Banner Week for Earnings Propels Market Comeback

Dow, S& P 500 Climb About 7 Percent Each

Wall Street rocketed to one of its best weeks since hitting a 12-year low in March as investors cheered unexpectedly strong corporate earnings and upbeat projections for the rest of the year.

The Dow Jones industrial average, an index of blue-chip stocks, climbed 7.3 percent this week, snapping a four-week losing streak. The Standard & Poor's 500-stock index and tech-heavy Nasdaq composite index were up 7 percent and 7.4 percent, respectively. Stocks had languished for nearly a month as anxious investors looked for signs of the recession easing. This week, investors took their cue from quarterly results from several major companies showing that corporate balance sheets were healthier than expected.

Kicking off what analysts still expect to be a brutal earnings season, Goldman Sachs, J.P. Morgan Chase and Intel beat profit projections. That gave a slight boost to Standard & Poor's forecast for second-quarter earnings. Companies on the S&P 500 are now expected to report a 16 percent drop in quarterly profits instead of 17 percent, said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research.

Not all firms' results were positive. General Electric's stock fell 6.1 percent to $11.65 a share yesterday after the conglomerate reported that second-quarter revenue slipped more than analysts had forecast.

Corporate earnings reports were mixed, but decent overall, said Stuart Schweitzer, global markets strategist at J.P. Morgan Private Bank. "But expectations were so depressed that all it takes is fragments of improvements to turn the markets positive," he said.

That, combined with a drop-off in initial jobless claims last week and signs that factories that slashed production are gearing up again, are heartening economic signs, Schweitzer said. "This doesn't mean we are off to the races, but the ingredients for the beginning of a turnaround are finally in place," he said.

After rallying most of the week, stocks were flat yesterday as investors locked in profits. The Dow gained 0.4 percent, or 32.12 points, to close at 8743.94, giving the index its longest winning streak since November 2008. The S&P 500 was flat, down 0.04 percent, or 0.4 points, to 940.38, and the Nasdaq was up 0.1 percent, or 1.58 points, to 1886.61.

"The market is not likely to go straight up in a single shot. It would be healthy to have people take stock of the rally along the way and not get too enthusiastic too soon," Schweitzer said.

Investors shrugged off signs yesterday that the housing sector may be stabilizing. New-home construction, including single-family homes and apartments, rose 3.6 percent in June to a seasonally adjusted annual rate of 582,000 units, according to Commerce Department data. That was a bigger increase than expected by analysts, but still down 46 percent from the corresponding period last year.

The "stronger numbers reflect an increasing confidence -- the percent of households who recognize that this is a good time to buy a house has risen over the last year," Rebecca Blank, the Commerce Department's undersecretary for economic affairs, said in a statement.

Most of the increase last month was in single-family homes. Construction in that market spiked 28 percent in the Northeast and 33 percent in the Midwest. Construction was down 1.4 percent in the South, which includes the Washington region, and 14.8 percent in the West.

The housing market remains weak, and builders are competing against a glut of foreclosed homes on the market that have dragged down prices, analysts said. But an 8.7 percent increase in the number of building permits issued could foreshadow more improvement in the coming months, they said.

Some builders are displaying more confidence, but the sector still faces significant challenges that will likely last into 2010, said Brad Hunter, chief economist for Metrostudy, which researches the housing sector. "There is still a lot of inventory [of foreclosed homes] that creates a competitive problem for the home builders," Hunter said.