Dow Jones Index Reaches Record as Caterpillar, IBM Rally

Photographer: Luke Sharrett/Bloomberg
An attendee examines a Caterpillar Inc. backhoe loader at the National Farm Machinery Show in Louisville, Kentucky.

The Dow Jones Industrial Average (INDU) crawled back to a record, helped along by last year’s worst-performing stocks: International Business Machines Corp. and Caterpillar Inc.

Four months after reaching its previous closing high of 16,576.66, the 30-stock gauge eclipsed the level yesterday, rising 0.3 percent to 16,580.84. It was the index’s third straight increase, coming after the Federal Reserve said it would continue to trim the pace of bond purchases as the economy gains momentum.

Caterpillar, which boosted its full-year profit outlook last week on improved expectations for construction, and IBM, the computer services provider that raised its dividend this month, are both up 14 percent since the Dow bottomed on Feb. 3. Armonk, New York-based IBM fell 2.1 percent and Peoria, Illinois-based Caterpillar added 1.3 percent in 2013, when the Dow had its best rally in 18 years.

“Investors are getting into the more blue-chip, unloved and overlooked areas of the market that have more value in an environment where growth is lacking,” Todd Lowenstein, a fund manager who helps manage $16 billion at Highmark Capital Management Inc. in Los Angeles, said in a phone interview. “You’re seeing a massive rotation from the frothy, speculative glamor areas.”

Equity Valuations

The Dow’s gain of 45.47 points yesterday bought its April advance to 0.8 percent, a third straight monthly gain that capped a 7.9 percent rally from its Feb. 3 low. The index sank 7.3 percent in the first five weeks of this year after surging 27 percent to close 2013 at the record.

Dow futures gained 14 points, or less than 0.1 percent, to 16,525 at 9:44 a.m. in London today.

The Nasdaq Composite Index (CCMP) of technology stocks sank 2 percent last month, adding to a 2.5 percent slide in March that was its steepest since 2012, as investors sold the biggest winners from the five-year bull market on concern that valuations have outpaced earnings growth.

Stocks in the Dow index trade for an average of 15 times reported earnings, while the higher-growth members of the Nasdaq index are valued at 35 times profit.

Caterpillar climbed 0.1 percent yesterday to $105.40, up from a 2014 low of $86.17 on Jan. 24. The world’s largest maker of construction machinery said sales in that segment rose 20 percent in the first quarter while earnings tripled. IBM increased 0.7 percent to $196.47, compared with a low of $172.84 on Feb. 4.

The blue-chip record came amid broader equity gains today after the Fed concluded its two-day policy meeting.

Growth Pickup

“Growth in economic activity has picked up recently, after having slowed sharply,” the Federal Open Market Committee said in a statement following a meeting in Washington. “Household spending appears to be rising more quickly.”

Policy makers committee pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

“The Fed seems to be putting aside the weakness in the first quarter that the market reacted to this morning,” Walter Todd, who oversees about $975 million as chief investment officer at Greenwood Capital Associates LLC, said in a phone interview. “The statement seems business as usual, and perhaps if you’d seen the Fed react more dovish to a weaker first quarter, that would’ve been more negative.”

S&P Recovery

The Fed decision pushed the Standard & Poor’s 500 Index to within seven points of its all-time high reached on April 2. The gauge rose 0.3 percent to cap a 0.6 percent gain in April, its third straight monthly advance.

The S&P 500’s 8.2 percent recovery from a low of 1,741.89 on Feb. 3 has been led by a 14 percent rally energy stocks and increases of 11 percent each in industries least tied to economic growth: utilities and home-product makers.

Fed Chair Janet Yellen is winding down record stimulus as the economy shows signs of rebounding from a first-quarter standstill. At the same time, the Fed repeated that it’s likely to keep the benchmark interest rate near zero for a “considerable time” after bond purchases end.

“This announcement is really no news is good news. No surprises here,” Kristina Hooper, a U.S. investment strategist at Allianz Global Investors in New York, said in a phone interview. The firm oversees $475 billion. “The market will have a positive reaction, might be muted, but it’s positive because this announcement is more of the same in terms of underscoring that Fed is going to remain very accommodative.”

Barely Grew

Data today showed the U.S. economy barely grew in the first quarter as harsh winter weather chilled investment and exports dropped. The expansion stalled even as consumer spending on services rose by the most in 14 years.

Gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 1.2 percent increase.

The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc.

Companies in the U.S. boosted payrolls by 220,000 in April, figures from the ADP Research Institute in Roseland, New Jersey, showed today. The median forecast of 45 economists surveyed by Bloomberg called for an advance of 210,000.

Jobs Reports

The ADP numbers come before data from the Labor Department on May 2. The government’s report may show employers added 215,000 workers in April, the most since November, according to economists’ projections.

Some 75 percent of the 310 S&P 500 (SPX) members that have reported earnings this season have posted profit that exceeded analysts’ estimates, data compiled by Bloomberg show. About 52 percent beat sales projections, according to the data.

Profits for members of the index climbed 3.4 percent in the first quarter, according to analyst estimates compiled by Bloomberg. They had predicted an increase of 0.7 percent as recently as April 17. Revenue probably rose 2.8 percent in the quarter, the projections show.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Chris Nagi

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