US stocks surge on good earnings

A new round of strong earnings reports sent US stocks soaring for a second straight session Friday as investors shrugged off surprisingly slow growth in the nation’s gross domestic product.

The Dow Jones industrials had a two-day gain of nearly 200 points, and the major indexes ended the week with solid gains.

The Labour Department’s report on GDP, which grew just 1.1% for the fourth quarter, was seen as good news for interest rates, as investors believe the Federal Reserve, which meets next week, would be hard-pressed to continue raising rates with such slow growth.

And while a tempered economy could hurt corporate earnings down the road, the positive reports this week have buoyed investor enthusiasm for stocks, with the idea that while the US economy slows, other markets like Japan and Germany continue to expand.

“The rest of the world is actually growing, and that could bode really well for US companies,” said Matthew Smith, portfolio manager at Smith Affiliated Capital. “And combined with the idea that the Fed is going to be done soon, that’s what’s getting the market going.”

The advance in US markets followed a resurgence in Japanese stocks. The Tokyo exchange’s benchmark index soared to a five-year high Friday and wiped out its heavy losses of last week as investors responded to upbeat earnings from Sony and other companies.

The Dow rose 97.74, or 0.9%, to 10,907.21, after gaining 99.73 on Thursday.

Broader stock indicators also posted sharp gains. The Standard & Poor’s 500 index added 9.89, or 0.78%, to 1,283.72, and the Nasdaq composite index climbed 21.23, or 0.93%, to 2,304.23.

Bonds traded in a narrow range as investors digested the economic news, with the yield on the 10-year Treasury steady at 4.51% from late Thursday. The dollar rose against most major currencies, while gold prices were lower.

Persistent fears of increasing unrest in oil-producing regions sent crude oil futures sharply higher. A barrel of light crude settled at US$67.76 (€56.03), up US$1.50 (€1.24), on the New York Mercantile Exchange.

“You would think that oil, and the situation in the Middle East and Iran, would be a setback for stocks, but it really hasn’t been. I just think the market was as happy as it could be to see that lower-than-expected GDP number,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “It just hammers home to the Fed that the economy is slowing and they need to stop raising rates.”

The Fed’s Open Market Committee, which meets next week, is widely expected to increase the nation’s benchmark rate by a quarter percentage point to 4.5% – and then stop raising rates for a while, possibly the rest of the year.

The expectation of a halt to rate hikes, in combination with strong earnings reports, sent stocks higher through the week, though the major indexes have yet to return to their early January multiyear highs. After the major indexes tumbled more than 2% the prior week, the Dow climbed 2.25%, the S&P rose 1.76% and the Nasdaq gained 2.52% this week.

On Friday, earnings were once again positive, helping the market overcome last week’s disappointments which sent stocks tumbling. Microsoft Corp. climbed 1.29 to 27.79 after seeing its quarterly profits grow 5% for the quarter. The software company said new server products helped boost sales, and with a new Windows operating system coming later this year, Microsoft increased its full-year earnings outlook.

Procter & Gamble Co.’s quarterly earnings rose 29% due to strong growth across its businesses, including those gained in its recent acquisition of Gillette Co. P&G, which beat analysts’ expectations by 3 cents per share, added 92 cents to 59.74.

In merger and acquisition news, Mittal Steel Co. jumped 1.96 to 34.26 after it announced a surprise US$22.8bn (€18.86bn) acquisition offer for European rival Arcelor SA, a move that would substantially increase production for the world’s largest steel company.

Dow industrial Pfizer Inc. has received US Food and Drug Administration approval for a drug designed to combat stomach and kidney cancers. Pfizer rose 94 cents to 25.99.

Advancing issues outnumbered decliners by nearly 5 to 3 on the New York Stock Exchange, where volume came to 1.95bn shares, compared with 2.07bn traded on Thursday.

The Russell 2000 index of smaller companies rose 3.74, or 0.51%, to 732.22.