U.S. stocks Thursday notched their biggest gains in a week, pushing the Nasdaq composite index to an all-time high.
The rally came a day after the Federal Reserve suggested that it wasn’t planning to raise interest rates right away. Ultra-low rates in the past six years have helped drive a bull market in stocks that has pushed the market to record levels.
The central bank Wednesday said it needs to see more improvement in the economy and stronger signs of inflation before lifting rates, reassuring investors.
“The Fed’s likely to raise rates later this year, but maybe not as aggressively as some market participants worried,” said Michael Baele, managing director and senior portfolio manager at U.S. Bank Private Client Reserve.
The Dow Jones industrial average gained 180.10 points, or 1 percent, to 18,115.84. The Standard & Poor’s 500 index climbed 20.80 points, or 1 percent, to 2,121.24. The Nasdaq added 68.07 points, or 1.3 percent, closing at 5,132.95, surpassing the most-recent high for the index of 5,106.59, set May 27.
Most major U.S. stock indexes are up for the year, but the Nasdaq is turning in the best performance. It’s up 8.4 percent this year, compared with a gain of 3 percent for the S&P 500 index and 1.6 percent for the Dow.
The Nasdaq’s rise has been driven by technology and health care. In a slow-growth world, investors are favoring stocks where earnings will be better than average. Faster-growing companies should also fare better should rates eventually rise, said Peter Cardillo, chief market economist at Rockwell Global Capital.
While the Nasdaq, which tracks 2,500-plus stocks, has been climbing steadily since 2011, its ascent isn’t the crazed surge that drove it to its dot-com bubble era highs in 2000. This time, the gains are underpinned by solid companies, said Stephen Freedman, senior investment strategist at UBS Wealth Management Americas.
The average price-earnings ratio of the Nasdaq, a measure of how much investors are willing to pay for every dollar of earnings the companies in the index generate, is currently 21. When the Nasdaq was at its highest, the ratio reached 194.
