S&P 500 Notches a New Record
U.S. equities advanced last week, with the S&P 500 Index notching new record closes on Thursday and Friday. For the week, the S&P advanced 0.33% to 2,123, the Dow Jones Industrial Average rose 0.44% to 18,272, and the Nasdaq Composite Index gained 0.90% to 5,048. Meanwhile, bond markets settled after yields spiked earlier in the week with the yield on the 10-year Treasury ending unchanged at 2.15%.
A pullback in bond yields, more mergers-and-acquisitions (M&A) activity and a wave of companies buying back shares all aided stocks last week. Overall, we continue to see an environment of “good enough” growth, reinforcing our view for both bond yields and stock prices to grind higher. That, in turn, leads us to continue to favor stocks over bonds.
Bond Yields Stabilize …
Last week, stocks benefited from companies putting their cash to work. We saw another round of M&A activity with Verizon agreeing to buy 1990’s icon AOL for $4.4 billion, while Danaher is set to purchase Pall for $13.8 billion. In addition, companies continue to buy back their own stock. Last month brought a monthly record with the announcement of $141 billion in share buybacks, up 121% from April 2014.
But stocks also profited from a pullback in long-term bond yields. Earlier in the week, yields on 10-year and 30-year U.S. Treasuries rose to 2.35% and 3.10%, respectively, both highs for the year. However, a combination of factors helped bonds stabilize by week’s end.
First, the Treasury’s auction of 10-year notes met with strong demand, suggesting bond prices have fallen to a level investors find attractive. Second, economic data continue to come in mixed. On the positive side, the labor market appears to be recovering from March’s softness. The four-week average of initial jobless claims hit the lowest level since 2000. However, consumers are still not spending. Retail sales were flat in April, once again coming in below expectations. On a year-over-year basis, adjusted retail sales are now up less than 1%, the slowest rate of growth since 2009.