'Humdinger' rally but analysts wary

US stocks pushed further into record territory as the Dow Jones passed 18,000 points for the first time. Photo / AP

United States markets head into the last week of the year with a "Santa Claus rally" having lifted them to record highs, picking up momentum from outstanding GDP numbers in the world's biggest economy.

The Dow and S&P 500 both closed the week out at fresh new peaks, with the blue-chip index registering its seventh straight gain in a surge that one analyst called a humdinger.

For the week, the Dow Jones industrial average gained 248.91 points (1.40 per cent) to 18,053.71.

The S&P 500 jumped 18.12 (0.88 per cent) to 2088.77, while the tech-rich Nasdaq Composite Index rose 41.48 (0.87 per cent) to 4806.86.

Hugh Johnson, head of Hugh Johnson Advisors, said he was heartened by gains in sectors linked to economic growth, such as consumer discretionary spending and industrials. He noted the small-cap Russell-2000 also reached a 52-week high on Saturday.

"You have all of the economically sensitive sectors sort of leading the parade recently," he said. "That tells us investors are becoming more optimistic about the economy and that's really good news.

"It's not only a humdinger of a rally, but it's also really positive if you look carefully at the market."

The highlight of the holiday-shortened week was Wednesday's report on third-quarter US gross domestic product, which came in at 5 per cent, the best rate since 2003 and much better than the 3.9 per cent previously estimated.

Spending for consumption rose 3.2 per cent, the biggest jump since the end of 2013. Analysts also cited strong growth in defence spending and exports.

The US growth figures showed "an economy firing on all cylinders for the first time in many quarters," said FTN Financial chief economist Chris Low.

US stocks surged on the GDP report, with the Dow crossing 18,000 for the first time on Wednesday and hitting new peaks on Thursday and Saturday. The Dow has notched 38 record highs in 2014, while the S&P 500 has registered 52 new peaks.

The GDP report followed other strong US data in recent weeks on new jobs and retail sales and corroborated the sense that the US economy remains a bright spot at a time when Europe, Japan and key emerging economies are struggling.

Analysts said US stocks could drift higher in the final days of 2014 in the absence of a negative catalyst given the positive sentiment.

But market watchers are more cautious before 2015.

"It's wishful thinking to think we could sustain this type of rally," said Johnson, who sees the travails of the Russian economy as a potential source of trouble for the global economy.

- AFP