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Before The Bell - The reopening of the economy remains the driving force lifting stock prices these days, with shares of companies whose fortunes are tied closely to business conditions faring the best.

That dynamic is showing up in the performance of the major stock indexes, where the Dow Jones Industrial Average is outpacing the S&P 500 and the NASDAQ for the year.

On Thursday, the Dow rose 318 points to close at another record high. The S&P 500 climbed 34 points, and the NASDAQ added 50 points. The NASDAQ’s move was less impressive on a percentage basis. Tech stocks are being weighed down to an extent by high valuations following last year’s record run and a shift in sentiment away from so-called stay-at-home stocks.

The day’s economic data affirmed the positive tone to what investors view as a boom in the making. The Labor Department reported that initial unemployment claims fell below 500,000 for the first time since the coronavirus pandemic began in early 2020. Large government stimulus payments and increased consumer demand have created a need for workers.

Another positive piece of news was a report showing that productivity in the workplace is on the rise. With much of the business data and corporate earnings strongly favorable of late, it has been hard for the bears to gain much traction.

Even so, the sense that stocks will ``grow’’ into their valuations contains an element of risk. One potential snag is a sustained pickup in inflation that could lead to higher interest rates. 

Many consumers have a sense that prices are on the rise. Getting an oil change or hiring a plumber seems to cost more these days. On a bigger scale, the global chip shortage may make new vehicles more expensive, and rising lumber costs are pushing new home prices higher. Any drop in demand in the bedrock housing and auto markets could have a ripple effect across the economy.

That said, the Federal Reserve is willing to put up with inflation above its 2.0% annual target to build business momentum.

But there is a risk that the Fed might need to initiate a series of rate hikes at some point if the economy appears to be overheating.

For now, though, there is no denying the prevailing optimistic tone toward stocks. In other markets, oil prices dipped $0.92 a barrel in New York trading, but remained a still healthy $64.71 a barrel. Elsewhere, the yield on the 10-year Treasury note was little changed, suggesting few inflation concerns yet. - Robert Mitkowski

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.