July 23, 2010, 3:19 am
Corporations from AT&T to U.P.S. say business is finally picking up — and investors are cheering.
Robust quarterly results from some of the nation’s bellwether companies galvanized Wall Street on Thursday, The New York Times’s Christine Hauser reported. Stocks soared in a broad rally that lifted the Dow Jones industrial average more than 200 points.
Big names like AT&T, Caterpillar, U.P.S. and 3M posted surprisingly strong sales and profit figures for the second quarter. Even more encouraging, many also issued upbeat forecasts for the rest of the year, suggesting that, for them at least, a recovery of sorts was at last taking hold.
“It is all about economic and earnings momentum,” Alan M. Gayle, senior investment strategist for RidgeWorth Capital Management, said of the swift response from the markets.
Whether the euphoria will last is uncertain. Quarterly earnings season is now in full swing, and a rush of other results is due over the next week. Disappointments could await. Indeed, after the markets closed Thursday, Amazon.com posted results that missed analysts’ expectations.
But for a day, at least, investors saw reason for optimism. The rally more than wiped out the market’s losses from Wednesday, when stocks tumbled 1 percent. That slide came after Ben S. Bernanke, the Federal Reserve chairman, gave Congress a sober assessment of the economy.
While the course of the economy remains paramount in investors’ minds, corporate results have come to the fore this week. More than 140 companies have now reported results for the second quarter, and, by and large, the news has been good. On average, profits have increased by about a third. And the vast majority of the results have topped analysts’ estimates.
Industrial and technology shares paced Thursday’s rally. Financial shares also gained after several big regional banks, including Fifth Third of Ohio, suggested that they had finally covered losses on loans that went bad when the property market collapsed.
The Dow Jones industrial average rose 201.77, or 1.99 percent, to close at 10,322.30. The Standard & Poor’s 500-stock index was up 24.08, or 2.25 percent, at 1,093.67, while the Nasdaq composite index rose even more, gaining 58.56, or 2.68 percent, to 2,245.89.
The rally began early as the results began to pour out. Within a half-hour, the Dow was up nearly 200 points. As the day wore on, investors and analysts busily parsed one set of results after another.
“So far, investors are getting more encouraging news,” said Howard Silverblatt, index analyst for Standard & Poor’s. “The growth may not be what they were hoping for, but at least it’s growth.”
The question on nearly everyone’s mind is not what happened during the second quarter, but where profits go from here. Given the precarious state of the economy, particularly stubbornly high unemployment and fragile consumer confidence, many are counting on good news from corporations.
Companies like Caterpillar and 3M are considered bellwethers not only for the United States economy but also for the global economy. Both gave investors upbeat news.
“Some of them were fairly optimistic, especially today,” said Sam Stovall, chief investment strategist for Standard & Poor’s equity research.
Upbeat news on the housing market also helped. Home builders advanced after the National Association of Realtors reported that sales of existing houses dropped 5.1 percent, less than analysts had forecast. Shares of the Lennar Corporation and Toll Brothers both rose more than 3 percent. Home Depot’s share price was up 2.7 percent.
Many companies must still demonstrate that they can sustain their newfound prosperity. After all, the big gains in corporate profits partly reflect how weak earnings were a year earlier. The comparisons make for favorable results.
“This quarter, investors are looking to see actual revenue growth and no more making earnings grow from cutting costs,” said David Abrameto, research associate with Bernstein Research. “The companies that have done well so far look like they have been growing revenue.”
Given all the corporate and economic news looming, and the fragile state of investor confidence, traders and analysts expect the markets to remain volatile.
“I don’t know anybody who thinks they can trade this thing on a day-to-day basis,” said Jeffrey D. Saut, the chief investment strategist for Raymond James.
Prices of United States Treasury securities fell as investors rushed back into stocks. Oil and gold rose.
Adding to the buoyant mood was a growing belief that the worst of the financial crisis in Europe might be over. Friday, however, will be a big day for European markets: authorities there are scheduled to release the results of so-called stress tests assessing the health of the Continent’s banks.
While virtually all the banks are expected to pass the test, some may be compelled to raise additional capital to buttress their finances.
The Treasury’s 10-year note fell 17/32, to 104 25/32. The yield rose to 2.94 percent from 2.88 percent late Wednesday.
From The New York Times published on July 23, 2010, 3:19 am