The US markets closed higher on Tuesday, with major indices ending at the highest levels in about a month as the latest round of corporate earnings supported the thesis that valuations are supported by economic activity. An upbeat attitude toward first-quarter earnings remained a driving factor for stocks. Meanwhile, a lack of escalation in the trade tensions between China and the US has also emboldened investors. Separately, the International Monetary Fund again lifted its estimate for US economic growth for this year and next, even as the international agency warned that tax cuts will just bring a momentary jolt to the world's biggest economy. In its world economic outlook, the IMF lifted its US growth estimate for 2018 to 2.9% and its 2019 estimate to 2.7%, both increases of two-tenths of a percentage point. It kept unchanged its world economic output estimate from January at 3.9% for both this year and next year. The IMF pointed out the Tax Cuts and Jobs Act, the $1.5 trillion tax cut law, gives a temporary allowance for companies to fully expense investment. This is a strong incentive, the IMF finds, for companies to push along investment projects.
Meanwhile, Chicago Fed President Charles Evans said that the Federal Reserve can stick to a series of gradual US interest-rate increases over the next couple of years without much risk of an unhealthy surge in inflation. As long as this picture continues, the Fed can increase rates gradually while monitoring any rising inflationary pressures. This time around, Evans said, inflation and inflation expectations are low and it is difficult to imagine escalating inflation without sharp wage gains that are not in evidence. If low unemployment continues to put little pressure on inflation, he said, the Fed may indeed be able to make smaller adjustments to rates.
On the economy front, industrial production in March rose 0.5%. Production is estimated to have risen at an annual 4.5% rate in the first quarter, down from a blistering 7.8% pace in the final three months of the year. Capacity utilization rose to 78% in March from 77.7%, the highest rate in three years. Over the past 12 months, production has climbed 4.3%. Separately, housing starts ran at a seasonally adjusted annual pace of 1.32 million in March, up 2% compared to February. Permits were at a seasonally adjusted annual 1.35 million rate.
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.