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U.S. stocks hit a new high as S&P 500 recovers all of its 2018 losses

What's driving up U.S. stock prices?

The S&P 500 index reached a new all-time high Tuesday as big U.S. companies began turning in solid results for the first quarter, despite predictions for the worst quarter of earnings growth in years.

The most recent record for the benchmark index was set last September, shortly before the market took a nosedive in the fourth quarter. It's since recovered all of that ground since reaching a low on Christmas Eve.

Big names including Hasbro, Lockheed Martin and Twitter all surprised Wall Street with strong profit and revenue. Analysts are watching corporate reports closely this week as they gauge whether first quarter earnings for U.S. companies will be as bad as predicted. Wall Street has been forecasting a contraction during the quarter.

The stock market has rebounded sharply this year after a steep sell-off in December that pulled the S&P 500 just 0.2% from entering a bear market, or decline of 20% from its peak.

The recovery has been fueled by investor confidence in the prospects for steady growth and an increasingly hands-off Federal Reserve, which has signaled this year that it may not raise interest rates at all in 2019 after seven increases the prior two years.

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Traders have also been encouraged by improving economic data around the world. In China, economic growth held steady at 6.4% in the first quarter of the year as increased government efforts to stem a slowdown gained traction. In the U.S., job growth rebounded in March following a surprisingly weak February.

And the uncertainty over the costly trade dispute between the U.S. and China has eased in recent weeks amid signs that both sides are making progress toward reaching a resolution.

All told, the S&P 500 is up about 25% since it hit a bottom on Christmas Eve. Technology and industrial stocks are leading the way this year, with gains of 27.2% and 22.3%, respectively.

Keeping score

The S&P 500 index rose 0.8% for the day to close at nearly 2,931.58, slightly above its all-time closing high of 2,930.75, set on Sept. 20.  The tech-heavy Nasdaq composite index climbed nearly 1.4% to 8,120.82 to beat the record high close of 8,109.69 it reached on Aug. 29. The Dow Jones Industrial Average rose 145 points, or about 0.5%, to 26,656.39.

Small-company stocks rose much more than the rest of the market, a bullish sign indicating that investors were more willing to take on risk. The Russell 2000 index climbed 1.6%, but was still well below the peak it reached last August, and small-company stocks are still far behind the rest of the market over the past year.

Analyst's take

Stocks are under a little less pressure following the latest round of earnings results. That's not only because the earnings have been mostly solid, but also because companies have been issuing optimistic forecasts.

"We're getting a nice forward-looking picture from those companies," said J.J. Kinahan, chief market strategist for TD Ameritrade.

Twitter's solid report is a good sign for social media companies that have been struggling, Kinahan said. Lockheed Martin's results and forecast also bode well for other industrial companies.

Still to come

Despite the strong start, there are still many big companies yet to report earnings and it's far too early to conclude that the results will beat Wall Street's modest expectations. Reports from Caterpillar, Boeing and Microsoft are all going to be closely watched Wednesday.

Broader economic issues are still hanging over U.S. companies, including the ongoing trade war between the U.S. and China and whether higher oil and gas prices raise prices for companies and consumers.

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