Upbeat Profit News Sparks Rally
Stocks rallied broadly Monday amid some upbeat corporate earnings reports and continued relief over the winding down of the war in Iraq.
Also, despite disappointment that President Bush’s plan to eliminate taxes on dividends suffered a potentially fatal setback Friday, many Wall Street bulls are betting on some kind of fiscal stimulus package from Washington in the next few months.
“The bottom line is that tax relief is coming. That’s good news, even if it’s not to the extent that the market wants,” said Jack Caffrey, equity strategist at J.P. Morgan Private Bank in New York.
The Dow Jones industrial average rose 147.69 points, or 1.8%, to 8,351.10, closing near its peak of the session, as financial stocks helped lead blue chips higher.
The broader Standard & Poor’s 500 index climbed 16.93 points, or 2%, to 885.23, and the technology-heavy Nasdaq composite gained 26.10 points, or 1.9%, to 1,384.95.
Trading volume was thin, but winners topped losers by nearly 3 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq. In the S&P; index, 97 of 105 industry groups advanced.
Analysts credited solid first-quarter earnings news with sparking the rally, including reports from Fannie Mae, Citigroup and Bank of America in the financial sector, along with results from firms that included computer-services provider Unisys and vehicle-parts maker Eaton.
Earnings season heats up this week, with 40% of the blue-chip S&P; 500 expected to report.
Investors have been bracing for disappointing reports, given the drag effect on the economy attributed to business and consumer caution in advance of the war. But “confidence is building that the first-quarter earnings will not be as bad as earlier feared,” said Sam Stovall, chief market strategist at Standard & Poor’s in New York.
The market also may have been buoyed Monday as a judge in Illinois allowed Altria Group’s Philip Morris unit to reduce the bond it must post in a smoking-liability case, easing fears of a bankruptcy filing.
Wall Street took in stride the Senate’s decision Friday to limit any tax cut to $350 billion -- less than half what Bush wants and a ceiling that may doom any hope of salvaging the centerpiece of his economic plan: eliminating taxes on dividend payouts. Excitement over the proposal had helped drive stocks sharply higher for a few days in January.
Even if the dividend plan is shelved or dramatically reduced, some kind of fiscal stimulus plan should emerge to help keep the economy advancing this year, many experts say. That could bolster corporate earnings and, in turn, the stock market.
Strategists also noted that Bush has vowed to keep fighting for the full $726 billion in tax relief he is seeking over 10 years.
“This administration has plenty of resolve, so the full tax cut is still possible,” said Mark Keller, strategist at A.G. Edwards in St. Louis. “The president obviously believes this is an important change to the tax code, not just a negotiating tactic.”
Keller said Friday’s developments in Congress left investors too baffled to react, saying the picture should become clearer after lawmakers return in May.
“This is one of the most confusing budget negotiations I can recall. We’re just scratching our heads,” he said.
For the moment, the quick progress of the war may continue to boost investor sentiment, some analysts say.
“People are celebrating the end of the war,” said Jon Burnham, manager of the Burnham Fund in New York. “It’s all over but the shouting.”
Among Monday’s highlights:
* Treasury bond yields rose as some investors shifted assets into equities. The yield on the 10-year T-note rose to 4.02%, its highest level since March 21, from 3.97% Friday. The two-year T-note yield ended at 1.71%, up from 1.64% Friday.
* Financial stocks rallied on robust earnings reports. Fannie Mae jumped $2.48 to $71.49, Citigroup gained $1.08 to $38.43 and Bank of America was up 66 cents to $72. Also in the sector, Merrill Lynch added $1.35 to $39.80, Bear Stearns rose $1.86 to $68.54 and UnionBanCal rallied $1.19 to $40.90.
* Auto parts producers also got a boost from a strong profit report by Eaton, which soared $3.80 to $76.10. Wheel maker Superior Industries rose $2.26 to $39.65 after reporting results Friday. BorgWarner rallied $4.27 to $54.15 after raising profit estimates for the first quarter.
* In the tech sector, Unisys climbed 72 cents to $10.07 after meeting first-quarter profit estimates and forecasting modest sales growth this quarter.
Investors took profits in major Internet names, however, after a Barron’s magazine article suggested the stocks could be overvalued because of their recent run-up. Amazon.com lost 70 cents to $25.05, EBay eased 55 cents to $87.74 and Yahoo dipped 8 cents to $24.35.
* Among tobacco stocks, Altria rose 89 cents to $31.48, R.J. Reynolds Tobacco Holdings climbed 83 cents to $33.38 and Loews added $1.51 to $40.17.
* European stock markets were modestly higher. The German market rose 1.6% while the British market was up 1.1%.
Market Roundup, C10-11
