Above And Beyond Promotion

Archive for April, 2011

By JONATHAN CHENG And KRISTINA PETERSON

Stocks had their best month of the year in April, as strong corporate earnings and the promise of continued low interest rates persuaded investors to make risky bets on small-company shares and volatile commodities.

Blue-chip stocks stepped higher Friday, as Caterpillar’s earnings overpowered mixed economic data and the Dow Jones Industrial Average wrapped up the best month of this year. Kristina Peterson has details.

After struggling for two months on concerns about economic growth, the earthquake in Japan and rising inflation, the market embraced surging corporate profits and rising consumer demand to push the Dow Jones Industrial Average up 490.81 points in April, nearly 4%, to 12810.54, its highest close since May 2008. The Dow is now less than 10% from its record close, set in October 2007.

Particularly encouraging for market bulls: Two indexes closely watched as barometers of the economy climbed to new highs.

The Russell 2000 index of small-capitalization stocks finished the month at an all-time high of 865.29, capping a 152% run that began just over two years ago. On Thursday, the Dow Jones Transportation Average, an index of 20 airline, railroad and shipping stocks, pushed up into record territory for the first time in three years.

The biggest winners of the month were precious metals, with gold soaring to a record high of $1,556 per troy ounce. Silver rocketed 28% higher and is now just 0.2% off a record high that dates to January 1980. Industrial metals such as aluminum and agricultural commodities, including coffee and corn, have also surged.

Small-cap companies and commodities are particularly sensitive to an accelerating economy, while rising transportation stocks reflect a pickup in the movement of goods—a positive sign for the economy. A weak reading on first-quarter gross domestic product didn’t dissuade investors, who focused on corporate earnings, which averaged 22% higher in the first quarter than in the year-earlier period.

“The economic recovery in the U.S. is over. We’re in expansion mode,” says Bob Doll, chief equity strategist for fundamental equities at money manager BlackRock Inc. Mr. Doll says that, in spite of numerous head winds, “the market has chosen to pay attention to what has been really good earnings.”

Paul Vigna and John Shipman discuss how earnings are impacting today’s trading, why U.S. officials are unfazed about the big slide as well as earnings from Caterpillar and RIM, the maker of BlackBerry.

The Dow Jones Industrial Average rose 47.23 points, or 0.37%, on Friday. The blue-chip index fell on just six of the 20 trading days in April, and is up 10.65% for the year. That’s the Dow’s best four-month start since 1999, when it gained 18% through April. The gains extend the Dow’s winning streak to five months. The Nasdaq Composite topped its 2007 peaks to reach levels not seen since the waning days of the dot-com bubble in December 2000.

After months of market jitters induced by overseas turmoil, April’s rally marked a return to stock-market fundamentals, with corporate earnings driving stocks. Investors largely resisted reacting to every negative headline, stumbling only once, when credit-ratings agency Standard Poor’s issued a warning on U.S. government debt. Instead, investors acclimated to lingering concerns like high oil prices, which spent much of the month above $110 a barrel. In fact, some of the international turmoil may have helped the U.S. stand out as an oasis of calm.

“The U.S. is a reasonable place to invest, particularly considering the strong earnings that have been coming out,” said Michael Yoshikami, chief executive and chief investment strategist at YCMNET Advisors in San Francisco. “There will be troubles, but the reality is that the economy is getting stronger.”

As of Friday, 320 companies on the Standard Poor’s 500 stock index had reported earnings, with 73.1% of companies exceeding analysts’ expectations, according to Brown Brothers Harriman.

Strong earnings, like those from industrial giants Caterpillar Inc. and Boeing Co. this week, have underscored the resilience of the U.S. manufacturing sector, while encouraging reports from the shipping and transport industry have added to optimism.

A number of challenges still loom. The dollar was the month’s big loser, falling to its lowest level since mid-2008 in intraday trading Friday, as measured by the ICE U.S. Dollar Index. Treasurys gained, pushing the yield on the benchmark 10-year Treasury note to a six-week low.

“The greatest threat to earnings is on the cost side,” said Bill Vaughn, portfolio manager at Evercore Wealth Management, who worried about whether companies would be able to pass along the higher input costs to end consumers. “I just don’t think the consumer is as able or willing to accept price hikes as businesses are right now.”

Rising stock and commodity prices have some wondering whether the stock market may take a pause as some investors follow an old market mantra to “sell in May and stay away.”

Mr. Doll of BlackRock says he expects further stock gains this year, but acknowledges he is more cautious than he was in January, given that the market already has notched most of the gains he had forecast for the entire year. Even so, he says, “I have a hard time seeing any significant downside that would cause me to cash in my chips.”

Part of that confidence comes from the Federal Reserve, which signaled Wednesday its intention to continue buying Treasurys through June to try to keep interest rates low. Mr. Doll and others in the market read that as having effectively given a green light to continue buying risky assets.

“We’re in a sweet spot for the markets,” said Joe Quinlan, chief market strategist at U.S. Trust, Bank of America Private Wealth Management.

Write to Jonathan Cheng at jonathan.cheng@wsj.com and Kristina Peterson at kristina.peterson@dowjones.com

Printed in The Wall Street Journal, page A1

Powered by Yahoo! Answers

Powered by Yahoo! Answers

Powered by Yahoo! Answers

BY MATTHEW ROSENBERG

Pakistan is lobbying Afghanistan’s president against building a long-term strategic partnership with the U.S., urging him instead to look to Pakistan—and its Chinese ally—for help in striking a peace deal with the Taliban and rebuilding the economy, Afghan officials say.

The pitch was made at an April 16 meeting in Kabul by Pakistani Prime Minister Yousuf Raza Gilani, who bluntly told Afghan President Hamid Karzai that the Americans had failed them both, according to Afghans familiar with the meeting. Mr. Karzai should forget about allowing a long-term U.S. military presence in his country, Mr. Gilani said, according to the Afghans. …