Investor confidence rebounds as stocks surge
In the stock market, the glass is half full — at least for the moment.
Investors, who just last week sent stocks screaming toward a bear market, are taking on a more confident swagger. Stocks have surged to levels not seen in three weeks amid new hopes for a resolution to the European debt crisis, and optimism that hundreds of U.S. companies will report robust quarterly earnings in the next few weeks.
The Dow Jones industrial average, which last week reached its lowest level of the year, on Monday surged more than 330 points. The jump follows a volatile pattern for stocks seen since the summer, with markets soaring one day and crashing the next amid fears about the global economy.
There’s hope on Wall Street that better-than-expected economic data will show the U.S. is expanding enough to avert a downturn. More evidence of expansion might come as companies begin reporting third-quarter results, with aluminum giant Alcoa Inc. reporting Tuesday afternoon.
“We didn’t fall off a cliff [economically], and that was the expectation,” said Robert W. Bissell, president of Wells Capital Management. “Over the next two weeks we’re going to see more earnings announcements, and people will find out that business in the U.S. and toward Asia is pretty good and that a fair number of companies are doing pretty well.”
Analysts have remained upbeat about blue-chip companies’ earnings despite the economy’s struggles last quarter.
Third-quarter operating earnings of the Standard & Poor’s 500 components are expected to rise 12.7% from a year earlier, according to analyst estimates tracked by Thomson Reuters. That would be the eighth consecutive double-digit percentage gain, and another sign that corporate America has been able to prosper in the face of weak global growth.
JPMorgan Chase & Co. and Google Inc. are among other companies due to report quarterly results this week.
But more important is what corporate executives tell investors about earnings expectations for the fourth quarter and 2012, said Marshall Front, who oversees $600 million at money manager Front Barnett Associates in Chicago.
Front said his firm in recent weeks has been buying shares of blue-chip companies that he believes have hit bargain levels relative to earnings. “We think stocks were compelling values,” he said.
Among his purchases: FedEx Corp., which at $73.62 on Monday was priced about 12 times estimated earnings per share for its fiscal year ending in May; and Apple Inc., which at $388.81 was priced at about 14 times estimated earnings for its fiscal year ended last month.
However, professionals didn’t put too much weight on Monday’s action, given that trading volume was light on the Columbus Day holiday.
The Dow bounded 330.06 points, or 3%, to 11,433.18, its fourth gain in the last five days. The Dow has risen nearly 10% since last week’s lows.
The S&P 500 rose 39.43 points, or 3.4%, to 1,194.89. The index briefly fell into a bear market in intra-day trading last Tuesday before a powerful late-day gain kicked off the market’s latest upturn.
In Europe, stocks soared after political leaders in Germany and France promised to introduce a new plan to recapitalize major banks and overcome the Greek crisis by early next month. Though it was just the latest in a series of such pledges, none of which have resolved a crisis that began two years ago, investors took solace at the notion.
The German DAX stock index jumped 3%, its fourth straight advance. The DAX has rallied 15% from its two-year low reached Sept. 12 but still is down 15.4% year to date. In other European trading Monday, French stocks rose 2.1% and the Italian market jumped 3.7%.
Renewed hopes for a permanent fix in Europe drove the euro up 2% against the dollar to $1.364, a three-week high. The weaker dollar helped lift shares of U.S. exporters, including Caterpillar Inc., which gained $3.61, or 4.8%, to $79.13. The stock is up 12% in the last five sessions.
The bond market was closed in the U.S. on Monday.
