Stocks Rally, Reassured by Profit Reports
Robust profit reports from companies such as Walt Disney and Ford soothed a skittish stock market Tuesday, halting a four-session slump and putting a positive conclusion to a pivotal month back in reach.
The Dow Jones industrial average rose 102.14 points to 7,815.08, and the Standard & Poor’s 500 rose 12.07 points to 969.02, less than 15 points from record terrain.
With just three sessions left in January--a month that has frequently foretold the market’s fortunes for an entire year--the Dow was down less than 100 points for the month and the S&P; 500 was just shy of 1998’s starting point of 970.43.
Thanks to an absence of any major developments in the economic crisis in Asia or the political crisis at the White House, trading was dominated by company reports for the final three months of 1997.
But, noting that strong fourth-quarter reports had repeatedly failed to ignite any rallies over the last week, analysts suggested that Tuesday’s gains were largely the product of bargain-hunting after a four-session slide.
“The good earnings reports, especially by Disney, gave people hope, but the market was just looking for a reason to bounce up,” said Bob Dickey, managing director of technical analysis at Dain Rauscher in Minneapolis.
Disney jumped $5.38, or 5.5%, to a record $102.75 as fourth-quarter earnings topped estimates by 7 cents a share. Ford rose $1.63 to $49.88 after its earnings rose 38% on strong sales of high-profit sport-utility vehicles as well as a global cost-cutting campaign. Merck rose 50 cents to $114.50 after its fourth-quarter profit topped estimates and revenue jumped 15%.
About 233 companies in the S&P; 500 have reported earnings for the quarter ended Dec. 31. Of them, 47% topped estimates, 31% fell short of forecasts and the rest were in line. At this point last quarter, about 57% of the companies had beaten expectations and 25% had fallen short.
Bond yields rose. The government reported that labor costs rose 1.1% in the fourth quarter, raising concerns that workers demanding higher wages could drive up the rate of inflation, resulting in higher borrowing costs.
The yield on the benchmark 30-year Treasury bond rose to 5.94% from 5.89% on Monday.
Among Tuesday’s highlights:
* Oil shares rallied as a conflict between Iraq and the United Nations intensified. Royal Dutch Petroleum rose $1.38 to $52.19, Chevron gained 88 cents to $76.44, Mobil climbed 69 cents to $68.31 and Texaco jumped 88 cents to $53.25.
* AT&T; jumped $1.44 to $63.13. On Monday, its shares fell 5.8% after the company reported better-than-forecast fourth-quarter earnings.
* Black & Decker rallied $4.50 to $47.31 after it said it will cut 10% of its work force and sell three of its least profitable businesses.
* Compaq Computer rose $1 to $30 one day after announcing plans to acquire Digital Equipment for $9.18 billion. Compaq could slash 10,000 jobs from Digital’s 55,000-person work force, the Wall Street Journal reported.
* Microsoft gained $3.44 to $145.19 one day after approving a 2-for-1 stock split.
* Ciena fell $2.81 to $51.69 as rival Lucent Technologies unveiled new phone equipment that would let phone companies send about five times more information over fiber-optic cable than does Ciena’s. Lucent gained $1.50 to $84.44.
* American Home Products rallied $2.06 to $92.56 after it said fourth-quarter profit rose 14% as increased sales of pesticides helped make up for the withdrawal of two popular diet drugs.
* Ameritech gained 44 cents to $44.69 after reporting it plans to triple revenue growth to about $300 million from new products and services in its core phone operations in 1998.
Overseas, London’s FTSE-100 rose 1.7% to a near-record closing high, and Hong Kong’s Hang Seng index surged 3.1%.
Tokyo’s 225-share Nikkei average fell 0.54% as stocks were largely undamaged by Monday’s arrests of Ministry of Finance officials in a bribery scandal. Finance Minister Hiroshi Mitsuzuka later resigned over the issue.
The dollar fell against the Japanese yen amid signs of economic stabilization in Indonesia and Japan. In late New York trading, the dollar was quoted at 125.32 yen, down from 126.85 on Monday.
