Just two-and-a-half weeks after the Brexit vote heard ‘round the world, U.S. equity markets again proved their resilience as the as the broader averages rallied above their all-time closing highs through the session, ending the trading day at fresh record levels.

The Dow Jones Industrial Average jumped 120 points, or 0.66% to 18346. The S&P 500 added 14 points, or 0.70% to 2152, while the Nasdaq Composite gained 34 points, or 0.69% to 5022, erasing its losses for 2016. 

The catalyst for the strong upward momentum was a trifecta of anticipation, Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said.

“Stocks appear to be trending higher in the absence of bad news, anticipation of better-than-expected second quarter earnings, and an environment of few attractive alternatives,” he said.

Last Friday’s unexpectedly strong employment report, after a surprisingly weak May print, helped wipe away investor doubt about the health and strength of the U.S. economy, and brought focus back to market fundamentals and 2016’s second batch of quarterly earnings reports. The 2Q reporting season kicked off Monday night with results from Alcoa (AA), which beat the street, but showed a decline in profit thanks to lower aluminum prices. Investors braced for the latest results from America’s biggest banks, which report at the end of this week beginning with JPMorgan Chase (JPM) ahead of Thursday’s opening bell.

One hundred S&P 500 companies are set to release their latest results next week, and more than 200 the following week. Sandven said those figures and the market reaction that follows will be the real test for whether the recent sharp moves higher in equities are justified.

"Equities are priced to perfection and we need to see earnings that can support it."

- Terry Sandven, U.S. Bank Wealth Management

“I think you need an improving economy to drive earnings, and higher earnings to support higher stock prices. That’s a work in process. Equities are priced to perfection and we need to see earnings that can support it,” he said.  

The decision for Britain to leave the European Union presents a possible overhang to global growth, and could force U.S. multinational earnings into one of two directions by the end of the year: If the global economy slows, the value of the U.S. dollar will increase and put pressure on U.S. corporates. However, if the process for the U.K. to unwind itself from the EU drags on, Sandven expects a boost to U.S. corporates as the value of the dollar could weaken over a longer time horizon.

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