NEW YORK — A rally that brought the stock market to record highs this year came back to life after consumer confidence reached a five-year high and U.S. home prices rose the most in seven years. As stock prices rose investors sold bonds, sending interest rates higher.
The Dow Jones industrial average rose 106 points to close at another record Tuesday, bouncing back from a loss the week before. The Standard & Poor’s 500 index also gained. The S&P is on track for its seventh straight monthly increase, the longest winning streak since 2009.
“They say the stock market tends to lead the economy. Now we’re starting to see the improvement on the economic front, so there’s some justification for this rally,” said Ryan Detrick, a senior technical strategist at Schaeffer’s investment research.
The yield on the 10-year Treasury note jumped to 2.17 percent, its highest level since April 2012, as investors moved money out of safe assets and into riskier ones like stocks. That’s a big move from Friday’s level of 2.01 percent. Markets were closed Monday for Memorial Day.
The stock market is coming off a rare loss last week, when both the Dow and the S&P 500 index had their first losing weeks in a month. Investors worried that the Federal Reserve might slow its extraordinary economic stimulus measures, which have also supported the stock market’s advance.
The gains were broad. Eight of the 10 industry groups in the S&P 500 index rose, led by financial stocks. The only groups that fell were utilities and telecommunication companies, which investors tend to buy when they’re seeking stable, safe stocks that pay high dividends. All but six of the 30 stocks in the Dow rose.
Some of the most eye-catching price moves were in the bond market.
Bond yields are rising in anticipation that the Fed may ease back on its $85 billion monthly bond purchases. Tim Courtney, chief investment officer at Exencial Wealth Advisors, is among those who see a bleak outlook for the bond market. While inflation is currently low, it will likely start to rise within one or two years if the economy continues to improve, Courtney said.
Higher inflation prompts investors to demand higher yields, pushing down bond prices and inflicting losses on bond investors.
“The only way that bonds can make money from here is if we go a prolonged period of time with very, very low inflation and rates just don’t move up a whole lot at all,” said Courtney. “Under any other scenario they lose.”
Treasury yields are used as benchmarks to set interest rates for consumer loans and mortgages. While they have increased sharply this month, they are still relatively close to the record low of 1.39 percent last July.
The Standard & Poor’s/Case-Shiller survey, which was released before stock trading opened, found that U.S. home prices rose 10.9 percent in March, the most since April 2006. A growing number of buyers are bidding on a tight supply of homes. Beazer Homes jumped 44 cents, or 2.1 percent, to $21.79.
Stocks extended their gains in the morning after the Conference Board reported at 10 a.m. that its measure of consumer confidence rose in May to its highest level since February 2008.
The Dow was up as much as 218 in the early going, then gave up some of its gain in the afternoon.
Some analysts said investors were likely booking gains as the end of the month approached on Friday. The Dow is up 3.8 percent so far in May. The S&P 500 is 3.9 percent higher.
The Dow closed 106.29 points, or 0.7 percent, higher at 15,409.39. The index has risen for 20 straight Tuesdays. The longest streak of consecutive gains for any day of the week was in 1968, when there were 24 gains on Wednesdays, according to Schaeffer’s Investment Research.
The S&P 500 index rose 10.46 points, or 0.6 percent, to 1,660.06. The Nasdaq composite index climbed 29.74 points, or 0.9 percent, to 3,488.89.
The Dow has advanced 17.6 percent this year and the S&P 500 index is 16.4 percent higher as investors have piled into stocks.
