U.S. stocks resumed their fourth- quarter rally, pushing the Dow Jones Industrial Average to a record, after companies reported profits that beat analysts' estimates and the number of claims for jobless benefits fell.
Advanced Micro Devices Inc., the world's second-biggest maker of computer processors, had its steepest gain in two years after raising its earnings forecast. Bear Stearns Cos. climbed to an all-time high after the investment bank reported record net income. Costco Wholesale Corp., the largest U.S. warehouse club, led retailers higher on results that beat forecasts.
The rise in profits shows that companies are withstanding a slowdown in manufacturing and housing. The drop in jobless claims, along with data this week showing a rebound in retail sales, signaled consumer spending will keep driving growth.
``Corporate earnings are continuing to be strong,'' said Patrick Becker, who helps manage $2.3 billion as chief investment officer at Becker Capital Management in Portland, Oregon. ``The slowdown isn't here in any major way. That's part of the reason we're seeing moves up."
Let's look at what happened.
Bear Stearns and Lehman Brothers reported record earnings. Earlier this week, Goldman Sacks reported good earnings. Yesterday we had a strong retail sales report -- although some economists are questioning the strength reported.
But, against that backdrop we have GDP decelerating to a revised 2.2% in the 3rd Q. We have a housing market in serious trouble. Employment growth is good, but not great. Earnings are up, but largely because energy inflation is down. In addition, OPEC reported they will again cut production on February 1. This could increase energy inflation, again cutting into earnings.
Is this the environment for a record Dow? Clearly, the market is buying the soft-landing scenario.
8 comments:
It's worth remembering that markets have no intrinsic obligation to be rational or comprehensible.
Ain't that the truth.
When 30% of GDP is Hedge funds, the elite are able to transfer money to any portion of the economy to create the perception that the market is doing fine, not that big of a mystery if you think about it.
Humpty Dumpy will fall because the poor are getting poorer and the majority of the population realizes that the market is only kept afloat with artificial stimulators (credit) that are only in play to give the perception that the economy is doing well.
When in reality the majority of Americans are poorer than they every have been since the Great Depression. The market will crash!
The reason I say this, is for the reason there is no more money to suck out the poor.
I think it's symptomatic of a growing two-tier economy in the US:
The shareholders & everyone else.
The stock market & corporate profits show us that shareholders are doing fine.
Other economic indicators (mortgage defaults, stagnant wages, etc.) show us that the non-shareholders aren't enjoying the benefits of rising stock prices and corporate profits.
In the past hundred market sessions there has been only one where the S&P closed down 1% or more.
Imo money managers are chasing performance and aren't going to risk missing out on a year end rally.
Reality will assert itself in the new year as nobody will want to start off in the red by chasing stocks that ramped in the 4th quarter.
Hey just came upon your blog today. Looking forward to make my comments
Dan --
Glad to have you here
Bondad, via Avedon Carol's Sideshow, this graph.
Wall Street often celebrates over crummy economies... as long as they're getting a larger slice of the pie, who cares about the piemakers?
Charles of MercuryRising
http://www.phoenixwoman.blogspot.com
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