Investors were in an upbeat mood after the benchmarks had their best monthly performance in years and the markets had their best run in five weeks, ended with gains on Friday. Through the week, the indices were pushed higher by the Federal Reserve’s vow to keep interest rates low to stimulate the economy and by robust quarterly results. Disappointing data could cause little damage to the markets as even on Friday, positive earnings results took precedence over modest economic data.
On Friday, The Dow Jones Industrial Average (DJIA) rose 0.4% to close at 12,810.54, its highest close since May 20, 2008. The Standard & Poor 500 (S&P 500) gained 0.2% and finished at 1,363.61, its highest close since June 5, 2008. The Nasdaq settled at 2,873.54, gaining 0.04% and posted the highest close since December 12, 2000. For the week, the Dow, S&P 500 and Nasdaq gained 2.4%, 2.0% and 1.9%, respectively. Markets also gained over the month as the Dow gained 4.0%, S&P 500 was up 2.9% and the Nasdaq earned 3.3%. The CBOE Volatility Index edged up to 14.77 on Friday, but the fear gauge dropped for the third consecutive month and was down almost 17% for the month. On the New York Stock Exchange, Amex and Nasdaq, consolidated volumes were 7.17 billion shares, lower than the daily average of 7.72 billion. On the NYSE, advancers outnumbered the declining stocks.
Markets have been able to overcome several concerns through the month on the back of positive earnings results. Additionally, last week, the indices were boosted after Fed chairman Ben Bernanke’s press conference where he re-affirmed the central bank’s commitment to providing economic stimulus by keeping interest rates low. The press briefing, which was followed after the Federal Open Market Committee meeting, confirmed that the $600 billion bond-purchase would end as per scheduled. Bernanke also said inflationary worries would be short-lived. The markets gathered enough momentum from the event which helped ease concerns brought about by the downgrading of the US sovereign debt rating, earlier in the week starting April 18.
Coming to earnings results, of the 323 companies which reported their quarterly results till Thursday, 73% of the companies have been able to outperform estimates. The situation was no different on Friday, as strong results from Caterpillar Inc. (NYSE:CAT), Merck & Co. Inc. (NYSE:MRK), Chevron Corp. (NYSE:CVX) and DR Horton Inc. (NYSE:DHI) lifted the indices. These shares gained 2.5%, 0.5%, 0.6% and 2.8%, respectively.
Caterpillar Inc. led the gains among the Dow components as the company posted a very strong increase in profit to $1.23 billion or $1.84 per share in the first quarter of 2011 from $233 million or 36 cents per share in the same quarter of 2010, primarily driven by higher sales volumes. This is an all-time quarterly record for the company. The robust quarterly results helped Caterpillar trade at multi-year highs and joining it in the same pool were companies like Boeing Co. (NYSE:BA), American Express Company (NYSE:AXP), United Technologies Corp. (NYSE:UTX) and Pfizer Inc. (NYSE:PFE). These shares also traded at multi-year highs and settled after gaining 1.6%, 1.2%, 0.6% and 0.7%, respectively.
However, the gains were limited by disappointing results from Microsoft Corporation (NASDAQ:MSFT), which reported a drop in quarterly sales of Windows software. Microsoft’s third quarter 2011 results were again impacted by weakness in the consumer PC segment. However, the company went on to beat estimates on both the top and bottom lines. Revenue of $16.43 billion was down 17.7% sequentially and up 13.3% from last year. The Windows and Windows Live Segment generated 27% of quarterly revenue, down 12.0% sequentially and flat year over year. The Nasdaq’s most heavily traded stock was down 3.0% and settled at $25.92.
Economic data has not been unable to provide enough vigor to the markets recently. Even on Friday, economic data was almost tepid and did not have much of a role in pushing the benchmarks higher. Consumer sentiment was higher in April as consumers anticipate higher gasoline prices to be a short-term phenomenon. The consumer sentiment index was at 69.8, up from 67.5 in March. This was almost in-line with estimates of 69.9. Separately, the Commerce Department reported a surge in consumer spending, which contributes roughly 70% of US economic activity. Consumer spending was up 0.2% last month, adjusted for inflation. The index, in February, had risen 0.5%. The Commerce Department also reported that Personal Income increased 0.5%, by $67.0 billion in March to $13,042.4 billion seasonally adjusted at annual rates, higher than the expected 0.3%, after increasing by 0.4% in February. Personal Consumption Expenditures increased by $60.7 billion, or 0.6%, higher than the expected 0.5% increase, after increasing by 0.9% in February, revised upwards from 0.7%.
Coming back to the earnings season, significant companies scheduled to report earnings today include Automatic Data Processing, Inc., Anadarko Petroleum Corporation and Chesapeake Energy Corporation.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis Report
MERCK & CO INC (MRK): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
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