Stocks closed sharply higher with the Dow Jones Industrials Average setting a record close, after positive forecasts from some household names helped investors shrug off an upcoming cut in oil output. Upbeat earnings from the banking sector, a drop in jobless claims and a rebound in technology added to the cheer.
Today, the Dow closed up 99.26 or 0.81% to 12,416.76, the broader S&P 500 closed up 12.28 or 0.87% to 1,425.49, and the tech-fueled Nasdaq closed up 21.44 or 0.88% to 2,453.85. The Dow broke through a previous record closing high of 12,342.56 set Nov. 17. It also hit a new trading high of 12,431.26. The S&P 500 closed at its highest level since November 2000, taking out its previous 2006 high from early December, and the Nasdaq closed about 12 points below its 2006 high.
Market breadth was positive. On the New York Stock Exchange, winners topped losers two to one on volume of 1.567 billion shares. On the Nasdaq, advancers topped decliners 17 to 12 on volume of 1.95 billion shares.
Recent reports have reaffirmed that growth and inflation will keep the Federal Reserve from cutting interest rates as early as hoped. Tomorrows report on consumer prices will also give additional signs of inflation. Additionally, Friday is a “quadruple witching” day, in which individual stock futures and options and stock index futures and options all expire at the same time. This can lead to fluctuations in the prices of the underlying stocks.
In economic news, the number of workers seeking first-time jobless benefits fell more than 20,000 to a seasonally adjusted 304,000, from 324,000 in the previous week. This is against the expected fall to 320,000. The four-week moving average, slipped by 1,500 to 327,250 from 328,750 the previous week.
Citigroup strategist Tobias Levkovich lifted his year-end 2007 targets for the Dow Jones Industrials Average and the S&P 500 Index, to imply double-digit percentage gains, citing expectations of continued strong earnings growth and other seasonal factors. He sees the Dow industrials reaching 14,000 by the end of 2007, and the S&P 500 to 1,600. This implies a 14% gain for the Dow and a 13% rise for the S&P 500. This handily beats the returns promised by bonds or cash, and so argues for “a meaningfully heavy allocation toward stocks.”
Shares of Costco Wholesale Corp. rose 1.8% after reporting a first-quarter profit of $236.9 million, up from $215.8 million in the year-earlier period. The 10% rise in first-quarter income is attributable to tight spending, higher membership fees and robust sales of electronics and toys. Revenue reached $14.15 billion, up 9%, as it rang up a 9% increase in sales of big-ticket electronics, diamond rings and fine wines and a 14% jump in membership fees. Same-store sales rose 4%.
Stock of Bear Stearns gained 2.6%, after reporting fourth-quarter net income rise 38% to $562.8 million - way past analyst forecasts. Higher underwriting fees and a strong merger and acquisitions trend boosted its profits by more than half in its fourth quarter, helping the company report its most profitable quarter ever and its fifth straight year of record earnings. The revenue increased to $4.47 billion, from $3.18 billion last year.
Shares of Dow component Procter & Gamble closed down 5 cents at $63.35 after it confirmed second-quarter earnings and sales targets. The company continues to see an EPS of 81 cents to 83 cents on sales growth of 5% to 8%. Analysts had forecast an EPS of 83 cents, with sales growing 4% to 7%.
U.S. light crude oil for January delivery surged $1.14 to settle at $62.51 a barrel on the New York Mercantile Exchange after OPEC said it would cut production by 500,000 barrels per day starting Feb. 1.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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