Stocks Inch Closer to Record High, Supported by Oil Prices

The S&P 500 crept closer to its record high Tuesday, lifted by oil’s return to $50 a barrel and renewed confidence that U.S. interest rates will stay low.

The gains briefly boosted the Dow industrials above 18000 for the first time in more than a month and the S&P 500 closed within 0.9% of its record, spurred by energy shares that have climbed with the price of oil in recent months.

Crude oil extended gains as the dollar weakened and production outages curbed supply. U.S. crude rose 1.3% to $ 50.36 a barrel, settling above $50 for the first time since July. Prices have nearly doubled since hitting 13-year lows earlier in 2016 as companies have cut spending on new drilling and unplanned outages in Nigeria and Canada helped shrink the global oil glut.

U.S. crude production fell by 250,000 barrels a day in May from April, the largest one-month decline in years, the Energy Information Administration said Tuesday in its short-term energy outlook.

Energy shares in the S&P 500 added 2.1%. EOG Resources climbed $4.15, or 5.1% to $85.42 and Concho Resources gained 5.75, or 4.8%, to 126.26. Chevron and Exxon Mobil were among the biggest gainers in the Dow industrials.

The energy sector’s earnings have declined for six consecutive quarters year-over-year, according to FactSet, so oil’s price gains could brighten the outlook for some of those companies. Energy shares in the S&P 500 have rallied 11% in the past three months.

“Oil has continued to strengthen, giving people comfort that at some point we can see a recovery in S&P 500 earnings,” said Doug Foreman, chief investment officer at Kayne Anderson Rudnick Investment Management.

“Areas like energy, industrial materials and a lot of commodities — which had been decimated — are coming out of a depression, and that change alone is very, very positive for the overall marketplace,” he said.

U.S. government bond yields fell as concerns about rising rates faded. The yield on the benchmark 10-year Treasury note was 1.713% compared with 1.723% Monday. Yields fall as bond prices rise.

Many investors drew reassurance from a speech by U.S.Federal Reserve Chairwoman Janet Yellen on Monday, in which she said Fed officials expect the economy to improve but won’t raise interest rates until new uncertainties about the economic outlook are resolved.

“We think they’re going to move very, very slowly,” said Monica Defend, head of global asset allocation research at Pioneer Investments.

Friday’s weaker-than-expected jobs report sharply reduced expectations for a rate rise at the Fed’s June and July meetings.

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, fell 0.4%. The dollar tends to benefit from higher interest rates.

“Every data point is really being dissected,” said Chris Dyer, director of global equity at Eaton Vance. “Consumer strength has been a real engine of growth in the U.S. economy, and this [jobs report] raises a little bit of a red flag,” he said.

The Stoxx Europe 600 rose 1.1%, led by energy companies.
Japan’s Nikkei Stock Average added 0.6%, while Hong Kong’s Hang Seng Index gained 1.4%.