S&P 500 moves above 1,500 level
That is the first time in 7 years that the index has been within range of its all-time high.
NEW YORK - Sometimes 1,500 is bigger than 13,000.
The Standard & Poor's 500 index moved above 1,500 yesterday for the first time in seven years, marking a psychological milestone for the index, which most investors should care about more than the oft-cited Dow Jones industrial average. Although the Dow grabs the headlines, the S&P 500 is the one that millions of individual investors are making money on: It's the basis for many widely held mutual funds.
The S&P's climb puts it within range of its March 2000 closing high of 1,527.46 - when stocks were inflated by the dot-com boom - but observers say the index's push into its current range is more justified on this return trip.
"Our view is, that's where we ought to be, because we've never had this sort of corporate profitability - ever," said Jeffrey Layman, director of investment services at BKD Wealth Advisors L.L.C., of Springfield, Mo. He contends that the 1,500 level in 2000 "was probably not rational," given overheated stock valuations.
"In the meantime, corporate earnings have more than doubled," Layman said.
He noted that, because the S&P 500 is not stuffed with as many technology stocks as in 2000, and because it now includes more financial-services companies among its 500 components, the index reflects what is now driving the economy.
"It's one of the reasons the S&P is not trading at new highs," he said of some of the remaining technology companies. "The Dow really didn't have much of technology in it."
The Dow - Wall Street's best-known index - has been the flashier of the two lately. The index, which reflects the performance of 30 big-name stocks, has recorded 18 record closes since the start of the year and 40 since the beginning of October. The Dow's latest record finish, its third in as many sessions, came yesterday.
Although the S&P 500's gains command less attention on Main Street, both indexes have been driven by higher earnings.
Dave Goerz, chief investment officer at HighMark Funds, of San Francisco, contends that the S&P 500 has more room to run. He predicts that the index will hit 1,550 by the end of this year and 1,700 by the end of 2008.
"We prefer to look at the S&P, because we think it's more broadly representative and more closely tied to what's happening in the economy," he said.
While Wall Street has been predicting that a slowing economy will eat into corporate profits as well as the stock market's performance, stronger economies abroad have helped inoculate U.S. companies from a slowdown at home. That is because many big companies, like those in the S&P 500 and the Dow industrials, have operations abroad and can rely on sales there to prop up profits here.
"Export growth has been the highest it's been in 12 years," Goerz said. "We're starting to see more goods and services exported overseas."