Another day, another record. US stocks pushed to fresh highs this week, extending a rally that has become one of the defining stories of the year for American investors and for anyone with money in a retirement account.
The S&P 500, the broad index that tracks 500 of the largest US companies and is the most commonly used gauge of the overall stock market, set a new record close, even as oil prices and Treasury yields held relatively steady. Steady bond yields matter because they reflect what investors expect from interest rates and inflation going forward. When yields are calm, it generally gives stock investors more confidence that borrowing costs for companies and consumers are not about to spike unexpectedly.
This year's rally has been driven in large part by enormous investment in artificial intelligence infrastructure, from data centers to the computing chips that power them, along with expectations that the Federal Reserve will continue easing interest rates rather than raising them. Lower rates tend to make borrowing cheaper for companies and can make stocks more attractive relative to bonds, both of which have helped support valuations even as some analysts have questioned whether certain technology stocks have run ahead of their underlying earnings.
For everyday savers, a market at record highs is generally good news if it holds, since it lifts the value of retirement accounts and other investments tied to broad stock indexes. The more cautious reading is that markets which climb this steadily for this long eventually face a correction, a normal pullback that investors and analysts watch for without being able to predict exactly when it will arrive.
Investors will be watching upcoming corporate earnings reports and any fresh signals from the Federal Reserve on the path of interest rates for clues on whether the rally has more room to run.
Why does a steady bond market matter for stocks?
Stable Treasury yields signal that investors are not bracing for a sudden jump in interest rates or inflation, which tends to support stock prices.
What could end the rally?
Analysts point to the risk that heavily valued technology stocks could pull back, or that economic data could shift expectations about interest rates.