Stocks off to a strong start
Wall Street began the week with a strong start Monday as better-than-expected profit at Citigroup and a healthy increase in consumer spending renewed investors’ optimism about the economy. The Dow Jones industrial average soared more than 100 points.
Earnings reports begin arriving at a steady clip this week, giving investors fresh indications about companies and the overall economy. This week, nearly half the 30 companies that make up the Dow report results.
Although investors have been girding for a slowdown in growth of corporate profits, they are hoping consumer spending will remain robust. The Commerce Department on Monday reported that consumers spent strongly last month, sending retail sales up by about 0.7%. The figure was close to what analysts predicted, and up from a revised 0.5% increase in February.
Investors also were pleased by news of a buyout of SLM, the student lender better known as Sallie Mae. SLM agreed to be sold to two private investment funds and JPMorgan Chase and Bank of America for $25 billion, or $60 a share. Sallie Mae rose $8.29, or 18%, to $55.05.
But analysts warned that Wall Street’s good humor was unlikely to last. Robert N. Schaeffer, portfolio manager at Becker Value Equity Fund, contends that a pop in stocks is typical when earnings reports begin to flow in and are better than expected.
“The positive reaction to the earnings tends to be short-lived traditionally,” he said. “There is also a tendency for companies with better earnings reports to report early. The companies that are going to disappoint tend to drag their feet a bit.”
The Dow Jones industrial average rose 108.33 points, or 0.9%, to 12,720.46. The Dow’s increase Monday put the blue-chip average back above where it stood before the major U.S. indexes fell more than 3% on Feb. 27 as part of a worldwide sell-off. The Dow is within about 66 points of its all-time closing high of 12,786.64, reached Feb. 20.
Broader stock indicators also rose. The Standard & Poor’s 500 index rose 15.62 points, or 1.1%, to 1,468.47, a 6 1/2 -year high. The Nasdaq composite index rose 26.39 points, or 1.1%, to 2,518.33.
Bond yields fell, with the benchmark 10-year Treasury note falling to 4.74% from 4.76% on Friday. The dollar traded near all-time lows versus the euro and was mostly lower against other major currencies.
Crude oil futures were little changed, slipping 2 cents to $63.61 in New York trading.
Economic reports competed with earnings news for investors’ attention Monday.
The Commerce Department reported that businesses increased inventories 0.3% in February, the largest increase in five months. The New York Federal Reserve also reported that regional manufacturing activity expanded slightly in April, with the overall index rising to a reading of 3.80 from an unrevised reading of 1.85 in March. Also, the National Assn. of Home Builders’ index -- a measure of confidence of U.S. home builders -- fell to 33 from 36 in March for sales of new single-family homes.
Investors greeted earnings news enthusiastically as they were eager to see how well corporate earnings would hold up. Wall Street anticipates that the reports will indicate that corporate growth slowed in the first three months of 2007 compared with previous quarters. Standard & Poor’s recent estimate of first-quarter earnings growth for S&P; 500 companies is 3.8%.
Investor sentiment about earnings can be easily swayed, however; one bad report has in the past soured Wall Street’s mood about the overall corporate profit picture.
In other market highlights:
* Citigroup, the largest U.S. financial institution, said its first-quarter profit fell 11%, but the results included a charge to cover a massive restructuring. Excluding that charge, increased revenue helped push profit above expectations. Citigroup, the best performer in the Dow, rose $1.33 to $52.93.
The report buoyed financial stocks, which make up the largest slice of the S&P; 500. Lehman Bros. rose $3.67 to $75.89, while Goldman Sachs advanced $8.02 to $214.52.
* Wachovia, the nation’s fourth-largest bank, reported a rise in profit that surpassed Wall Street’s expectations -- which along with Citigroup’s results appeared to reassure some investors that the large U.S. banks are faring better than anticipated, despite trouble in the sub-prime lending sector. Wachovia rose $1.06 to $55.06.
* Eli Lilly’s first-quarter profit fell 39%. After adjusting for certain items, the company’s profit came in above expectations. The drug maker also reported a rise in revenue and raised its full-year sales and earnings guidance. The stock rose $1.52 to $58.40.
