A new bull market in stocks appears to be solidly under way, with corporate profits and economic data pushing the Dow Jones Industrial Average above the 9000 mark Thursday for its highest close of the year.
The share price gains are rebuilding some lost wealth for Americans, and they could also aid the economy in some significant ways.
Often gains in share prices and corporate profits help to set the stage for companies to begin hiring again after a downturn.
Not everyone on Wall Street expects a stock rally to keep going strong all summer. Many forecasts call for volatile swings between now and Dow 10000. But it now appears more likely that major US stock averages won’t retreat back to the lows they stood at on March 9, when the Dow closed at 6547.
Will share prices continue to rebound ... or dive?
Both the Dow and the broader Standard & Poor’s 500 index rebounded strongly later in March, but stock strategists continued to debate whether share prices would again dive on economic gloom.
Now it’s getting increasingly hard to make that case. The gains in share prices this month, since second-quarter corporate earnings news began trickling out, have put a lot of distance between today’s share prices and those of March.
“Profit margins may be rising. That’s what they do at the beginning of economic recoveries,” Ed Yardeni, a market strategist in Great Neck, N.Y., wrote in a note to clients Thursday. He says the S&P 500 firms appear likely to post a second straight quarter of better than expected earnings.
That general trend masks wide variations among companies. The parcel-shipping firm UPS -- considered a bellwether for overall economic activity -- reported lower profits Thursday and gave a poorer-than-expected forecast for the third quarter. McDonalds, despite a boost to revenues from budget-conscious diners, also disappointed investors with a profit dip.
This week's good news
But other major firms have been dishing up good news this week. The examples include some in industries hit hard by the recession:
• Ford Motor Co. ended a string of quarterly losses with a $2.3 billion profit -- showing the positive impact of efforts to lighten its debt burden.
• JetBlue Airways gave a bright earnings outlook for the year's second half, although other airlines continue to struggle.
• The New York Times Co. said cost cutting resulted in a big gain in profits.
• Caterpillar said a drop in earnings should give way to a better second half of 2009, as economic-stimulus programs in places like China boost demand for heavy equipment.
In all, companies in the S&P 500 index are beating profit expectations by about 10 percent in the second quarter, although their profits remain on average 30 percent below year-ago levels. A panel of analysts at S&P, which provided these figures, predicts that stock prices will continue to gain, but modestly.
In addition to corporate news, stock investors have grown more optimistic because of general economic data.
On Thursday, a housing report showed continued progress toward stabilization in the real estate market, and the weekly number of jobless-benefit claims declined.
The strength of any new bull market, however, will depend on the pace of recovery for the economy. Many economists believe that pace will be tepid, because the unemployment rate remains high and consumers are still trying to dig out from years of rising debt. That could slow the bull down a bit.
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