Summary

The major domestic equity indexes moved sharply higher on Wednesday as the Dow Jones Industrial Average closed above 26,000 for the first time as investors’ expectations for higher earnings lifted stocks across sectors.

The Dow also hit an all-time high in intraday trading. It had briefly reached the 26,000 level on Tuesday, making it the fastest 1,000-point rise to date, before dropping back below that threshold.

The S&P 500 posted a record closing high. It has gained 4.8 percent this year, posting only two sessions of losses. More than three-quarters of the 36 S&P 500 companies that have reported so far have exceeded earnings estimates, according to Thomson Reuters I/B/E/S.

Outlooks for future earnings are excellent as well, due to the lower corporate tax rates passed in December.

Boeing closed out the trading day up 4.7 percent after the company announced a joint venture with car seating leader Adient to make aircraft seats.

IBM rose 2.9 percent after Barclays analysts upgraded the stock two notches to “overweight” and hiked its price target by $59 to $192.

Several companies, however, saw their shares trade lower after underwhelming earnings reports and forecasts.

Banks seesawed as Goldman Sachs and Bank of America reported disappointing results. The S&P 500 banks subsector fell in earlier intraday trading but ended Wednesday up 0.6 percent.

Goldman Sachs fell 1.9 percent after posting its first quarterly loss in six years on tax-related charges and a sharp drop in trading revenue. Meanwhile, Bank of America was down 0.2 percent after a $2.9 billion one-time tax charge nearly halved its reported profit.

Ford closed out the trading day down 7.0 percent after the automaker reported full-year profit below estimates and provided a downbeat forecast.

General Electric fell 4.7 percent, extending losses from Tuesday, when it announced more than $11 billion in charges.

Approximately 7.40 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.31 billion share average over the past 20 trading days.

Fed Sees Expanding GDP Growth in 2018

The economy should grow at a good clip this year, boosted by tax cuts, two Fed officials said on Wednesday, though they disagreed on how close the economy is to overheating and the need for rate hikes this year.

“2018 is going to be a good year,” Dallas Federal Reserve Bank President Robert Kaplan said. The economy is doing “extremely well,” Chicago Federal Reserve Bank President Charles Evans said.

Both agreed the economy would grow more than 2.5 percent this year, fast enough to give a further push downward to unemployment, already at a 17-year-low of 4.1 percent.

However, while Kaplan said he is worried about the economy overheating, and is convinced the Fed needs to move “deliberately” this year by raising rates three times, Evans said he supports fewer as “probably appropriate” so as to allow inflation to reach and perhaps temporarily rise above the Fed’s 2-percent target.

If inflation does not get to the Fed’s 2-percent target by the end of the current economic cycle, Evans warned, the Fed will have a hard time fighting the next recession. And even if the Fed waits until midyear to raise rates, as he has urged, it could still squeeze in three rate hikes if needed.

Their divide reflects the debate that will continue to dominate the Fed as Governor Jerome Powell takes over from Janet Yellen as Fed chair early next month. The majority, like Kaplan, are looking for three rate hikes. A few, like Evans, want less.

Kaplan said the yield on the 10-year Treasury, currently around 2.5 percent, gives the Fed the “operating room” to raise rates three times this year, to 2.25 percent. But, he said, the Fed should be vigilant so as not to invert the yield curve, which historically has been a harbinger of a recession.

Evans said he is not concerned about the shape of the yield curve or about the level of asset valuations.

Neither of them are voting members of the Fed’s monetary policy committee this year, but both take part in the Fed’s regular policy-setting meetings, the next of which is scheduled in two weeks.