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 Dec. 13, 2000.
The broader S&P 500 index added nearly 2 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,” Gregori Volokhine of Meeschaert Capital Markets said.
“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,” Scott Marcouiller of Wells Fargo Advisors said. “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.
However, investors took more cues from the Federal Reserve decision to keep interest rates at the ultra-low level of 0 percent to 0.25 percent while confirming that its US$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,” Marcouiller said. “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.”
Next week will see results from Chrysler (tomorrow), Pfizer and Comcast (Tuesday), Time-Warner, News Corp and Kellogg (Wednesday), GM and AIG (Thursday) and Colgate-Palmolive on Friday.
Eyes will also be on new economic data next week: manufacturing and construction spending (tomorrow), 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,” Marcouiller said.
However, 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,” analysts at Charles Schwab said.
“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,” Volokhine said.