Wall Street rallied on Thursday as positive sentiment in the technology sector helped investors shrug off fresh worries about the hard-hit US subprime mortgage market.
The bullish mood propelled the S&P 500 to a record close, while the Dow Jones Industrial Average settled above 14,000 for the first time.
Ben Bernanke, the US Federal Reserve chairman, told US lawmakers that losses from the subprime mortgage market could range between $50bn and $100bn.
Leading the major benchmarks was the Nasdaq Composite, with a gain of 0.8 per cent to 2,720.04. One boost for the tech sector was a 12.5 per cent surge to $30.06 in Juniper Networks shares after the networking equipment maker swung to a second-quarter profit. Goldman Sachs upgraded the stock to “buy” from “neutral”, in the expectation that strong sales growth would boost operating margins.
Cisco rose 1.7 per cent to $29.94 and had set a 52-week high of $30.
So far this year, the Nasdaq’s gain of 12.6 per cent has outpaced the S&P 500 and the Dow Jones Industrial Average, while the Nasdaq 100 has rallied 16.8 per cent. In a bull market, the more volatile technology stocks led the way as they enable investors to reap higher returns.
“It’s no surprise that high beta stocks are doing well in this current rally,” said William Strazzullo, chief market strategist at Bell Curve Trading. “People who have missed some of the rally, and are forced to chase returns, can get back in the race by buying high beta names.”
Another factor in favour of the tech sector is that international sales form a larger proportion of total sales, say analysts. A faster growing global economy in conjunction with a sharply weaker dollar is a fillip for the sector and multinational blue chip companies.
But a sour note for techs was struck by Ebay, which fell 1.6 per cent to $33.50, after the online auctioneer posted a 50 per cent rise in quarterly profit, but left its outlook for 2007 unchanged. Investors had hoped for a rise in guidance and also focused on lower global listings.
After the closing bell Google reported a 28 per cent rise in second quarter profits that missed estimates as higher costs eroded better-than-expected revenue growth. Google slumped more than 6 per cent in post-market trade.
Also after the close, Microsoft met earnings estimates and raised guidance. Microsoft initially rallied in after-hours action, following a gain of 1.9 per cent to $31.51 in regular trade.
Meanwhile, Advanced Micro Devices reported a loss in the second quarter as a rise in sales for the chip maker was offset by lower microprocessor prices and costs associated with the $5.6bn purchase of ATI Technologies, a graphics chip maker. In after-hours trade, the stock rallied further after a rise of 2.1 per cent to $15.87 at the closing bell.
The enthusiasm for tech stocks lifted the broad market into record territory. The S&P rose 0.45 per cent to 1,553.07 a new record high. Among the major sectors, utilities, technology and energy led gains, while health care and financials declined.
Among the financials, Bank of America said quarterly earnings rose 5 per cent with an increase in the provision for credit losses. BofA has now set aside $1.81bn to cover these losses, up from $1.01bn in the second quarter of 2006. Shares in BofA fell 0.2 per cent to $49.27.
PNC Financial, a mid-Atlantic regional bank, said quarterly earnings expanded 11 per cent and was also buying Sterling Financial for $565m, or $19 per share. The stock slipped 2.5 per cent to $71.37.
Shares in MF Global fell on their first day of trading on the New York Stock Exchange. MF closed at $27.55, after the financial firm had listed at $30 a share – lower than the expected range of $36 to $39, traders said.
The American Stock Exchange Broker-Dealer index fell 0.75 per cent.
Another financial stock in the news was American Home Mortgage Investment. The stock plunged 20.8 per cent to $10.76 as subprime worries among investors intensified and the company did not comment on the sharp decline.
Blue chips rallied, led by IBM, and the DJIA rose 0.6 per cent to close at 14,000.41.
In earnings news, IBM reported a 12 per cent rise in second quarter profit, and raised earnings guidance for 2007. The stock gained 4.3 per cent to $115.86 and had set a new five-year high of $116.48.
Another Dow stock, Honeywell, posted a 24 per cent rise in quarterly profits, beating estimates. The stock rose 0.7 per cent to $60.98 and also reached a seven-year high of $61.90 earlier in the day. The company raised guidance for 2007 and also authorised the buyback of an additional $3bn in stock.
Shares in Foot Locker surged 8.6 per cent to $22.71, after the company said it would consider putting itself up for sale. The shoe retailer recently failed to buy rival Genesco.
In other earnings, Motorola recorded a quarterly loss amid lower revenue from weak phone sales. Shares rose 1.2 per cent to $18.22.
Union Pacific reported a 14 per cent rise in quarterly profits. The railroad slid 0.1 per cent to $125.74.
Hershey reported a 96 per cent drop in profits for the past quarter, as the confectionary maker invested in transforming its production lines. Its shares fell 3 per cent to $48.45.
Harley Davidson reported a 19 per cent rise in profit and reaffirmed guidance for 2007. But domestic sales of motorcycles fell and the stock slid 2.9 per cent to $59.37.
Investors will focus on earnings from two DJIA stocks, Citigroup and Caterpillar on Friday. Citi fell 0.9 per cent to $51.14, while Cat rose 0.9 per cent to $86.42 on Thursday.
In economic news on Thursday, the Philadelphia Fed survey reported a drop to 9.2 in July from a reading of 18 in June. The six-month outlook index rose 30.4 in July from a reading of 16.7 in June.
Economists at Bear Stearns said: “This is a stronger report than suggested by the headline sentiment index.”
Later this afternoon the minutes from the Federal Reserve’s Open Market Committee meeting in June are released.
Earlier in the day, leading indicators for June fell 0.3 per cent, more than a forecast decline of 0.1 per cent.
“Housing continues to weigh, a theme that ties in with the concerns Bernanke stated yesterday [Wednesday],” said TJ Marta, strategist at RBC Capital Markets. “However, despite the decline, the trend in the overall index appears to have stabilised after declining early 2006 to a cyclical low in early 2007.”
Stocks closed lower on Wednesday, but did pare the worst of their earlier losses.