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Strong economy, earnings bets propel S & P 500 to record high

Tuesday, July 12, 2016  
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Reuters New York By Rodrigo Campos

July 11, 2016 / 6:40 p.m. EDT

The S&P 500 on Monday broke the record high it held for more than a year as upbeat economic data and low bond yields continued to funnel investors into U.S. equities.

Led by sectors seen thriving in an expanding economy, the benchmark .SPX closed at a record 2,137.16 points, overtaking the previous high of 2,130.82 hit on May 21, 2015.

However, the best performing S&P 500 sectors since the previous record have been defensive: utilities .SPLRCU, telecoms .SPLRCL and consumer staples .SPLRCS, all with double-digit percentage gains.

This outperformance in high-yielding areas of the market underscores investor concerns over the economy's resilience in the face of global stagnation. Britain's decision last month to leave the European Union adds to the uncertainty.

The strong performance of defensive stocks also feeds into the idea that ultra low bond yields have pushed fixed income investors into stocks. Yields on 10-year U.S. Treasury notes US10YT=RR rose on Monday, but remained close to the record low of 1.321 percent hit last week.

"We don’t have the rising (bond) yields that would typically check the market rally, that’s one of the reasons we keep going higher," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

"I certainly think (low bond yields) are creating problems in the bond-like stocks. I wouldn’t want to be sitting in utilities or REITs right now."

Despite his concerns, Paulsen said strong economic data - including last Friday's much-better-than-expected payrolls report for June and the expectation that corporate earnings are turning a corner for the better - are supporting the market's run to new highs.

The Dow Jones industrial average .DJI rose 80.19 points, or 0.44 percent, to 18,226.93, the S&P 500 .SPX added 7.26 points, or 0.34 percent, to 2,137.16 and the Nasdaq Composite .IXIC gained 31.88 points, or 0.64 percent, to 4,988.64.

The S&P also broke its record intraday high, hitting 2,143.16 points to overtake the previous high of 2,134.72 hit on May 20, 2015. Technology stocks led the way higher on Monday, and the Nasdaq Composite .IXIC hit its highest level this year.

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