Stocks Climb as Earnings Fears Ease
Stocks staged a fairly broad advance for the second straight session Friday as a strong week of corporate profits continued to ease the doubts that sent the market tumbling last week.
The Dow Jones industrial average rose 51.05 points to 5,473.06, just shy of its high for the session and a gain of 46.24 on the week. The technology-studded Nasdaq Composite Index jumped 17.05 points, or 1.6%, to 1,079.44.
“It’s like a ‘safe- to- come- back- into- the- water’ kind of attitude,” said Richard A. Dickson, a technical analyst at Scott & Stringfellow Inc. in Richmond, Va. “People have seen there are actually more earnings surprises than negative surprises, and they’re saying maybe things aren’t as black as they seemed.”
Despite the growing confidence levels about earnings, however, the market continued to swing widely in the aftermath of last week’s sell-off. It was the 10th straight session in which the Dow industrials moved more than 50 points, triggering New York Stock Exchange curbs on computer-driven trading.
The volatile Nasdaq market, meanwhile, produced its eighth move of more than 1% in 10 sessions, rallying for the second straight day as technology shares rebounded again. The Standard & Poor’s 500-stock index rose 4.73 to 635.90.
Advancing issues outnumbered decliners by nearly a 2-to-1 margin on the New York Stock Exchange.
The positive tone of Thursday’s rally, spurred by an encouraging earnings report from IBM, was reinforced by a strong profit report from Gateway 2000, which continued to demonstrate some of the fastest sales growth in the personal computer industry. Earlier in the week, Compaq Computer also reported strong results.
Semiconductor stocks enjoyed a strong day, bolstered by a Prudential Securities upgrade and hopes that strong computer sales will mean strong chip demand.
Gateway shares rose 2 3/8 to 39 3/4; Dell Computer rose 2 to 53 3/4; and Intel rose 2 1/8 to 74 1/4. IBM shares rose 1/4 to 103 7/8 after some early profit taking; Compaq rose 1 1/8 to 53; Micron Technology rose 1 3/8 to 19 1/2; and LSI Logic rose 2 3/8 to 20 3/8.
Analysts noted that investors are realizing that the strong earnings haven’t been confined to the technology sector.
Among the Standard & Poor’s 500 list, about 350 companies have reported on their earnings for the April to June quarter. Among those, 60% have exceeded estimates, and just 21% have been disappointing, said Jeffrey Applegate, chief investment strategist at Lehman Bros.
“That’s a fairly decent level of positive surprises. Despite all the worries, earnings are exceeding expectations,” he said.
On Friday, T. Rowe Price’s stock rose 3/4 to 25 after the company said earnings in the latest three months rose 34% as customers poured money into mutual funds and generated soaring management fees.
And Whole Foods Market climbed 4 1/8 to 28 3/4 after it said fiscal third-quarter net income tripled. The operator of natural foods supermarkets said it earned $3.46 million, or 23 cents a share, above the 20 cents expected.
Shares of Aetna rose 3/4 to 60 after the insurer said second-quarter earnings excluding gains from investment sales rose to $1.43 a share. The results topped the $1.29 a share analysts expected.
But Merrill Lynch’s senior investment strategist Douglas Cliggott remained cautious about semiconductor chips and overall corporate earnings.
“What is a bit surprising is how people are commenting how surprisingly good second-quarter earnings have been. When you step back and look at economic growth in the second quarter, it was really roaring,” he said. But the market was already rising because of that. “The greater risk out there is as the economy loses momentum we’ll start to see softness in earnings,” Cliggott said.
Next week, Wall Street faces a battery of economic indicators, including readings on consumer sentiment, manufacturing and Friday’s July jobs report.
Among market highlights:
* Chemical shares gained, a day after Dow Chemical said second-quarter earnings fell a less-than-expected 19%. While net income of $2.20 a share was below last year’s $2.46, it topped the $2.11 a share analysts expected. Earlier in the week, DuPont’s second-quarter earnings topped estimates.
The S&P; chemicals index rose 6 to 326.47, its highest since July 12. DuPont rose 1 1/4 to 80 1/2, Dow Chemical climbed 1 7/8 to 73 3/4, Union Carbide Corp. rose 1 1/8 to 40 3/4 and Rohm & Haas Co. rose 1 5/8 to 58 1/4.
* Value Health lost 2 3/4 to 16 1/4. It warned that its third- and fourth-quarter earnings would fall below previous estimates.
* Schering-Plough lost 1 1/4 to 55 7/8. Hoechst Marion Rousell said it planned to price its new allergy drug at a 10% to 15% discount to its leading competition. Schering’s Claritin is currently the top-selling U.S. antihistamine.
* Prudential Securities upgraded its view on semiconductor stocks.
Overseas, Tokyo’s Nikkei stock average rose 1.2%, Frankfurt’s DAX index was up 0.2%, and London’s FT-SE 100 fell 0.3%.
On commodities markets, both wheat and crude oil futures closed sharply lower--oil amid a wave of speculative selling ahead of an expected decision by the United States to approve Iraqi oil sales, and wheat on concern about the recent cancellation of U.S. sales to China.
