Stocks close at session highs on earnings
Technology stocks rallied, and the blue-chip index reached a high of nearly three years
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Stocks gained, closing at the highs of the session after starting the week in a sharp slide in the wake of Standard & Poor's revised outlook for U.S. long-term debt as largely positive earnings propelled stocks higher.
Most key S&P 500 sectors gained, led by materials and technology.
"After a bit of a rough start with names like Bank America, Google and Alcoa, companies are starting to come through with solid reports, as investors had expected," said Michael Sheldon, chief market strategist at RDM Financial.
More companies have been beating on the top line instead of the bottom, indicating they are still able to increase their profit margins, Sheldon said.
"There's a large debate going on about how much higher margins can go to help boost profits since we’re already at or near record levels," he added. "I think as we go along for the next couple quarters and into 2012 especially, corporate earnings will be driven by revenue growth as opposed to increases in margins."
So far, earnings are up 18.2 percent for the 137 companies that have reported so far (representing 27 percent of all S&P 500 companies), according to Thomson Reuters. Of the firms that have reported, 75 percent have delivered results ahead of estimates, Thomson Reuters said.
S&P revised its outlook for U.S. debt to "negative" from "stable" because of the inability of lawmakers to tackle the nation's rising deficit. That question will take center stage in hte markets again before long, but Raj Mahajan, president, of SunGard Global Trading, says markets are likely to remain wobbly until investors know whether Congress will be taking its cues from Sen. Paul Ryan's plan, which calls for deep budget cuts, or President Obama's plan, which calls for some tax increases and reinvestment in the country infrastructure.
"Until the market knows the answer to that question, we’ll have a sustained period of choppiness," Mahajan said.