As the U.S. stock market basked Wednesday in better-than-anticipated results from bellwethers Intel Corp. and JPMorgan Chase & Co., some embraced the notion that the market’s worst fears involving disappointments in top-line growth might be past.
“Cost-cutting was necessary, but we need to see top-line growth for the market to take the next leg up,” said Brett D’Arcy, chief investment officer of CBIZ Wealth Management.
The near-euphoria that came with the results from two components of the Dow Jones Industrial Average helped push the blue-chip index past 10,000 for the first time in more than a year.
“We’ll start to see improvement on the top line beginning this quarter and some indication that this will continue in 2010,” D’Arcy said.
The psychologically important threshold could prove compelling to the “whole portion of the population that walked away from Wall Street in the last couple of years, because of everything that has happened,” said Art Hogan, chief market strategist at Jefferies & Co.
The Dow last closed above 10,000 on Oct. 3, 2008, a day that had it finishing at 10,325.38 only to fall more than 18 percent over the following five days. The index had set its all-time high of 14,164.53 a year earlier, on Oct. 9, 2007.
Financial shares paced the Wednesday gains as the major stock indexes surged higher, with the Dow reaching an intraday high of 10,027.7 before finishing up 144.80 points, or 1.47 percent, at 10,015.86, its first finish above 10,000 since Oct. 3, 2008. The S&P 500 Index climbed 18.83 points, or 1.75 percent, to 1,092.02. The Nasdaq Composite Index advanced 32.34 points, or 1.5 percent, to 2,172.23.
On Tuesday, Johnson & Johnson’s quarterly sales fell short of expectations, with results from the health-care-products maker leaving investors with little to cheer.
But investor sentiment brightened measurably after the market close Tuesday, with quarterly results from chip maker Intel exceeding Wall Street’s expectations.
“Johnson & Johnson is a shining example of what we don’t want to see. Luckily, Intel has given us something to take our mind off it,” commented Hogan.
For equity analyst Ed Yardeni, chief investment strategist at Yardeni Research Inc., Intel’s results prompted a joyful cry: “Tech is back.”
Calling information technology his favorite of the S&P’s 10 sectors, with semiconductors his favored industry in tech, Yardeni declared his reasoning “embarrassingly simple” in a research note.
“I believe that the global economic recovery will be led by consumers, though not in the United States, but rather in the emerging markets. As they acquire some discretionary income, their first purchases tend to be electronic gadgets such as cell phones, PCs and flat-screen TVs,” he wrote.
The technology sector stands to be an “early-cycle beneficiary” of an economic turn, and its companies generally “aren’t laden with some of the credit issues that others have,” said D’Arcy.
Health care is another sector “not subject to the credit needs of finance and manufacturing, but it is unfairly undervalued because of the legislative overhang,” said D’Arcy of the move to reform health-care insurance on Capitol Hill.
Hogan, however, cautioned against reading too much into results from a limited field of companies — with the current week a relatively light one, earningswise, despite results from six Dow components, which “always make a splash,” according to Hogan.
But the market this week hears from only 29 companies among the S&P 500, compared with 160 S&P issues next week.
“This may be the quarter where investors decide beating earnings estimates by cutting costs is not enough to keep us going,” he said. “This is the week of the household names, but it’s too small a sampling to say it’s a victory.”
(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.