Strong Results From GE Lift Stocks
Wall Street rose modestly on Friday from six-week lows after General Electric reported higher-than-expected earnings and gave a rosy assessment of business conditions, reassuring investors that the economic recovery was intact.
The news followed a string of earnings disappointments that weighed on the market all week.
The Dow Jones industrials edged up 41.66 points, or 0.4%, to 10,213.22, in light trading.
The Nasdaq composite gained 11.01 points, or 0.6%, to 1,946.33, and the Standard & Poor’s 500 added 3.70 points, or 0.3%, to 1,112.81.
For the week, however, all three indexes lost ground. The Dow fell 0.7%, Nasdaq dropped 3%, and the S&P; gave up 1.1%.
GE said second-quarter profit rose 3% from a year earlier, to $3.9 billion, or 38 cents a share. The per-share amount was the same as a year earlier because of more shares outstanding, but was better than the 37 cents GE had predicted in May. Analysts also expected 37 cents.
Sales jumped 11% to $37 billion. It was GE’s biggest sales increase since the third quarter of 2000.
“This is the best economy we’ve seen in years,” GE Chairman Jeffrey Immelt said. Nine of the company’s 11 main businesses had profit gains in the quarter, led by healthcare and infrastructure, which includes water purity systems and airport security devices. GE’s energy business was a weak spot because of poor gas-turbine sales.
Immelt said GE should earn $1.55 to $1.60 a share this year, and post profit growth of 10% to 15% in 2005.
GE is considered a bellwether of the economy because of the diversity of its operations, including financial services, broadcasting, industrial equipment and consumer goods.
“When GE speaks, you listen,” said Richard Sichel, chief investment officer of Philadelphia Trust Co. “In the negative atmosphere of the past few days, there’s been some talk that the economy might be slowing down, but maybe not.”
Major retailers this week reported mostly gloomy June sales. Also, Internet portal Yahoo’s quarterly earnings report on Wednesday failed to impress investors, and a number of software firms warned that quarterly sales would fall short.
All of that raised fears that the economy, and corporate earnings, might be weaker than expected.
But many analysts say GE’s upbeat report is more likely to be the norm than the exception as second-quarter earnings pour out in the next few weeks.
“The chips are lining up in the market’s favor,” said Sean Clark of Clark Capital Management in Philadelphia. “Earnings for the second quarter will surprise to the upside, just as they did in the first quarter.”
Among Friday’s highlights:
* GE, one of the 30 stocks in the Dow, rose 47 cents to $32.17. The shares are up 3.8% this year.
* Software giant SAP jumped $2.08 to $40.04. It said second-quarter sales are expected to be up 9% from a year earlier. The report eased some of the concerns about tech-sector results.
But tech-services firm Unisys fell $1.99 to $10.87 after warning that second-quarter sales and profit would trail expectations.
* Arch Coal slid $1.95 to $34.47 after saying that its quarterly results probably would come in at the low end of estimates, largely because of rail-service disruptions.
* GE’s economic outlook may have helped to lift some commodity and heavy-industry shares. Mining firm Rio Tinto gained $1.13 to $102.32, machinery maker Ingersoll-Rand rose $1.45 to $65.11, and Caterpillar added 55 cents to $77.08.
* In other markets, bond yields were little changed. Crude oil futures in New York declined 37 cents to $39.96 a barrel.
