Optimism over firming U.S. economy lifts stocks to record high

The S&P 500 and Nasdaq closed at record highs on Monday, with stocks sustaining their momentum amid a rebound in corporate profits and brightening outlook for the U.S. economy. 

Along with lifting bullish investors, stocks' strong performance will reassure the White House as it pushes ahead with an ambitious agenda to invest trillions of dollars in infrastructure and to reform taxes. Stocks have had their best run during President Joe Biden's first 100 days in office than since the Eisenhower administration in the 1950s, according to CNBC, citing FactSet data.

With millions of vaccines going out daily and trillions of dollars worth of government-led economic support being paid out, investors have turned much of their attention to how well the global economy — and corporate earnings — will do in the recovery. Corporate profits in the S&P 500 are expected to be up 24% from this time a year ago, according to FactSet.

The S&P 500 edged up to close at 4,188, up 0.2% on the day while the tech heavy Nasdaq added 122 points, or 0.9%, to end at 14,139. The Dow fell 0.2% to 33,982. Small company stocks outpaced the broader market in a sign that investors were feeling confident about economic growth, with the Russell 2000 up 1.1% on the day.

Favorable financial conditions could see stocks rise even higher, according to Wall Street analysts.

"Stock valuations are elevated right now, and a lot of good news is priced in," Jeff Buchbinder, equity strategist for LPL Financial, in an email. "However, we believe valuations are quite reasonable when considering interest rates are low and we expect inflation to remain largely contained."

Goldman Sachs economists expect growth to peak in the second quarter at an annualized rate of 10.5%, propelled by federal stimulus spending and easing of coronavirus restrictions on businesses. The Commerce Department is set to release first-quarter growth figures on Thursday.

Technology stocks, banks and companies that rely on consumer spending helped lift the market, outweighing a pullback in household goods makers, health care and other sectors.

Earnings growth is being welcomed by investors who have had to justify high stock values as many companies continue to emerge from a pandemic slump.

"From an absolute perspective, everybody's expensive," said Sam Stovall, chief investment strategist at CFRA. "Investors are basically saying we can live with that because they believe earnings are going to be even stronger than currently projected."

About a quarter of S&P 500 companies have reported quarterly results so far this earnings season. Of these, 84% have delivered earnings that topped Wall Street's estimates, according to FactSet. Of the companies to report this week, investors will get results from Apple, Microsoft, Boeing, McDonald's and others. 

Investors will be looking to the Federal Reserve as the nation's central bank holds a two-day policy meeting on Tuesday and Wednesday. Investors do not expect interest rates to change for several months, but will be looking for any guidance the Fed has to provide on their thoughts on inflation and the economic recovery.

Meanwhile, the price of Bitcoin rose 8.5% to $53,952. The cryptocurrency had traded for as much as $63,000 as recently as last week.