S&P 500 Closes at Record High

Index Advances 11.38 Points, or 0.6%, to 1911.91, The 12th Record Closing High Hit in 2014

By TOMI KILGORE
Updated May 27, 2014 4:30 p.m. ET


NEW YORK—U.S. stocks rallied Tuesday, pushing the S&P 500 to its second-straight record high, as the continued sharp bounce in small-capitalization stocks helped underpin the gains.

Trading activity remained relatively muted, with market volatility readings hovering just above 14-month lows.
The S&P 500 index advanced 11.38 points, or 0.6%, to 1911.91, the 12th record closing high hit in 2014. The index also hit a fresh all-time intraday high of 1912.28 during the session.

The Dow Jones Industrial Average climbed 69.23 points, or 0.4%, to 16675.50. The Dow closed 0.2% below its May 13 record high close of 16715.44.

The Nasdaq Composite Index advanced 51.26 points, or 1.2%, to 4237.07.

The Russell 2000 index of small-capitalization stocks, which had underperformed the broad market by a wide margin in the last couple months, rallied 1.4% to close at the highest level since April 24.

The index has gained 4.2% since May 15, when it closed 9.2% below its March 4 record high. Meanwhile, the S&P 500 had declined just 0.2% from March 4 through May 15.

Stocks appear to have shaken off recent concerns about uneven economic growth, a Federal Reserve that was slowly removing stimulus measures and tensions in Ukraine that have kept the market hemmed in tight trading range over the last couple months.

Through last week, the S&P 500 had traded within a 4.5% band since March 4, pushing the CBOE's Market Volatility Index, or VIX, to its lowest close since March 2013. On Tuesday, the VIX was up 1.8% at 11.56.

"The small caps are providing an inordinate amount of validation to our move here today," said Peter Kenny chief executive officer of Clearpool Group, a trade-execution firm.

"Small caps have been a source of incredible pain, so an uptick in that space, coupled with data that's clearly indicating an increase in velocity in the economy, add to the positive narrative" for the market, he said.

Some investors are worried that very low volatility readings can't last, suggesting a volatile selloff in stocks may be on the horizon.

But Mr. Kenny said low volatility by itself shouldn't be a source of concern, as long as the underlying fundamentals and price action is supportive.

"This is the kind of move that doesn't generate excitement," Mr. Kenny said. "But it's the kind of move you want to see the markets make if you're looking for a sustainable and constructive tone."

Economic data helped provide a positive backdrop for investors. Durable goods orders rose in April, versus expectations of a decline, while home prices increased more than forecast in March. And consumer confidence in May was in line with estimates.

"We're on this slow glide higher," said Chris Gaffney, senior market strategist at EverBank Wealth Management.

"Valuations aren't being stretched, corporate news has been decent" and the economy is slowly improving, he said. "I don't mind buying here."


In the Markets






Among stock movers, Hillshire BrandsHSH +22.07% surged 22% after Pilgrim's Pride PPC +1.67% unveiled a $5.5 billion bid for the meats company, just two weeks after Hillshire agreed to buyPinnacle Foods PF -5.38% for $4.3 billion.

Pilgrim's Pride rallied 1.7%, while Pinnacle's stock dropped 5.4%.

Separately, Dow component PfizerPFE +0.41% rose 0.4% after the drug maker dropped its pursuit of British rival AstraZeneca, AZN.LN -1.76% after AstraZeneca spurned Pfizer's latest buyout proposal of $120 billion. AstraZeneca's U.S.-listed shares fell 0.3%.

Uri Landesman, president of Platinum Partners hedge fund, said the economic data have been good, the Federal Reserve is reducing stimulus but overall monetary policy is still highly supportive and corporate deal activity are all positives.

"You're getting the best of both worlds if you're a bull, good news and a supportive Fed," Mr. Landesman said. That said, he said low volatility readings suggest the potential risks to the market aren't being properly discounted, so he wouldn't recommend committing new money to stocks at current levels.

The yield on the 10-year Treasury edged lower to 2.518% from 2.536% late Friday.

June gold futures dropped 2% to settle at a 15-week low of $1,265.40 an ounce, as upbeat economic data in the U.S. and uneventful weekend elections in Ukraine over the weekend prompted investors to shed the safe-haven investment.

Crude oil futures slipped 0.2% to $104.11 a barrel. The dollar gained some ground against the euro and the yen.
In Europe, the Stoxx Europe 600 advanced 0.2% to post a fifth-straight gain to close at the highest level since January 2008.

Asian markets were mixed. Japan's Nikkei Stock Average rose 0.2% to notch a fourth straight gain, while China's Shanghai Composite eased 0.3%.

Write to Tomi Kilgore at tomi.kilgore@wsj.com

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