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Stocks rise on upbeat earnings reports

July 16, 2009|Walter Hamilton and Tom Petruno

NEW YORK AND LOS ANGELES — The stock market is defying expectations by rallying strongly this week on the back of upbeat quarterly reports from blue-chip companies such as Intel Corp. and Goldman Sachs Group Inc.

The Dow Jones industrial average spurted up more than 250 points Wednesday to post its best gain in more than three months. For the week, the blue-chip indicator has surged almost 500 points to its highest level in a month.

The burst has surprised many experts, who expected stocks to continue backtracking on the belief that the economy wasn't mending itself quickly enough to merit the market's furious rise in March and April.

Many investors still cling to that bearish outlook, calling this week's upward move no more than a blip.

But others say stocks could be positioned for another solid advance after basically moving sideways for two-plus months.

"To me, the market deserves the benefit of the doubt until it proves otherwise," said Frank Gretz, technical analyst at Shields & Co. in New York.

Good news from bellwether companies is driving much of the enthusiasm.

Intel reported better-than-expected second-quarter revenue and profit late Tuesday, icing the cake with an upbeat forecast for the current quarter. On Wednesday its shares jumped $1.22, or 7.2%, to $18.05, their highest close since Oct. 1.

That followed blowout earnings from Goldman Sachs on Tuesday and what were viewed as bullish comments by influential banking analyst Meredith Whitney on Monday.

Technology, financial and raw-material stocks have been leading the market's advance, with those sectors of the S&P 500 each gaining more than 4% on Wednesday.

Goldman Sachs rose $5.60, or 3.7%, to $155.26, its highest close since Sept. 11 -- just before Lehman Bros.' collapse and the fall market meltdown.

Stocks also were helped Wednesday by the latest data pointing to a slowly improving economy.

An index of manufacturing activity in the New York area fell less than forecast this month. And American Express Co. said it might not suffer the level of credit write-offs it had forecast for the second half of the year.

Wednesday's rally was broad by any measure. On the New York Stock Exchange, 2,804 stocks rose, the most since March. Only 303 fell.

Besides the Dow, the Nasdaq composite index also notched its best performance in three months. The Standard & Poor's 500 index had its best showing since mid-May.

The Dow climbed 256.72 points, or 3.1%, to 8,616.21. The Nasdaq was up 63.17 points, or 3.5%, to 1,862.90. The S&P 500 rose 26.84 points, or 3%, to 932.68.

Yields on government bonds rebounded along with stocks as many investors abandoned the relative safety of Treasuries. The yield on the benchmark 10-year T-note jumped to 3.59% from 3.44% late Tuesday. On Friday it was 3.29%.

In a measure of the market's strength, almost three-quarters of stocks are trading above their average of the last 200 days, a bullish sign that indicates a further advance in the short term, Gretz said.

The market's recent pullback failed to reach the 10% threshold of a standard market "correction." At the c close Friday, the S&P 500 was off 7.1% from the June 12 high.

The market's rebound this week indicates that many people began the third quarter expecting stocks to head south, particularly after the dismal June employment report on July 2.

Now, with the S&P 500 up 6.1% since Friday, "short sellers" are getting squeezed and may be buying to cover some of their bearish bets, said Patrick J. O'Hare, chief market analyst at

Questioning whether the market has much steam left short-term, he worried that the rally is a "head fake" that could reverse course quickly.

"Traders can play it for what it is, but we're inclined to be part of the crowd that's content to sit on the sidelines here and let this rally play itself out," O'Hare said.

Even some bulls remain wary of the market. Stocks could slide again if earnings are disappointing for a day or two, said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Va.

"This market is going to remain vulnerable to the news of the day," he said


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