Upbeat Earnings Boost Stocks to 3-Month Highs
A wave of upbeat earnings reports drove major stock indexes to three-month highs Tuesday -- and may have raised the anxiety level of millions of investors sitting on the sidelines.
A broad-based rally pushed the blue-chip Standard & Poor’s 500 index up 19.36 points, or 2.2%, to 911.37. That beat the index’s recent closing high of 895.79 on March 21 and was the best level since Jan. 16.
The Nasdaq composite index surged 26.99 points, or 1.9%, to 1,451.36, leaving the technology-heavy measure at its highest since Jan. 14.
Other key indexes, including the Dow Jones industrials, also advanced as trading volume on the New York Stock Exchange was the heaviest in more than a month -- suggesting that more investors are jumping in, fearful of missing a sustained rebound.
The Dow was up 156.09 points, or 1.9%, to 8,484.99, about 37 points shy of its March high.
The market started the session on weak footing but then raced higher for most of the rest of the day. Analysts pointed to two main catalysts: better-than-expected first-quarter financial results from a number of big-name companies and President Bush’s statement that Federal Reserve Chairman Alan Greenspan deserved another term.
With the war in Iraq winding down and consumer confidence rebounding, “there really isn’t any bad story now” for Wall Street to fixate upon, said Al Kugel, investment strategist at money management firm Stein Roe & Farnham Inc. in Chicago.
What investors have been hoping to hear, however, is more optimism from corporate executives about their businesses’ earnings potential in the second half of the year.
The market got some of that Tuesday from companies including defense giant Lockheed Martin Corp., drug firm Eli Lilly & Co. and insurance company Everest Re Group. All three indicated their 2003 profit could be better than analysts, on average, had estimated.
Lockheed shares soared $3.30 to $48.55, Lilly rose $1.82 to $61.29 and Everest rocketed $10.25 to $71.70. Other stocks in their industries also rallied briskly. Overall, winners topped losers by nearly 3 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq.
After regular trading ended, biotech firm Amgen Inc. and Internet auction site EBay Inc. also reported strong first-quarter earnings and raised their profit forecasts for 2003.
Tobias Levkovich, investment strategist at brokerage Smith Barney in New York, said the fact that improving fundamentals for individual companies underpinned the rally -- as opposed, say, to generic optimism about low interest rates or a tax cut -- was a positive sign for the market.
“These are grass-roots gains,” he said. “It’s like, what’s happening in the trenches is lifting the market.”
Doug Sandler, chief equity strategist at Wachovia Securities in Richmond, Va., said that in some cases investors are rewarding stocks of companies that are reporting poor first-quarter earnings, but still better results than had been feared.
That willingness to see the market’s glass as half full, rather than half empty, often is a prerequisite for a bull market.
Tissue maker Kimberly-Clark Corp., for example, reported profit Tuesday that was below its year-ago level, but was above analysts’ estimates. The stock jumped $2.65 to $49.90.
Sandler said that kind of relief about first-quarter financial results has been notable in the technology sector, home to some of the best-performing stocks this year. “With some tech companies, people are expecting a ‘D’ report, and the company gives them a ‘D-plus’ -- and they’re happy,” he said.
In tech, “The sellers are gone” after three years of horrendous losses, Sandler said.
And as more stocks climb into the black year to date -- the S&P; 500 now is up 3.6% since Jan. 1, while the Nasdaq composite is up 8.7% -- investors who have been out of the market may feel as if they are missing the boat, analysts said.
That’s a bigger problem for “short sellers” who have sold borrowed stock, betting on lower prices. The NYSE said Tuesday that the number of shares sold short as of April 15 rose 0.8% from March 15, to 8.06 billion. That was the largest number since mid-November.
“There are a lot of shorts out there,” Kugel said. If the market rally continues, short sellers will see their losses mount until they close out their bets by purchasing stock to repay borrowed shares.
That buying, in turn, can help keep a rally going.
The market’s latest advance also may be getting help from individual investors via mutual funds, according to data firm TrimTabs.com: It estimates that stock funds took in $8.7 billion last week as individuals stepped up their buying.
Still, there are many Wall Street pros who question how far the market can run.
Because stocks in general are selling for historically above-average prices relative to earnings per share, the widespread expectation is that the market will be stuck in a trading range at best -- and that it may already be nearing the top of that range.
A key test in coming days and weeks will be whether the S&P; 500, for example, can drive through the 940 level. That has been a barrier since November.
If key indexes can break through their recent ceilings, that could pull more investors into the market, Wall Street bulls say. But a quick sell-off as those ceilings are neared could have the opposite effect, triggering heavy selling as investors lose faith that the rally can be sustained.
In other highlights Tuesday:
* Crude oil prices fell in New York futures trading, which may have helped stoke stocks. The May futures contract dropped 96 cents to $29.91 a barrel, as traders awaited the meeting Thursday of the Organization of the Petroleum Exporting Countries. The cartel is expected to consider production cuts.
The June oil contract lost 84 cents to $27.99 a barrel.
* Treasury bond yields eased slightly, despite the stock market’s gains. Often, rising share prices result in higher bond yields as money shifts from bonds to stocks.
