The S&P 500 closed at a fresh record above 7,800 on Thursday, extending its rally even as Treasury yields sit near multiyear highs. Softer inflation data is helping stocks shrug off higher rates for now, but strategists warn that rising oil prices and choppier earnings reactions could test the advance.
The S&P 500 closed Thursday at 7,798.99, up 0.65%. It had touched an intraday all-time high of 7,816.70 during the session. The Nasdaq Composite advanced 0.81% to 26,803.03. The Dow Jones Industrial Average gained a more modest 0.13% to 53,839.99. Both the S&P 500 and Nasdaq are on pace for a third straight weekly advance, which would mark their first three-week winning streak since May.
Rates climb, but stocks shrug it off
The rally comes even as bond yields sit at multiyear highs. The U.S. sold 30-year debt this week at its highest borrowing cost since 2001. The 10-year Treasury yield stood near 4.66% on Friday.
LPL Financial's Jeff Buchbinder notes that the correlation between the 10-year yield and the S&P 500 tends to flip negative once yields rise in a sustained move above 4.3%, meaning further increases could start to pressure equities. Yet July retail sales unexpectedly fell 0.6%, against expectations for a 0.1% gain. July producer prices came in essentially unchanged versus forecasts for a 0.2% rise. Traders are now pricing roughly a 33% to 35% chance of a September Federal Reserve rate hike, down from about 55% a week earlier.
Earnings reactions turn more selective
However, not every earnings report is being rewarded. Applied Materials reported adjusted earnings of $3.50 per share on revenue of $9.12 billion. The stock still fell about 5%, a smaller move than the roughly 7.4% swing options traders had priced in ahead of the report. Across the latest batch of results, only about 37% of directional stock reactions were positive, with the median reaction near -1.3%.
Oil is the level to watch
Beyond earnings, oil prices are the other risk traders are tracking. Brent crude traded near $87.91 a barrel as the U.S. said its naval blockade of Iranian ports could continue indefinitely, reviving concerns over the Strait of Hormuz.
A sustained break above $90 for Brent could revive inflation concerns and pressure the growth stocks that have driven the index to its records.
Sources: CNBC, MarketWatch, Investinglive
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