Market rallies as Dow components report solid earnings
NEW YORK -- Stocks rallied Wednesday after better-than-expected quarterly results from JPMorgan Chase jpm and two other Dow components raised investors' hopes that companies and the economy are indeed recovering from the protracted global credit crisis. The Dow Jones industrials rose more than 250 points.
Investors anxious about corporate earnings and their impact on the economy were relieved after JPMorgan, Coca-Cola ko, and Intel intc all topped projections.
The news sent the Dow up 256.80 points, or 2.08%, to 12,619.27. In the broader market, the Standard & Poor's 500 index rose 30.28, or 2.27%, to 1,364.71, and the Nasdaq composite index rose 64.07, or 2.80%, to 2,350.11.
The battered financial sector advanced after JPMorgan reported profit fell 50% because of tight credit markets, but still beat analysts' expectations. The nation's third-biggest bank, which is in the process of acquiring ailing Bear Stearns Cos., reported $2.6 billion of write-downs tied to its loan portfolio.
"You have a combination of JPMorgan and all these other strong earnings out there from a broad range sectors, and that's helping the buying we're seeing," said Todd Salamone, director of trading and vice president of research at Schaeffer's Investment Research. "There's an unwinding of all the negativity that we saw ahead of the earnings season."
Salamone and other analysts have been hoping that strength in corporate earnings would act as a catalyst for a significant rally; the market has managed a choppy ascent since hitting lows in early March. Investors have been growing more confident in recent weeks that the Federal Reserve's efforts to boost the economy and the troubled credit markets are working. Wednesday's earnings reports bolstered that sentiment.
The Dow is up more than 800 points from a low near 11,740, reached March 10.
In addition to earnings reports, Wall Street weighed sluggish economic reports on inflation and housing that were mostly within expectations. The Federal Reserve also released its beige book report, which said the economy is weakening amid a softening labor market.
Bond prices fell as stocks looked more attractive.
Oil prices crossed $115 for the first time Wednesday, rising after a government report showed crude-oil inventories fell unexpectedly last week for the second straight period.
Gold prices rose, and the dollar was mostly lower against other major currencies.
JPMorgan Chief Executive Jamie Dimon said the bank is well capitalized and has enough liquidity to handle difficult market conditions, but did not call an end to the credit crisis like other bank CEOs have in recent weeks.
"We got a nice rally here and that's because of the financials, they are holding their gains," said Todd Leone, managing director of equity trading at Cowen & Co. "They have helped out the market and are a real driver."
Dow component Intel reported late Tuesday that quarterly profit matched analysts' expectations and sales topped projections. Intel also issued a forecast that kept profit-margin predictions for 2008 intact.
Meanwhile, Coca-Cola reported first-quarter profit rose 19% on a 21% increase in sales. Results from the Dow component easily surpassed Wall Street expectations.
Wall Street had little reaction to a new batch of disappointing economic data, and to comments from Janet Yellen, president of the Federal Reserve Bank of San Francisco. Yellen said the economy has stalled. Many investors have already tempered their expectations about the economy, and were not surprised by more bad news.
Government data showed that consumer inflation pushed higher last month as increases in energy, food and airline tickets overwhelmed the biggest drop in clothing prices in nearly a decade. The Labor Department reported consumer prices rose 0.3% in March after being unchanged in February.
Core inflation, which excludes food and energy, posted a 0.2% rise. Both the overall increase and the rise in core prices were in line with analysts' expectations.
Meanwhile, home construction plummeted during March to its lowest level in 17 years, the government said in a report signaling that the housing sector will continue slumping. Housing starts decreased 11.9% to a seasonally adjusted 947,000 annual rate, after falling 0.7% in February to 1.075 million, according to the Commerce Department.
Overseas, Japan's Nikkei stock average rose 1.2%. Britain's FTSE 100 rose 2.4%, Germany's DAX index was up 1.8%, and France's CAC-40 added 1.6%.