Large-Cap Breakout

On Wednesday the S&P 500 finally joined the Dow Jones Industrial Average in closing above its previous bull market peak, set in March 2000. Today brought little follow-through, and unless more gains follow soon this event may prove to have little meaning. It is psychologically important, though, in reminding investors how far the market benchmarks have come in the last seven years. It has been a wild ride, to say the least. Meanwhile the tech-heavy Nasdaq Composite Index is nowhere close to its last peak, so the gains are not as widespread as it might appear.

The S&P 500 breakout came late in the afternoon after the Federal Reserve released the minutes of its March meeting, revealing some unexpected optimism about the economy. More merger news and continued strength in overseas markets were also helpful to the bulls. Today brought a revised 1Q Gross Domestic Product report that was weaker than expected, showing growth at an annualized rate of 0.6%, the slowest growth rate in more than four years. On the other hand, new data on business activity and construction spending pointed toward more growth, so the picture is still cloudy.

The optimistic rhetoric about stocks may be a little overdone right now. Tomorrow's jobs report also has the potential to change a lot of minds. Nonetheless, if the Dow and S&P 500 can at least hold steady for a week or two, another step upward seems likely.

The utilities sector seems to have found support after a few days of weakness, and is already starting to move back up. Intermediate-term momentum remains positive, though on a relative basis the sector has fallen down the rankings. Energy continues to defy gravity, while basic materials and aerospace stocks marked important breakouts this week.