Dow breaks above 26,000 for the first time, Merck and UnitedHealth jump

by Fred Imbert | Alexandra Gibbs

U.S. stocks traded sharply higher as investors chased a market breaking out on better-than-expected earnings and rising economic optimism under President Donald Trump.

The Dow Jones industrial average broke above 26,000 for the first time earlier in the session. At 12:47 p.m. ET, the Dow traded 122 points higher, slightly below the milestone level. The 30-stock index was boosted by gains in UnitedHealth and Merck.

It took the Dow just 12 calendar days, or seven trading days, to move from 25,000 to 26,000, making it the fastest 1,000 move on record for the index. It first traded above 25,000 on Jan. 4.

The S&P 500 gained 0.2 percent and briefly traded above 2,800 for the first time. Real estate and 
health care were the best-performing sectors in the index. The Nasdaq composite advanced 0.2 percent and also hit a record.

"The boring stock market of 2017 has turned on the burners two weeks into the new year," said Frank Cappelleri, executive director at Instinet, noting the S&P 500 was on track to post its first monthly gain of more than 4 percent since March 2016.

"Regardless if the [S&P 500] finishes January with a 4% gain or not, this just tells us once again that strength does, in fact, beget more strength. It also means we shouldn't cast doubt on the uptrend simply because the advance has gained steam recently," Cappelleri said in a note.

UnitedHealth posted better-than-expected earnings and sales, sending the stock up 2.6 percent. Citigroup reported adjusted earnings that surpassed estimates, while revenue came in line with expectations. Citigroup shares climbed 0.7 percent.

Earnings season is off to a strong start thus far. Of the S&P 500 companies that had reported as of Friday, 69 percent have surpassed earnings-per-share estimates while 85 percent have beaten expectations on the top line, according to FactSet.

"It's all about earnings right now," said Peter Cardillo, chief market economist at First Standard Financial. "Improvement in the quality of earnings and optimistic outlooks are driving this market higher. It's momentum feeding on itself."

Michael Nagle | Bloomberg | Getty Images

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Oct. 2, 2017.

Equities are off to a strong start for the year, with the Dow, S&P 500 and Nasdaq composite jumping at least 4.2 percent in 2018. A stronger U.S. economy, tax reform, and optimism maid the corporate earnings season have been key catalysts for the market.

"The current rally is broad based with nearly all areas in harmony with the primary trend. Typically at an important peak in the market the leadership begins to grow thin, which is opposite of what we are witnessing now," said Bruce Bittles, chief investment strategist at Baird, in a note. "This argues that any weakness that could develop will be limited in time and price."

The major averages closed at record highs on Friday. U.S. markets were closed on Monday because of the Martin Luther King holiday.

The euro, meanwhile, hovered near a three-year peak amid heightened expectations the European Central Bank may soon pare its monetary stimulus. The U.S. dollar had been showing some signs of weakness in recent sessions.

Elsewhere, Merck shares jumped 7 percent after announcing positive Phase 3 results for its Keytruda drug, which is aimed at treating cancer.