By Angela Moon
NEW YORK (Reuters) - The Dow hit another intraday record high on Wednesday on signs of improvement in the U.S. labor market, but the broader market was little changed as investors became cautious that the rally may soon run its course.
The stock market's rally this year has been fueled by signs of a strengthening U.S. economy, continued support from the Federal Reserve and fairly attractive equity valuations compared with other assets.
"There is still a lot more cash to be put into equities," said JJ Kinahan, chief derivatives strategist at TD Ameritrade, in Chicago.
"We are seeing investors moving out of the bond market, but their money is not in the stock market yet. They are still not full believers (of equities) but they are having cash in hand because the rally seems to be continuing, and the valuations are still attractive."
The S&P 500 index is trading at 13.6 times estimated 12-month earnings, compared with around 14.9 times in October 2007 when the index hit its intraday high, according to Thomson Reuters data. This suggests that stocks are still about 9 percent cheaper than they were at the 2007 peak.
Relative to junk bonds, the earnings yield on the S&P 500 - the inverse of the P/E ratio and used for valuation comparisons with bonds - is around 7.5 percent - above the yield to maturity on junk bonds, which is around 6.5 percent, data showed, indicating that stocks have a better value than the riskiest corporate bonds.
The Dow Jones industrial average was up 39.79 points, or 0.28 percent, at 14,293.56. The Standard & Poor's 500 Index was up 1.50 points, or 0.10 percent, at 1,541.29. The Nasdaq Composite Index was down 1.89 points, or 0.06 percent, at 3,222.23.
Shortly after Wednesday's trading began, the Dow punched through the previous session's intraday record, trading as high as 14,320.65.
On Tuesday, the Dow ended at 14,253.77, breaking through October 2007's record close of 14,164.53. For the year, the Dow is up about 9 percent.
The CBOE Volatility Index, known as the VIX, Wall Street's favorite barometer of fear, which usually moves inversely to the S&P 500, had climbed as much as 2 percent earlier in the session, as investors snapped up protection on concerns that the rally may run out of steam.
By early afternoon, though, the VIX reversed course to trade down 0.2 percent.
"The fact that 20 percent of the S&P 500 companies are trading at 52-week highs is scaring people," said Kinahan, who had pointed out that there was "more call buying on the VIX this morning."
The S&P 500 has gained 8 percent so far this year and is less than 2 percent below its record close. The larger S&P 1500 has already reached record highs, thanks to help from smaller-cap companies.
The Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies, also hit a record intraday high earlier in the session.
In Wednesday's session, energy shares dragged on the market, with Exxon Mobil
The telecom sector also took a toll, with AT&T shares down 0.4 percent at $36.47.
The positive catalyst for Wednesday's advance came from signs of improvement on the jobs front. The slowly healing labor market has been one of the weaker spots of the recovery, but data on Wednesday showed private-sector hiring was surprisingly strong in February as companies added 198,000 employees.
It was an early look at the labor market two days ahead of the U.S. government's closely watched non-farm payrolls report on Friday, which is expected to show the economy created 160,000 jobs last month while the unemployment rate held at 7.9 percent.
The Nasdaq fared worse than the other two indexes on Wednesday, weighed down by Microsoft
Financial shares gained, with the KBW Bank Index <.BKX> up 0.9 percent. Dow component Bank of America
(Editing by Jan Paschal)