they work on the floor of the New York Stock Exchange Tuesday afternoon in New York City. The Dow Jones Industrial Average crossed a landmark by closing above 18,000 points. -- PHOTO: AFP
Traders wear hats that say "DOW 18,000" as they work on the floor of the New York Stock Exchange Tuesday afternoon in New York City. The Dow Jones Industrial Average crossed a landmark by closing above 18,000 points. -- PHOTO: AFP

NEW YORK (AFP) - The Dow stock index closed above 18,000 for the first time ever Tuesday after government data estimated third-quarter US economic growth at a spectacular five per cent.

The blue-chip index crossed its latest threshold within moments of the market opening and stayed above 18,000 the rest of the session, continuing a so-called "Santa Claus rally" that began after last week's US Federal Reserve meeting.

The Dow Jones Industrial Average finished at 18,024.17, up 64.73 points(0.36 per cent).

The broad-based S&P 500 also notched a fresh record, gaining 3.63 points (0.17 per cent) to 2,082.17, while the tech-rich Nasdaq Composite Index dropped 16.00 (0.33 per cent) to 4,765.42.

At five percent, US growth for the third quarter was the best since 2003. The figure, described as "mind-blowing" by one analyst, was also better than the 3.9 per cent previously estimated by the government and the 4.3 per cent projected by analysts.

Spending for consumption rose 3.2 per cent, the biggest jump since the end of 2013. Analysts also cited strong growth in defence spending and exports.

The US growth figures showed "an economy firing on all cylinders for the first time in many quarters". said Chris Low, chief economist at FTN Financial.

However, the good cheer was offset somewhat by US durable goods orders - an indicator of business investment - which fell 0.7 per cent in November.

Low said the durable goods orders implies that fourth-quarter capital spending will decline, perhaps sharply, "suggesting blockbuster growth in the third quarter will be followed by a distinctly slower Q4".

Tuesday's record was the Dow's 36th in 2014, according to S&P Dow Jones Indices.

The latest spate of equity records follow Wednesday's Fed meeting, at which the US central bank kept interest rates low, gave a fairly upbeat assessment of the economy and said it would be "patient" before raising rates.

Standout sectors Tuesday included large banks, such as Dow member JPMorgan Chase and Wells Fargo. Retail stocks Macy's and TJX Companies also advanced, as did petroleum companies ExxonMobil and Chevron as oil prices rallied from recent lows.

The day's weakest sector was pharmaceuticals, including Dow members Pfizer and Merck as well as biotech companies Celgene and Biogen. Investors fear a price war among pharma companies after prescription management company Express Scripts replaced a hepatitis drug of Gilead Sciences with a lower-cost alternative from rival AbbVie.

US stocks could climb higher still in the coming days as money managers who are under-invested in equities look to capitalize on the positive sentiment, said Mace Blicksilver, director of Marblehead Asset Management.

He also cited a paucity of sellers given shortened holiday trading sessions.

"I don't see anything to change the momentum of the market between now and year end," Blicksilver said.

The outstanding US growth figures comes on the heels of strong US labor and retail sales reports for November.

The latest US data bolsters the sense of advantage for the giant economy as Europe and Japan struggle to attain growth and growth slows in China and other emerging powers.

Adding to the momentum in the US has been a precipitous fall in gasoline prices, seen as a de facto tax cut for consumers.

US gasoline prices are now $2.38 for a gallon of regular, off about 27 percent from the year-ago level.

However, analysts cite some headwinds for the US economy heading into 2015, including a hit if major its trading partners continue to stagnate and the dollar remains strong.

Other unknowns relate to the implications of a crashing Russian ruble and of a huge drop in oil prices that weighs on US energy investment and the economic prospects of oil-exporting nations.

Most of all, market watchers say US stocks could stumble once the US Fed finally does begin to raise interest rates, as it is expected to do in the middle of 2015.

"Every year and every quarter, there are always issues to worry about," said Dan Greenhaus, chief global strategist at BTIG, who predicted increased volatility next year. "And 2015 doesn't appear to be any different."

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