Earnings News Lifts Stocks
Three major stock indexes moved sharply higher Wednesday on strong earnings from Time Warner and a big upswing in technology shares.
Bond yields, meanwhile, hit seven-month highs as traders bet on continued interest rate hikes from the Federal Reserve. The Fed on Tuesday not only raised the benchmark federal funds rate to 4%, it also voiced worries about rising prices and signaled that further monetary tightening was to come.
The benchmark 10-year Treasury note rose to 4.60% from 4.56% on Tuesday. Bond yields rise as their prices fall.
Stock traders appeared to be more influenced by strong earnings reports. With three-quarters of third-quarter earnings reported, companies in the Standard & Poor’s 500 index are poised to post a 14% year-over-year quarterly gain.
“Interest rates are still rising, but for the moment, we have great corporate profits,” said Charles H. Blood Jr., senior financial markets analyst at Brown Bros. Harriman & Co. “It’s like a race between interest rates and profits. One day interest rates seem to win, the next day profits seem to win.”
The Dow Jones industrial average rose 65.96 points, or 0.6%, to 10,472.73.
Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 12 points, or 1%, to 1,214.76. Nasdaq, boosted by companies including Apple Computer, rose 30.26 points, or 1.4%, to 2,144.31.
Oil futures fell, with a barrel of light crude declining 10 cents to $59.75.
Despite the day’s gains, many money managers remain wary of stocks. The S&P; 500 is barely positive for the year. Merrill Lynch said in a note to clients that the number of Wall Street strategists who are moving more money into cash rose in October.
Near the top of investors’ list of worries is how long the Federal Reserve will continue to raise interest rates.
“It’s been a little difficult to get any read as to what their thinking may be,” said Jim Dunigan, chief investment officer at PNC Advisors.
In other market highlights:
* Time Warner rose 33 cents to $17.90 after reporting third-quarter profit of 19 cents a share as sales at its cable television service increased. That beat the average estimate of 17 cents in a Thomson Financial survey. Time Warner will also more than double its share buyback to $12.5 billion.
Time Warner’s results buoyed shares of Comcast, the world’s biggest cable TV provider. Comcast also said it formed a joint venture with Sprint Nextel, the mobile phone company. Comcast increased 70 cents to $28.80 and Sprint Nextel added 88 cents to $24.73.
* Apple rose $2.45 to $59.95, a record high, as investors made bets on growth in its digital music and video businesses. Apple dominates the digital music business it helped establish, and its growth appears to be accelerating amid concern that industry sales are less than robust.
* An S&P; 500 index of chip and chip-equipment makers surged 3.1%. Intel rallied 72 cents to $23.37 and Texas Instruments jumped $1.09 to $29.64.
* Electronic Arts, the world’s biggest video game maker, climbed $4.44 to $60.23 after the company stuck to its forecast. For the fiscal year ending March 31, Electronic Arts expects a profit, excluding some items, of $1.45 to $1.60 a share on sales of $3.25 billion to $3.4 billion. Analysts expect $1.55 a share and revenue of $3.36 billion.
* Guidant lost $2.70 to $60.40 and Johnson & Johnson fell 60 cents to $61.30. J&J; may abandon a $25.4-billion acquisition of Guidant in a disagreement over proposed revised terms after Guidant recalled faulty heart defibrillators in June.
