Encouraging reports on hiring and growth in the service sector sent small companies and banks higher Wednesday and knocked bond prices into a tailspin. The yield on the benchmark 10-year Treasury note surged to its highest level in more than seven years.
Both reports were stronger than analysts expected and suggest the economy is in good shape despite rising interest rates and oil prices, and the trade dispute between the U.S. and China.
“This is evidence of strong economic growth and the likelihood earnings will continue to be good,” said David Joy, chief market strategist at Ameriprise. Although some experts think the economy will slow somewhat in the third and fourth quarter, Joy's view is that “we're not going to get much of a slowdown.”
The S&P 500 index added 2.08 points, or 0.1%, to 2,925.51. The Dow Jones industrial average gained 54.45 points, or 0.2%, to 26,828.39, another all-time high. It was up as much as 177 points earlier. The Nasdaq composite picked up 25.54 points, or 0.3%, to 8,025.09.
The Russell 2000 index of small-company stocks climbed 15.25 points, or 0.9%, to 1,671.29. Those companies, which tend to be more focused on the U.S. market than large multinationals, stand to benefit more from strong economic growth at home. The Russell has fallen since the end of August as investors have grown less worried about trade tensions between the U.S. and other countries.
The survey on private company hiring by ADP raised expectations for the government's broader jobs report due out Friday, which tends to have an even bigger effect on markets. The trade group Institute for Supply Management said its index measuring the service sector reached the highest level in a decade.
The solid reports helped companies that do better when businesses and consumers spend more money, such as technology and industrial stocks. Apple rose 1.2% to $232.07 and Caterpillar rose 2.2% to $158.22.
Investors were willing to bet on continued economic growth, and that meant bond prices dropped sharply, sending yields soaring. The yield on the 10-year Treasury note rose to 3.18%, its highest since July 2011 and up from 3.05% a day earlier.
That helped banks, which are able to charge higher interest rates on long-term loans when bond yields rise. Comerica rose 2.6% to $92.09 and Bank of America added 1.4% to $30.
High-dividend stocks such as utilities and household goods makers took sharp losses. Procter & Gamble fell 1.6% to $83.03 and Walmart lost 1.1% to $94.07. Investors often treat those stocks as alternatives to bonds, and they tend to fall when bond yields rise.
General Motors rose 2.1% to $34 after Honda agreed to invest $2.75 billion in GM's autonomous vehicle business over the next 12 years. Honda lost 3.6% to $29.37. Japanese technology firm SoftBank said in May that it would pay $2.25 billion for a 20% stake in the GM business, which is called Cruise. It's been trying to catch up to Google's autonomous car division, Waymo.
Century Aluminum tumbled after Norsk Hydro said it is shutting down its Alunorte plant in Brazil. Alunorte is the world's largest alumina refinery, and that could leave Century Aluminum without enough of a crucial material used in making aluminum. Century Aluminum fell 11.6% to $10.52, and shares of Norsk Hydro lost 11.8% in Norway.
Rival aluminum company Alcoa, which produces its own alumina, rose 3.2% to $42.89.
Stocks in Europe rose after Italy's economy minister backed down on spending plans that would keep the country's deficit at an elevated level for three years. That relieved investors who were worried about Italy's debts and the possibility of tensions between the country and the European Union.
The FTSE MIB in Italy gained 0.8% after dropping 5% over the previous five days. Italian government bond prices climbed, and the yield on the 10-year bond fell sharply, to 3.30% from 3.44%. That followed sharp rises in the yield over the last three days.
The CAC 40 in France rose 0.4% while the FTSE 100 in Britain rose 0.5%. German markets were closed for a holiday.
Benchmark U.S. crude jumped 1.6% to $76.41 a barrel in New York. U.S. crude has hit four-year highs this week. Brent crude, used to price international oils, rose 1.8% at $86.29 a barrel in London.
Wholesale gasoline edged up 0.5% to $2.14 a gallon. Heating oil rose 1.2% to $2.44 a gallon. Natural gas climbed 2% to $3.23 per 1,000 cubic feet.
Gold fell 0.3% to $1,202.90 an ounce. Silver lost 0.2% to $14.67 an ounce. Copper rose 1% to $2.83 a pound.
The dollar rose to 114.34 yen from 113.69 yen. The euro fell to $1.1517 from $1.1545.
Asian stocks fell as traders worried about rising oil prices and weak economic data in Japan. Japan's benchmark Nikkei 225 fell 0.7% and Hong Kong's Hang Seng dropped 0.1%.