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Strong quarterly results from several Dow components led by Caterpillar and Honeywell International boosted confidence and led the stocks to close higher. Investors scooped up a bevy of tech and financial shares. The upbeat tone enabled investors to set aside rising oil prices, high bond yields and disappointing results from General Motors and others.

Today, the Dow Jones industrial average closed up 99.73 or 0.9% to 10,809.47, the broader Standard & Poor’s 500 index closed up 9.15 or 0.7% to 1,273.83, and the Nasdaq composite index closed up 22.35 or 1% to 2,283.00.

Market breadth was positive and volume was robust. On the New York Stock Exchange, winners beat losers seven to four on volume of 2.07 billion shares. On the Nasdaq, advancers topped decliners by more than two to one on volume of 2.44 billion shares.

Coupled to the good earning reports was good news on the economic front with durable goods orders and jobless claims coming in a little better than expected. Orders for U.S. made durable goods rose 1.3% in December against the expected 0.5%. Jobless claims in the latest week rose 11,000 to 283,000. This is against the expected increase to 305,000.

While next week’s Federal Reserve policy-setting meeting and January employment reports could throw stock investors a curveball, overall, many factors are in place that are likely to support stocks at least in the short term. Decent result from companies, and the return of tech, is a good indicator of business spending. Investors appear to be accepting that earnings growth this year will be modest but still be good, and therefore, stock valuations remain compelling.

It is reported that Sen. John Kerry will attempt a filibuster to stop Judge Samuel Alito becoming a Supreme Court justice. He has support from Sen. Edward Kennedy but some senior Democrats are worried the move could backfire. The filibuster is a procedural move that extends Senate debate indefinitely. This effectively prevents senators from voting, and Republicans believe they will have enough votes to prevent a filibuster.

Amongst gainers today, Caterpillar closed up $3.10 or 5% to $65.17, Honeywell closed up $1.35 or 3.7% to $37.41, and AT&T gained $0.30 or 1.2% to $25.51, all on reported quarterly earnings that surpassed Wall Street’s forecasts. Verizon closed up $0.30 or 1% to $31.68, after reporting quarterly earnings that fell from a year earlier, but were in line with estimates. However, GM reported a loss of $4.8 billion in the quarter and the stock closed down $0.80 or 3.4% to $23.05. Other gainers on the Dow included Alcoa up $1.04 to $30.78, Boeing up $1.81 to $68.72, Merck up $0.76 to $33.95, Citigroup up $0.78 to $47.01, JP Morgan Chase closing up $1.11 to $39.59.

The tech rally today was fueled by gains in semiconductors, software and Internet shares. All 19 components of the Philadelphia Semiconductor Index gained to take it up 15.01 or 2.9% to 536.54. Novellus Systems gained $1.96 or 7% to $29.88, after reporting higher quarterly earnings that beat estimates.

Taking some off the sheen off the rally was a rise in oil prices. U.S. light crude oil for March delivery increased 41 cents to settle at $66.26 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter