By Dan Strumpf and Matt Jarzemsky
The Dow Jones Industrial Average closed in record territory for the first time in 2014, underscoring U.S. stocks'
yearlong struggle to gain ground following last year's rally.
The Dow rose 45.47 points, or 0.3%, to 16580.84, closing up 4.18 points from its previous peak reached on Dec. 31.
The blue-chip index set 52 highs last year in posting its largest advance in more than a decade.
The S&P 500 rose 5.62 points, or 0.3%, to 1883.95, leaving it 6.95 points short of its record hit on April 2.
But broadly, stocks have struggled following last year's rally. The S&P 500 is up 1.9% this year after posting a
30% rise in 2013. The Dow industrials have risen less than 0.1% in 2014.
The Dow has lagged behind the S&P 500 index this year in large part because of how the 30-stock index is
calculated, as it gives the biggest weight to the highest-priced stocks. Some of this year's biggest Dow laggards,
including Goldman Sachs Group Inc., Visa Inc. and Boeing Co., also happen to be among its priciest stocks.
Investors said a big hurdle for stocks this year has been the slowdown in corporate earnings growth. With 62% of
S&P 500 companies reporting, first-quarter earnings are on track to increase 0.9% from last year, according to FactSet.
"It's not a 2013, a 30% year. But it's not a year where, at least so far on the horizon, we see a recession," said
Rex Macey, chief investment officer of Wilmington Trust, which oversees about $82 billion in assets.
Few investors had expected a repeat of the gains of 2013, saying more modest returns are normal, even healthy,
given the lofty prices that many stocks continue to command.
The S&P 500 index now trades at 15.3 times earnings over the next 12 months, according to FactSet. That is above
the average price/earnings ratio over the past 10 years of 13.8, though still far from the valuations of the tech
selloff in 2000, when the forward P/E shot to 25.4.
Investors' embrace of shares reflects confidence in the expanding U.S. economy, continued low interest rates and
abundant corporate cash that has some firms showering holders with excess funds.
Indeed, Dow component International Business Machines Corp. on Tuesday raised its quarterly dividend 16%. And Apple
Inc., which isn't part of the Dow but is in the S&P 500, said last week that it would boost dividends and share buybacks
and split its stock.
Wednesday's hard-won gains came on a day when the government reported a 0.1% increase in first-quarter economic
output, which many investors attributed to the harsh winter weather in much of the nation. Meanwhile, the Federal
Reserve said it would continue paring back the monthly bond purchases that many investors credit with driving stocks
The developments raised concerns among some investors about the pace of the U.S. economic expansion, sending the
yield on the 10-year Treasury note down to 2.647%. Yields fall when prices rise.
But soft growth and low rates spell good news for many slower-expanding, more-mature, dividend-paying companies,
including the standout sector this year: utilities. Often eschewed during go-go market periods for technology and drug-
development companies, the S&P 500 utility sector is the best-returning segment among major asset classes this year, up
14% before dividend payments.
"People have been more confused this year, and during periods of confusion people sometimes flock into names that
are a little bit more secure and a little safer," said John Carey, portfolio manager at asset-manager Pioneer
Investments, which oversees about $220 billion. "We saw that with some money coming out of the highflying stocks and
moving into utilities and some of the more conservative areas of the market."
The Dow's best performers this year include large health-care and technology stalwarts. Investors have piled into
such stocks as they have exited shares of earlier-stage companies in the same sectors that are increasing sales faster
but in many cases have yet to turn a profit. Some of the 30-stock index's biggest gainers this year have been
pharmaceutical company Merck & Co., up 17%, and health-care conglomerate Johnson & Johnson, up 11%.
The Dow's rise has come as the tech-oriented Nasdaq Composite Index has dropped 1.5% this year, reflecting a shift
by investors into stocks perceived as more stable than biotechnology and tech shares.
Some of last year's top performing stocks in the technology and social-media sectors have pulled back sharply in
recent weeks, amid concerns over high share prices. Economic and political unrest in emerging markets ranging from
Brazil to Ukraine have periodically hit asset prices overseas this year.
But few investors have thrown in the towel, analysts and investors said, thanks in part to central banks' easy-
money policies that have helped to keep interest rates low, reducing the appeal of many bonds and other investments.
"People are looking to stay in the equity market, but just with more defensive posture," said Mike O'Rourke, chief
market strategist at JonesTrading Institutional Services, referring to the practice of purchasing dividend-paying stocks
rather than ones expected by investors to show strong revenue growth in coming years. "We definitely haven't seen any
type of wholesale selling, people coming out of the market."
Many holders of the shares of faster-expanding companies are holding on for an expected rebound. Dan Roarty, who
helps oversee about $6 billion in growth-oriented investments for asset manager AllianceBernstein, said he is taking a
patient approach to the growth stocks he owns and boosted his holdings in some of the worst-performing shares in recent
"At the surface level [this year,] things have looked very uneventful," said Mr. Roarty. "You wouldn't have noticed
anything happened, but underneath the surface you've seen a very significant rotation."
Chris Dieterich and Alexandra Scaggs contributed to this article.
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