Earnings relief and Fed hints lift Wall Street
US stocks rose yesterday after Coca-Cola and Goldman Sachs joined the growing roster of S&P companies that beat profit forecasts and as Federal Reserve chairman Ben Bernanke left the door open to more stimulus.
The Dow Jones industrial average rose 78.33 points, or 0.62 per cent, at 12,805.54. The Standard & Poor’s 500 Index added 10.03 points, or 0.74 per cent, at 1,363.67. The Nasdaq Composite Index gained 13.10 points, or 0.45 per cent, at 2,910.04
Fears of a collapse in earnings have not been borne out thus far. Though the earnings season has been under way a short time, some 72 per cent of companies have beaten estimates, albeit from a significantly lowered bar.
Goldman Sachs shares ended up 0.3 per cent even as its quarterly profit fell 12 per cent. Coca-Cola, which also topped consensus forecasts, rose 1.6 per cent.
Frustration over Bernanke’s lack of specifics about stimulative quantitative easing measures, or QE3, in testimony before a Senate committee drove equities lower early in the trading session.
But the Fed chief said policymakers would consider a range of tools to further stimulate growth if it became clear unemployment was not falling or if deflation risks mounted.
“We do expect the Fed to launch QE3, possibly by as early as August,” said Oliver Pursche, president of Gary Goldberg Financial Services. “The only game in town to revive or raise GDP growth is the Fed.”
Pursche cautioned about reading too much into earnings that beat lowered forecasts. Analysts sharply cut their estimates over the last year. Second-quarter S&P 500 earnings are expected to rise six per cent from a year ago, down from an estimated of 9.2 per cent on 1 April, according to Thomson Reuters data.
“When you look at Coke, when you look at Goldman, when you look at some of the reports last week the beats were there, but they’re based on pretty low expectations,” he said.
In the last month, most gains on the S&P have come from the telecommunications services, consumer staples and healthcare sectors, which are considered defensive, safer plays. Industrials, technology and materials have posted losses in that period.
Healthcare products maker Johnson & Johnson cut its full-year profit forecast yesterday. But the shares, which have risen 12 per cent since the start of June, climbed a further 0.8 per cent to $69, hitting their highest level in more than three years.
Shares of financial company State Street fell 6.4 per cent after it said second-quarter net income fell.
Excitement around Yahoo’s new chief executive, Marissa Mayer, formerly a top executive at Google, faded and Yahoo shares slipped 0.3 per cent after a two per cent rise. Yahoo has cycled through three CEOs in a year.