Wall Street raced ahead this week. Despite another surge in crude oil prices, the main indices were buoyed by solid corporate earnings, and by encouraging comments on interest rates from the Federal Reserve.
With the quarterly earnings season shifting up a gear, the week started with robust results from the likes of Merck, Apple Computers and United Technology.
This was followed on Friday by record earnings from Google and better-than-expected figures from 3M.
Google jumped $35, or 8.7 per cent, to $437.10 over the week, after the internet search company delivered a strong set of quarterly earnings. Revenues doubled, easily topping market consensus. Lehman Brothers, Goldman Sachs and Credit Suisse all raised their price targets on the stock, while Merrill Lynch upped its rating from “neutral” to “buy”, citing among other things expectations that Google’s share of the online advertising market would continue to grow.
3M, the Minnesota-based maker of Post-It Notes, gained 5.1 per cent to $85.06 for the week.
However, wider market concerns were never far from the surface as continued concerns over supply disruption in Iran and Nigeria sent Nymex oil futures above $75 a barrel in Friday’s trading.
In spite of the fresh spike in energy prices, the Dow Jones Industrial Average ended the week 1.9 per cent higher at 11,347.45 - its highest level in more than six years. The S&P 500 pocketed a weekly advance of 1.7 per cent to 1,311.28, while the Nasdaq Composite, which bore the brunt of Friday’s sell-off, rose 0.7 per cent over the five sessions to 2,342.86.
Helping to keep buyers in the market was the publication of the minutes of the March meeting of the Federal Reserve’s open market committee. Traders reacted emphatically to the remarks, which were interpreted as a signal that the central bank could be closer than some had expected to the end of its tightening cycle.
Although Wall Street held its ground this week, Peter Cardillo, chief market analyst at SW Bach, warned that high energy prices would remain a barrier to further advances. “We’re on a collision course, and somewhere along the way something has to give,” he said.
Energy stocks were the best performing industry group on the S&P, rising 6.8 per cent, with sector bellwether ExxonMobil gaining 5.6 per cent to $65. Materials-related stocks such as gold miners and metal producers followed closely, gaining 4.2 per cent. Newmont Mining rose 8.9 per cent to $57.55 while US Steel jumped 6.5 per cent to $67.15.
Along with Google, shares in Yahoo soared following the release of its quarterly figures. Although earnings fell from a year ago due to stock option costs, its shares advanced 5.7 per cent to $32.89 this week because revenues and adjusted earnings met forecasts. UBS raised its price estimates on the stock from $39 to $42, saying Yahoo’s earnings results were solid across the board.
By contrast, Ebay endured losses after the online auctioneer failed to raise its 2006 forecast. Its shares slumped 9.1 per cent to $35.09.
Dell shares skidded more than 4 per cent on Friday after Citigroup abruptly downgraded the computer maker two notches from “buy” to “sell”. Analyst Richard Gardner said Dell’s price advantage was being eroded by competitors. Over the week, the stock lost 8 per cent to $27.01.
General Motors climbed 6.8 per cent to $21.79 as the carmaker showed signs of progress after losses narrowed from a year ago. The $323m first-quarter shortfall recorded by GM was better than Wall Street had forecast. But analysts said the improved quarterly results were partly down to increased production, which came as market share was falling.
“Cost-cutting efforts, healthcare concessions, and restructuring should help GM narrow losses in 2006, but they will remain substantial,” said John Murphy, analyst at Merrill Lynch.
More sobering was news of Ford Motor first-quarter loss of $1.2bn. Ford shares fell 7.9 per cent on Friday and ended the week down 0.4 per cent at $7.32.
Interest in exchange stocks continued after International Securities Exchange, the options exchange, announced plans to launch its own stock exchange. The move helped ISE shares rise 7.3 per cent to $42.93 over the five sessions.
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