What was billed as the worst earnings season in five years is jumpstarting a U.S. equities market that had been stuck in neutral for two months.
Better-than-forecast results from technology giants including Microsoft Corp., International Business Machines Corp. and Amazon.com Inc. helped push the Nasdaq Composite Index past a 15-year record while the Standard & Poor’s 500 Index closed at an all-time high. Equity gauges climbed to new heights after fluctuating within a range since early March amid concerns that a stronger dollar and lower oil prices would hurt earnings.
“We’re clearly better than expected and that’s been positive to the market,” Marc Zabicki, senior market strategist at Ameriprise Advisor Services in Presto, Pennsylvania, said by phone. “Expectations heading into earnings were low based on rightful concerns with the dollar and oil.”
The Nasdaq Composite soared 3.3 percent for the week, the most since October, to wipe out its losses since the dot-com bubble. The S&P 500 gained 1.8 percent to close at a record 2,117.69. The Dow Jones Industrial Average increased 253.84, or 1.4 percent, to 18,080.14, within 1.1 percent of an all-time high reached on March 2.
The Nasdaq has advanced more than 350 percent since bottoming in October 2002. Unlike the dot-com era, when investors snapped up Internet companies with promise but little profit, today’s gains are built on earnings that have almost tripled in the past decade and a half, driven by demand for products such as Apple Inc.’s iPhone and Google Inc.’s web ads.
Quarterly earnings in the S&P 500 were estimated to drop 5.8 percent as recently as the end of March, which would make it the first earnings slump since 2009. The forecast has been scaled back to a 2.9 percent drop as earnings reports have poured in. Of more than 200 companies in the S&P 500 that have reported so far, 77 percent beat profit projections and 49 percent exceeded sales estimates.
The strength of the dollar did take a toll on some of the biggest companies during the week. Procter & Gamble Co. and 3M Co., whose sales come primarily from outside North America, cited currency headwinds. P&G tumbled 1.9 percent for the week and 3M lost 1.7 percent.
But it was strong results from technology shares that were the driving force for equities. Google, EBay Inc. and IBM each surged more than 5 percent. Microsoft soared 15 percent, the most since 2007 and the biggest advance in the Dow, while Amazon.com rocketed 19 percent for the best performance in the S&P 500.
Amazon for the first time broke out sales from its division that sells computing power and software via the Internet, reporting a 49 percent jump. Microsoft profits underscored healthy demand for software delivered through the cloud, while Google benefited from a rising volume of online ads.
“Tech has been important, those companies have a lot of cash, there’s been M&A,” Quincy Krosby, a market strategist at Prudential Financial Inc., in Newark, New Jersey, said by phone. Prudential oversees more than $1 trillion in assets. “There’s an expectation that growth will pick up globally, and if it does, revenue growth will improve and that’s one way the market is able to give rationale for moving higher.”
All 10 main groups in the S&P 500 advanced during the week, with technology companies surging 4.1 percent, the most in two months. Energy companies, the weakest group, rose less than 0.1 percent.
An S&P gauge of builders slid 4.4 percent. PulteGroup Inc. lost 9.3 percent, the most since July 2013, as its results trailed estimates. Government data showed purchases of new U.S. homes slumped more than forecast in March from a seven-year high.
Economic data was thin during the week, leaving investors to focus on earnings. The coming week will provide reports on consumer confidence and spending, housing and manufacturing. Data on gross domestic product will show the economy slowed further in the first quarter from a year earlier, a Bloomberg survey shows.
Federal Reserve policy makers, who have been watching economic data to assess the timing for the first interest-rate increase since 2006, gather for a two-day meeting April 28-29.
Meanwhile, the earnings will continue to roll in, with companies including Apple and Pfizer Inc. scheduled to report.
“If we get through this earnings season unscathed and it’s a decent picture, that will be a bullish sign,” Jeff Kravetz, the Phoenix-based regional investment director at US Bank’s Private Client Reserve, said by phone. “It showed there’s no big negative out there other than what we know with the dollar and geopolitical events.”