Stocks End with Solid Gains

Bulls focused on strong corporate earnings and brushed aside inflation concerns

Stocks posted solid gains Thursday, with the major indexes each adding at least 1.3%. Investors appeared to focus more on the bullish view that a strong economy will generate better earnings than renewed inflation concerns.

The Dow Jones industrial average gained 143.93 points, or 1.38%, to finish at 10,461.2. The broader Standard & Poor's 500-stock index gained 15.88 points, or 1.39%, to finish at 1,139.95. The tech-heavy Nasdaq composite index gained 37.28 points, or 1.83%, to 2,032.91.

Internet retailers enjoyed a boost following eBay's (EBAY ) strong quarterly results.

Strong quarterly results and forward guidance from Qualcomm (QCOM ) helped fuel a rise in telecom equipment stocks, while software stocks separately got a lift. Sectors hurt recently by a strong dollar and interest rate concerns recouped some of their recent losses, including metals, thrifts and mortgages, investment banking, and homebuilding. Chip equipment shares suffered as KLA-Tencor (KLAC ) warned of a possible 15% drop in fourth-quarter orders.

That investors are keying on strong earnings, and not fretting so much about an inevitable interest rate rise, is good news to some analysts. Joe Liro, head of equity market research for Stone & McCarthy Research Associates, says "the world won't end if rates rise, and they will." What's more, with three quarters of strong earnings behind, and another strong quarter ahead, "it's not too bad a scenario for the stock market," and about time that earnings get the upper hand over interest rate fears.

In economic news Thursday, data on first-time jobless claims sent some mixed signals. The weekly rate fell somewhat less than expected, by 9,000 in the week ended Apr. 17 to 353,000, following a jump to 362,000 in the prior Easter week. Initial jobless claims have averaged about 350,000 in the first quarter, down 15% from the 400,000-levels, indicating "an improving labor market with falling layoffs," but continuing claims rose 52,000 to 3.02 million, so Fed rate hike fears are likely to loom, says economic research firm Informa Global Markets.

The Labor Dept.'s producer price index rose 0.5% in March (vs. a 0.1% rise in February), a bit firmer than expected. The core PPI, which excludes energy and food, rose 0.2%, leaving overall finished goods prices up 1.4% on the year, with core prices up 0.7%. That's "not something to set off concerns about inflation," says Informa.

Just as in the consumer price index data for March, the three-month average pace of rise in broad PPI categories shows a marked acceleration from the 12-month rise, notes Informa. "This is among the major sources of Greenspan's view that disinflation has been licked," says Informa.

In earnings news, eBay posted a first quarter EPS of 30 cents, vs. 16 cents (on a GAAP basis) on a 59% revenue rise, and says that its 2004 revenue could be as high as $3.15 billion with an EPS as high as $1.06. S&P reiterated its buy rating and raised its estimates and target for eBay. Shares finished 10% higher.

Caterpillar (CAT ) moved 4.3% higher, helping to support the Dow, after posting first quarter earnings of $1.16 on a 34% revenue rise. The construction and mining equipment company raised its 2004 revenue growth outlook to 20%, and its profit growth to 65% to 70%.

Starbucks (SBUX ) added 4.9% after posting second quarter earnings of 19 cents, vs. 13 cents on a 12% rise in same-store sales, and a 30% total sales rise. The latte-maker raised its fiscal 2005 EPS guidance to a range of 90 cents to 91 cents, and S&P reiterated its hold rating.

KLA-Tencor dipped 4.5% lower in heavy trading after the company reported third quarter earnings of 33 cents, vs. 14 cents, on a 28% revenue rise. The stock suffered from reports that orders could drop by up to 15% next quarter. S&P reiterated its accumulate rating, while First Albany downgraded the stock to neutral from buy.

In telecommunications, wireless communications outfit Qualcomm posted second quarter earnings of 58 cents per share on a 20% revenue rise. Qualcomm raised its third quarter guidance, saying that revenue, excluding its QSI segment, should increase about 4% to 7% sequentially, with an EPS as high as 50 cents. Qualcomm traded 3.1% higher.

Viacom (VIA.B ) finished somewhat lower after posting first quarter earnings of 33 cents, excluding an 8-cent tax benefit, vs. 26 cents, ahead of Street estimates. Revenues rose 12%, fueled by strong ad sales, with some margin expansion at the cable networks, TV broadcast networks, and the owned and operated stations. Viacom affirmed its 2004 outlook for 5% to 7% growth in revenue, and 13% to 15% growth in EPS.

AT&T (T ) finished 2.8% lower after posting first quarter earnings of 38 cents, vs. 73 cents, on an 11% revenue drop. The company notes that its first quarter of 2004 included a tax benefit from a prior investment, and losses on early retirement of debt, and other charges, while the first quarter of 2003 included income from the adoption of a new accounting standard.

Nextel Communications (NXTL ) posted first quarter earnings of 51 cents, vs. 20 cents, on a 30% operating revenue rise. Nextel maintained its forecast for a 2004 EPS of $2.00, or more. S&P reiterated its buy rating of Nextel. Shares added 2.8%.

Companies on the earnings calendar Friday include AT&T Wireless (AWE ), International Paper (IP ), and Xerox (XRX ).

Economic data due Friday include a report on durable goods orders for March.

Treasury Market

Treasuries finished higher Thursday, recovering the week's losses, in a quiet, thinly-traded session. After the morning's PPI and jobless claims data -- "an improvement in labor, but not by enough to force the Fed's hands," says Informa -- Treasuries remained choppy and in tight range.

The dollar was steady at a five-month high against the euro, with the euro at about $1.18, and the pound sterling was also lower, at $1.76.

World Markets

European stock markets ended higher Thursday. London's Financial Times-Stock Exchange 100 index gained 31.9 points, or 0.7%, to 4,571.8. Strong mortgage demand, showing a robust housing sector, is putting more pressure on the Bank of England to raise rates at its May 6 meeting.

In Paris, the CAC 40 index edged up 42.4 points, or 1.13%, to 3,785.55, as Aventis climbs on news that Switzerland's Novartis AG has agreed to begin takeover negotiations. Aventis is battling a hostile bid from Sanofi. Meanwhile, French March consumer spending fell more than expected, down 1.4% vs. expectations of a fall of only 0.2%.

Germany's DAX index was up 33 points, or 0.82%, to 4,059.15, watching the U.S. markets for direction in an otherwise quiet day.

Asian markets finished mixed on Thursday. In Japan, the Nikkei 225 index added 35.8 points, or 0.3%, to close at 11,980.10, backed by auto stocks such as Toyota Motor (up 3%) and Nissan Motor (up 2%), and tech names. Overall gains were limited, as banks and real estate names fell.

In Hong Kong, the Hang Seng index lost 59.6 points, or 0.49%, to close at 12,167.7.

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