WASHINGTON, April 30, (Agencies): Solid profits in US blue chips propelled the Dow to a near-three year high this week, and analysts predicted more of the same next week, halfway through the earnings season.
Investors shrugged off the weakening dollar and sluggish first quarter economic growth as profits filled corporate coffers and soaring oil prices boosted energy industry counters.
The Dow Jones Industrial Average finished up 2.4 percent from the previous week at 12,810.54, its best close since May 20, 2008.
The tech-rich Nasdaq Composite was up 1.9 percent for the week, reaching its best level since the dot-com plummet of 2000, hitting 2,873.54, a mark last seen as the index was in a free-fall on December 13, 2000.
The broader S&P 500 index added nearly two percent to 1,363.61, also its highest point in nearly three years.
First quarter company results drove the surge.
“Most of the results were very good,” said Gregori Volokhine of Meeschaert Capital Markets.
“Especially the companies dependent on exports showed that even if US growth has slowed, that won’t impact them because they have developed internationally,” he said.
“We were able to break out the February highs for all the major averages,” said Scott Marcouiller, Wells Fargo Advisors. “Corporate earnings have come very strong.”
The economic news was not encouraging, with data showing prices continued to climb while economic growth slowed sharply to 1.8 percent in the January-march quarter.
But investors took more cues from the Federal Reserve’s keeping interest rates at the ultra-low level of 0-0.25 percent while confirming that its $600 billion stimulus program would continue as planned through June.
While discouraging thoughts that it would be renewed after that, Fed chairman Ben Bernanke did not close the door on more stimulus if the economy remained weak.
“The chairman sounded very reassuring, it was a major factor for the market,” said Marcouiller.
“They have no intention to tighten any time soon, it seems that they are just going to keep going. They feel that the pickup in inflation is transitory and the market took this as a positive.”
Big oil companies expectedly showed well on higher oil prices in quarterly reports, with ExxonMobil (+1.9 percent for the week) scoring a 69 percent jump to $10.7 billion in net income for the period, and Chevron (+1.2 percent) profits were up 36 percent to $6.2 billion.
Caterpillar (+5.5 percent for the week) benefited from the global recovery, reporting record quarterly profits of $1.22 billion, more than five times a year earlier, handily beating estimates.
Procter & Gamble (+2.6 percent) said net profit rose 11 percent in its third quarter as sales increased in all its regions around the world.
Boeing (+5.8 percent) reported a 13 percent net earnings gain to $586 million, benefiting from a sharply lower tax rate that helped to offset a dip in sales.
Microsoft (-3.0 percent) though disappointed investors despite a 31 percent rise in earnings to $5.23 billion, in line with estimates. The company said there was still weakness in the personal computer sector that pushed down revenues for its Windows 7 operating system.
Ford (+0.3 percent) posted its highest first-quarter profit in 13 years: $2.55 billion on the back of sales of fuel-efficient vehicles.
Next week will see results from Chrysler (Monday), Pfizer and Comcast (Tuesday), Time-Warner, News Corp and Kellogg (Wednesday), GM and AIG (Thursday) and Colgate-Palmolive on Friday.
Data
Eyes will also be on new economic data next week: manufacturing and construction spending (Monday), industrial orders (Tuesday); private sector payrolls and service sector (Wednesday); and unemployment and job creation (Friday).
After this week’s report of a troubling rise in new unemployment applications, the Friday data “is going to get a lot of attention next week, no doubt about it,” said Scott Marcouiller of Wells Fargo Advisors.
But mostly analysts were optimistic about the coming week.
“We remain relatively optimistic on the stock market going forward, although as the economic recovery matures the gains could be more of a grind,” said analysts at Charles Schwab.
“For the moment there is no sign that the Fed will reduce liquidity in the markets. We have all the ingredients necessary for the market to continue climbing,” said Volokhine.
Meanwhile, gold surged nearly 2 percent to a record for a third consecutive day on Friday, as inflation worries, a dollar drop and expectations the US Federal Reserve will maintain loose monetary policy lifted bullion to its biggest one-day gain in two months.
In late US afternoon trade, bullion sharply extended early gains, as US consumer spending rose for a ninth straight month in March with inflation at its highest in nearly a year. Platinum group metals also rose about 2 percent but silver fell 1 percent after soaring to record high in the previous session.
Option traders reported strong buying of call options and call spreads, reflecting bullish market expectations. A gauge of bullion market volatility also spiked in response to a sharp price rally.
“What has been driving gold is an abundance of liquidity of Fed policy that remains exceedingly accommodative, which is going to work against the US dollar,” said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which manages $53 billion in client assets.
“There is worry that inflation, which is not a problem right now, could escalate to become one. And once it does, it becomes very difficult to put the genie back into the bottle,” he said.
Spot gold was last up 1.8 percent at $1,562.60 an ounce by 3:40 p.m. EDT (1940 GMT), having earlier hit an all-time high $1,569.30.
The metal notched a 9 percent monthly gain, its strongest since November. Bullion also posted its seventh consecutive weekly rise, its longest winning streak since 2007.
US June futures settled up 1.7 percent at $1,556.40 an ounce, with trading volumes about one-third below its 30-day average due to a public holiday in London.
On the options front, heavy buying of outright call options and bull call spreads of June 2012 calls with strikes $1,800 and $2,000, said COMEX gold options floor trader Jonathan Jossen.
Bull call spread is an option play involving the buying of calls at one strike price while selling them at a higher strike with the same expiration date. Investors often expect prices to rise moderately with the strategy.
Also, the CBOE gold volatility index, which measures bullion investor anxiety, rose 6 percent and set to be one of the biggest daily rise in 2011.
A slight drop in the dollar also contributed to bullion’s gains. Earlier in the week, expectations of further weakness in the dollar were the biggest drive for gold and silver rallies to records.
Investors look forward to next Friday’s nonfarm payrolls data for trading cues, after data this week painted a picture of an economy with slower growth and higher inflation, and after the Federal Reserve signaled it would not tighten monetary policy any time soon.
Silver extended gains after it on Thursday eclipsed the peak set in 1980 when Texas brothers William Herbert and Nelson Bunker Hunt attempted to corner to market. It posted a near 27 percent rise in April, its biggest monthly gain since April 1987.
Silver was last down 0.8 percent at $48.03 an ounce.
Silver gained 3 percent this week, although analysts say its robust performance against the other precious metals may not be sustainable.
“If silver doesn’t make a new high and sustain above that, it may go through a more vicious correction here. So, gold in the short term could go down in sympathy of that,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
The CME Group Inc, parent of the Chicago Board of Trade, said on Thursday it would raise maintenance margins for silver futures by 13.2 percent, its second time this week, making it more expensive for silver speculators to trade in.
For platinum group metals, platinum echoed the strength in gold, rising 1.9 percent on the day to $1,870.49 an ounce, while palladium rose 2.6 percent to $790.97.