Move over, taper tantrum. Markets are now looking downright giddy. The S&P 500 on Thursday is not only on track for another record-high close, it has also blown past its previous intraday high, set in May.
The gains put a new gloss on the U.S. benchmark index, which has been outshining most of its global peers this year, with investors showing more confidence in the underlying economy, corporate earnings and central bank policy.
In midday trading, the S&P 500 was up about 10 points, or 0.6 per cent, to 1691 – bringing year-to-date gains to nearly 19 per cent. By comparison, Canada's S&P/TSX composite index is up just 1.9 per cent in 2013 and the Euro Stoxx 50 blue chip index is up 3 per cent.
The U.S. gains have obliterated the market downturn that alarmed many investors earlier this summer, when the S&P 500 fell as much as 6 per cent by late June. Then, they were reacting to plans from the Federal Reserve to ease-up on its bond-buying program with a belief that this tapering would bring sooner-than-expected interest rate hikes. Fed chairman Ben Bernanke has since made it clear that the central bank was in no rush to withdraw stimulus.
But although large-cap stocks are now slightly above their May highs, the market has not merely reverted to where it was earlier in the year; the index today looks considerably different than it did two months ago. Since the May high close, the S&P 500 is now up nearly 1.4 per cent, as of Thursday in midday trading. But consumer discretionary stocks and financials have done considerably better over this period with a gain of about 3.5 per cent each – or more than double the market.
At the same time, telecom stocks, materials, utilities and energy stocks have underperformed, showing slight declines from the May high.
This suggests that the S&P 500 hasn't merely snapped back. Instead, investors have moved out of commodity producers and defensive, dividend-generating positions and into stocks that have a tighter association with the U.S. domestic economy.