By Alexandra Scaggs
The Dow Jones Industrial Average charged to another record close
on Wednesday, bolstered by upbeat corporate news and confidence
that the Federal Reserve will keep interest rates low.
The Dow climbed 77.52 points, or 0.5%, to 17138.20, its 15th
all-time high this year. The S&P 500 index rose 8.29 points, or
0.4%, to 1981.57, and the Nasdaq Composite Index gained 9.58
points, or 0.2%, to 4425.97.
Investors shifted their attention to U.S. corporate-earnings
reports Wednesday, after choppy trading in recent sessions on
statements from the Federal Reserve and worries about a Portuguese
lender. Good news from overseas helped set a positive backdrop for
U.S. trading. And a second day of testimony from Fed Chairwoman
Janet Yellen reinforced the idea that the central bank will keep
interest rates low for an extended period.
"Until you see an increase in long-term interest rates...stocks
will be the preferred asset class for investors," said James Abate,
who manages $196 million in two funds for Centre Asset Management.
"People don't have much of a choice but to remain invested in
equities."
He said that continued low interest rates should spur more deals
activity and share buybacks, both of which have helped support
stock-market gains. He expects interest rates to remain low for
some time and has kept a high exposure to U.S. and global stocks in
the Centre Multi-Asset Real Return Fund.
Wednesday's gains were fueled by bullish trading in technology
and energy stocks, said Jeffrey Yu, head of U.S. single-stock
derivatives trading at UBS AG. But the rise also extended a rebound
from the previous session's lows, he said. Stocks dropped Tuesday
morning, as Ms. Yellen discussed signs of strength in the U.S.
economy.
But since then, "she pretty much went as dovish as possible,
given the economic backdrop, which has allowed the market to bounce
back," said Mr. Yu.
Upbeat reports from technology companies sparked a rally in the
sector. Intel Corp. led the Dow higher, gaining 9.3% after a
better-than-expected earnings report from the company. The chip
maker also announced it would add $20 billion to its share buyback
plan.
International Business Machines rose 2.1% on news it struck an
agreement with Apple to create business apps and sell iPhones and
iPads to IBM's business customers. Apple slipped 0.6%.
Energy stocks led the S&P 500 higher, with the sector up
1.6% as oil prices rebounded from recent declines. Crude-oil
futures rose 1.2% to $101.20 a barrel, after settling below $100
for the first time since May on Tuesday.
Stocks of small-cap, social media and biotechnology companies
extended their steep Tuesday drop. The Russell 2000 Index dropped
0.2%, and the Nasdaq Biotechnology Index lost 1.3%. A Fed report
released Tuesday expressed concern about valuations in those
corners of the market. The Nasdaq Biotech Index is trading at 44.8
times its expected earnings for the next year, compared with the
S&P 500's 15.7, according to FactSet. As of the end of June,
the Russell 2000 was trading at 20 times its forecast earnings,
according to Russell Indexes.
A few companies in those sectors could eventually justify their
lofty valuations, said Jason Pride, director of investment strategy
at Glenmede Trust Co., which oversees $25 billion. But his firm is
steering clear.
"Anybody's ability to pick the winner in those situations is
probably lower than he thinks it is," he said. "It tends to be a
loser's game to do that."
A handful of reports on the U.S. economy also supported stocks.
A better-than-expected report on the housing market helped boost
home builder shares. And a measure of producer-price inflation came
in slightly above expectations in June, rising 0.4% on the month,
while a 0.3% rise was expected.
Continued news of deals gave a boost to benchmarks as well.
Shares of Time Warner Inc. rallied 17% after 21st Century Fox
confirmed Wednesday it offered to buy Time Warner last month, but
Time Warner rejected the proposal. Fox shares slipped 4.6%.
News from the financial sector was mixed, sending bank stocks in
the S&P 500 down 0.1%. BlackRock Inc., the world's largest
asset manager, edged up 0.4% after reporting stronger profit growth
than Wall Street expected
Bank of America Corp. dropped 1.9% after reporting
weaker-than-expected quarterly profit. The bank also met with the
Justice Department to offer $13 billion to settle a
mortgage-securities probe, The Wall Street Journal reported.
The Stoxx Europe 600 rose 1.3%, reversing part of the decline
seen over the past week as concerns over the financial health of
Banco Espírito Santo and its parent companies rattled markets.
In commodity markets, gold futures rose 0.2% to $1,299.60 an
ounce.
The yield on the 10-year Treasury note, which moves inversely to
its price, edged down to 2.540%.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com