The stock market rose for a fourth straight session on Tuesday as investors seemed optimistic that companies would be able to surpass relatively low forecasts for the earnings season, possibly prolonging the rally.
The recent move higher has taken the Standard Poor’s 500-stock index close to its nominal high, reached in May, and the Nasdaq composite index to its highest point since November 2000.
The market’s gains also suggest that investors are becoming more comfortable with the prospect of the Federal Reserve slowing its economic stimulus, which has been a major driver of the stock rally this year.
For the most part, analysts are expecting second-quarter results to be soft with weak sales, but expectations are for a pickup later in the year. Even so, investors are starting to suggest earnings expectations may have been too low.
“We think we have the potential once again for an earnings season where expectations are a little too low, and when the earnings finally do come out, we could have a little bit of an upside surprise,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
Analysts predict earnings at S. P. 500 companies will grow 2.9 percent in the second quarter from a year earlier, well below the 6.1 percent that was forecast in April, according to Thomson Reuters.
Forecasts for growth in the first quarter were similarly revised lower to as little as 1.5 percent. The earnings season beat that with growth of 5.4 percent.
The Dow Jones industrial average gained 75.65 points on Tuesday, or 0.50 percent, to end at 15,300.34. The S. P. 500 rose 11.86 points, or 0.72 percent, to 1,652.32, just 1 percent below its record closing high of 1.669.16 on May 21. The Nasdaq climbed 19.43 points, or 0.56 percent, to close at 3,504.26.
Analysts “have lowered the expectations enough that even if the numbers aren’t materially better, the outlooks will be more favorable than what is the consensus now,” said Alan B. Lancz, president of Alan B. Lancz Associates.
The earnings calendar remains light until Friday when JPMorgan Chase and Wells Fargo are set to report results.
Volatility has plunged in recent weeks on waning worries that the Federal Reserve was moving to reduce its $85 billion a month in bond purchases, which aim to stimulate the economy. The market volatility index, or VIX, Wall Street’s main indicator of investor fear, has tumbled more than 30 percent since late June. On Tuesday, it fell 2.9 percent to end at 14.35.
“It almost seems like the market is starting to get more comfortable with the fact that the Fed could taper,” Mr. Detrick said.
“We’re in a different area from where we would have been five or six weeks ago, where strong economic data was met with selling,” he said. “Now good news is actually being perceived as good news.”
The Fed will release the minutes from its June policy meeting on Wednesday afternoon, possibly providing clues into the timing of a possible reduction of stimulus measures.
Among the stocks on the move, FedEx climbed $4.32, or 4.4 percent, to $103.15 on speculation that the billionaire hedge fund manager William Ackman would make a big investment.
Health Management Associates jumped $1.28, or 8.3 percent, to $16.75 after a report that it had attracted takeover interest from Community Health Systems and other rivals.
Intuitive Surgical shares plunged $80.78, or 16.2 percent, to $419.30 after it said it expected second-quarter revenue below analysts’ expectations.
In the bond market, interest rates were stable. The price of the Treasury’s 10-year note was stable at 92 11/32 and its yield was stable at 2.64 percent.
Article source: http://www.nytimes.com/2013/07/10/business/daily-stock-market-activity.html?partner=rss&emc=rss
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