Why stocks surged to a new record
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Both the S&P 500 and the Nasdaq Composite hit new all-time closing highs on Wednesday.
Why it matters: Stocks are soaring on hopes that the Iran war will fade and on signs that Americans are continuing to spend — despite rising prices at the pump and souring sentiment.
Zoom in: The rally began in earnest after the ceasefire was announced more than a week ago.
- The surge was amplified by less visible mechanical moves from hedge funds that put billions of dollars into the market.
By the numbers: The S&P 500 rose 0.8% Wednesday and closed above 7,000, topping its Jan. 27 high.
- The tech-heavy Nasdaq was up 1.59% and crossed 24,000 — its highest level since last October.
Follow the money: Investors also liked what Bank of America had to say about the strength of the American consumer in its quarterly earnings report Wednesday morning.
- That was on the heels of fresh data, released Tuesday, that showed wholesale prices rose less than expected in March.
Zoom in: Starting last week, hedge funds were net buyers of U.S. stocks for the first time in eight weeks, driven by both closing out short bets (where investors bet that stocks will fall) and adding new long positions, per data from Goldman Sachs' global banking and markets team.
- Basically, funds that were betting against the market scrambled, pushing prices higher.
- Funds that trade algorithmically based on trend signals, called CTAs, or Commodity Trading Advisers, bought $19 billion in equities last week — the biggest one-week buy since August 2024, they said. The bank said to expect another $40 billion this week.
- Algorithmic macro funds also flipped from selling to buying. Retail investors also came in to buy the dip.
The big picture: The key thing to remember is that the stock market is not the economy.
- Share prices can go up even when people are struggling in a lackluster job market or with higher gas prices or worries over war or fears of an economic growth slowdown.
Between the lines: Investors are also continuing to bet that the stock market is President Trump's most important constituent: He tends to scale back policies when they seem to send shares down, as happened at the start of the war.
- There was big money to be made if you were willing to bet that Trump wouldn't tolerate market pain, Hardika Singh, an economic strategist at Fundstrat, wrote in a note on Wednesday.
- "Investors shouldn't fight the White House, because they won't win," she noted after the president said on Fox Business that when the war is over, "stock market is going to boom; it's already booming."
The bottom line: It is indeed booming.
