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Nasdaq closes above 6,000 for first time

Adam Shell
USA TODAY

The Nasdaq composite closed above 6,000 for the first time on Tuesday and notched a record as technology stocks lead a broad rally.

The Nasdaq's road to the big round number has been a long one. The milestone comes 17 years after the index first surpassed 5,000 on March 9, 2000 — a day before the peak of the Internet stock bubble and the ensuing 2000-2002 bear market.

The latest charge higher has been driven by several tech titans, such as Facebook, which has gained more than 27% this year, Apple, up nearly 25% in 2017, and search and advertising powerhouse Google, up more than 12%.

The tech-heavy Nasdaq is doing better than the broader Standard & Poor's 500 stock index, rising 11.9% vs. the S&P 500's 6.7%.

Tech has also posted the biggest returns since President Trump took office in January.

The Nasdaq closed up 41.67 points, or 0.7%, at 6025.49 on Tuesday.

"The bulk of the gains is coming from the big-cap tech names," says Ryan Detrick, senior market strategist for LPL Financial. "This is a growth play by investors."

Just five companies in the Nasdaq —  Apple, Microsoft, Amazon, Facebook and Google-parent Alphabet — make up 40% of the Nasdaq composite, says Chris Zaccarelli, chief investment officer for Cornerstone Financial Partners. And all five of those large-company stocks are "up double-digits" this year, he says.

The sharp rise in tech shares is being driven by high expectations for the first-quarter earnings season. The sector is expected to deliver profit growth of nearly 16%, which is better than the 11.4% growth rate for companies in the broad Standard & Poor's 500.

The Nasdaq's record-setting day was accompanied by big gains in the other major U.S. indexes, where shares rose sharply following better-than-expected profits from a range of companies.

The blue-chip Dow Jones industrial average closed 232 points higher, or 1.1%, at 20,996.12, powered by earnings from key companies, including Caterpillar and McDonald's.

With stocks expensive relative to company earnings, technology companies will have to top high profit expectations for investors to feel comfortable continuing to buy at these high levels, says David Schiegoleit, managing director of investments at U.S. Bank's Private Client Reserve.

"Stocks are richly priced," he says. "We need strong earnings to justify the Nasdaq's current level."

If the economy continues to improve, however, tech stocks are well positioned to take advantage of more spending by consumers and businesses, and should continue to lead the market, Zaccarelli says.

The Dow's strong move builds on Monday's 216-point gain driven by market-friendly results in the first round of France's presidential election. The 30-stock average posted its first back-to-back gains of more than 100 points since Jan. 24-25, when it topped 20,000 for the first time.

Driving the Dow's strong start on Tuesday:

* Caterpillar. The company's shares (CAT) gained 7.9% to $104.42. The heavy machine maker easily topped profit estimates with earnings of $1.28 per share vs. the 63 cents expected by analysts on Wall Street. The company, which has struggled with soft demand in recent years, said things are picking up. “There are encouraging signs,” CEO Jim Umpleby said in a statement. The company raised its profit and sales forecasts for 2017.

FILE - In this Wednesday, Sept. 17, 2014, file photo, a Caterpillar 349E Hydraulic Excavator operates on a construction site in Miami Beach, Fla. Caterpillar, Inc. reports financial earnings Tuesday, April 25, 2017. (AP Photo/Wilfredo Lee, File)

* McDonald's.  Shares of the Big Mac maker (MCD) closed 5.6% higher to $141.70 after it topped quarterly earnings forecasts by 14 cents on earnings of $1.47 per share. It also topped Wall Street's revenue projections. McDonald's reported better sales at its U.S. restaurants. Domestic sales rose 1.7% in the January-thru-March period, which was better than estimates of 1.3%. The fast-food giant's results recently have been boosted by its move to an all-day breakfast menu.

*  DuPont. Shares (DD) of the chemical company rallied 3.6% to $82.20 after it reported earnings of 1.64 per share, above the $1.39 expected. CEO Ed Breen said the company's pending merger with Dow Chemical is slated to close by August. DuPont's earnings got a lift from strong agriculture sales, which rose 3.8%.

Other stocks in the Dow Jones industrial average that reported results included Coca-Cola (KO) and 3M (MMM). Coke shares closed down 0.4 % to $43.11 after mixed results. Its earnings of 43 cents a share fell a penny short of Wall Street's expectations. Revenue slid 11% to $9.12 billion but still topped Wall Street expectations.

Shares of 3M, which sell Post-it notes and Scotch tape, gained 0.5% to $195.13 despite better-than-expected results and raising its profit projections for the rest of the year.

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