Companies are nearly midway through earnings reporting season, and results have generally been better than the dismal expectations that analysts had coming into it. A government report on Friday also showed that U.S. economic growth slowed in the spring, but it was still better than economists expected.
All the reports are emblematic of an economy that's strengthening but still shadowed by a pile of concerns, which only bolsters investors' expectations for the Federal Reserve to cut interest rates at its meeting next week. It would be the first cut in more than a decade, when the Fed was trying to shock the economy out of the Great Recession.
The S&P 500 index rose 22.19 points, or 0.7%, to 3,025.86 and passed its prior record set on Wednesday. The Dow Jones Industrial average gained 51.47, or 0.2%, to 27,192.45, and the Nasdaq composite also set a record after jumping 91.67 points, or 1.1%, to 8,330.21.
Friday's report on the U.S. economy showed that consumer spending remains strong, and employers continue to add jobs every month. But businesses are hesitant to invest, and manufacturing worldwide has slowed amid President Donald Trump's trade war. Inflation also remains low.
Lower interest rates could boost economic activity and goose inflation higher. Investors also see them as a shot of adrenaline for stocks and other risky investments. The European Central Bank earlier this week held its key interest rate steady, but it made clear that more stimulus is on the way.
In the United States, investors think there's virtually 100% certainty that the Fed will cut its benchmark short-term rate on Wednesday, likely by a quarter of a percentage point from its current range of 2.25% to 2.50%.
"Any time you hit a record high, you ask: Is this justified?" said David Joy, chief market strategist at Ameriprise. "Well, it's justified based on the easing cycle that central banks are on, and the absolute level of earnings helps. But growth is sluggish and moderating, earnings are flattish and we've got this overhang of, let's call it geopolitical uncertainty. We say, 'Let's be a little cautious here.'"
If S&P 500 companies are able to report flat earnings growth for the second quarter, it would be a small victory. Analysts came into this earnings reporting season expecting a drop of roughly 3% in earnings per share for S&P 500 companies, according to FactSet.
So far this earnings season, about 44% of companies in the S&P 500 have already reported, and their earnings per share have been up a little more than 1% from year-ago levels. That means analysts are now forecasting a more modest drop for the S&P 500 index overall, closer to 2%.
Alphabet, Google's parent company, soared to one of the biggest gains in the S&P 500 Friday after it joined the list of companies reporting stronger-than-expected profits. It also allayed investors' concerns about advertising trends after reporting stronger revenue growth than Wall Street forecast. Alphabet shares surged 9.6% for their best day in four years.
Sprint and T-Mobile US also jumped after the Justice Department approved their merger, despite fears that the deal could bring higher prices and less competition for customers. Sprint rose 7.4%, and T-Mobile US gained 5.4%.
Treasury yields held relatively steady, as investors continue to settle on expectations for the Federal Reserve to cut short-term rates by only a quarter of a percentage point next week, rather than the half-point cut that some investors were anticipating earlier.
The 10-year Treasury yield remained at 2.07%. The two-year yield, which is more influenced by the Fed's movements, rose to 1.86% from 1.84% late Thursday.
In overseas markets, the French CAC 40 rose 0.6%, the German DAX gained 0.5%. and the FTSE 100 in London climbed 0.8%. Japan's Nikkei 225 slipped 0.5%, the South Korean Kospi fell 0.4% and the Hang Seng in Hong Kong lost 0.7%.
Benchmark U.S. oil rose 18 cents to settle at $56.20 a barrel. Brent crude, the international standard, rose 7 cents to $63.46 a barrel. Wholesale gasoline fell 1 cent to $1.87 per gallon. Heating oil declined 1 cent to $1.90 per gallon. Natural gas fell 7 cents to $2.17 per 1,000 cubic feet.
Gold rose $4.60 to $1,418.50 per ounce, silver fell 1 cent to $16.33 per ounce and copper fell 2 cents to $2.68 per pound.
The dollar fell to 108.71 Japanese yen from 108.73 yen on Thursday. The euro strengthened to $1.1126 from $1.1144.