The US markets closed higher on Monday, as optimism persisted over the first-quarter earnings season and as geopolitical tensions showed signs of fading. According to FactSet, earnings for companies in the S&P 500 are expected to grow 17.3% in the first quarter, while sales grow 10%. For both, such rates would represent the fastest pace of growth since the first quarter of 2011. Dallas Federal Reserve Bank President Robert Kaplan said he expects the US central bank to raise interest rates three times this year and further next year to levels that could put the brakes on US economic growth, but that he does not want to push short-term rates above long-term borrowing costs. Kaplan said, adding that monetary policy would be restrictive if interest rates rise above the 2.5 percent or 2.75 percent that he estimates is their neutral level. But, he said, he would not want rate hikes to proceed so fast or far that the yield curve inverts. New York Fed President William Dudley said that the Federal Reserve will likely gradually raise interest rates three or four times in total this year and could aim to eventually raise the policy rate to about 3 percent. Dudley added that three percent is a reasonable starting point in terms of thinking about what neutral might be over the long run.
On the economy front, sales at US retailers rose 0.6% in March to end a streak of three straight declines, underscoring the improved financial picture of American households and the resiliency of an economic expansion that could turn out to be the longest ever. Sales rose a smaller 0.3% last month if autos and gas are stripped out. The decline in sales in February was left at 0.1%. The drop in January was revised to show a 0.2% decrease instead of 0.1%. Auto dealers posted their best month since last September. Sales rose 2%. Internet retailers, pharmacies and stores that sell home furnishings were other big winners. Sales fell 0.3% at gas stations, a less than expected decline.
On the other hand, the Empire State manufacturing index gave up most of the gains in April that it saw in the prior month. The index slipped to a reading of 15.8 in April from 22.5 in March. The index is slightly above the 13.1 reading seen in February. The 6-month outlook fell 26 points to 18.3, its lowest level in two years. The new-orders index eased 7.8 points to 9 in April, and the shipments index fell 9.5 points to 17.5. On the employment side, the number of employees lost 3.4 points to 6 while the average workweek jumped 11 points to 16.9. The price indexes both moderated slightly.
The Dow Jones Industrial Average added 212.9 points or 0.87 percent to 24,573.04, the Nasdaq gained 49.635 points or 0.70 percent to 7,156.28, while the S&P 500 was up by 21.54 points or 0.81 percent to 2,677.84.