NEW YORK, May 5: With earnings season winding down, investors will look ahead to next week’s meeting of Federal Reserve policy-makers for any shift in their interest rate stance that could trip up a rally in US stocks.
Equities are expected to drift higher as earnings keep beating the Street’s expectations and a seemingly bottomless pit of money from private equity fuels a steady stream of mergers and acquisitions, also seen lifting share prices.
“There’s an enormous amount of money with nowhere to go,” said Michael Metz, chief investment strategist at Oppenheimer & Co. “Everywhere you go, between buybacks and private equity, the world of stocks is shrinking and the demand is there.”
The Dow Jones industrial average set four all-time closing highs this week while the benchmark Standard & Poor's 500 Index broke through the 1,500 mark for the first time in over six years.
The S&P is less than 50 points from its all-time high of 1,552.92 set in March 2000 at the height of the bubble in technology stocks.
The Dow Jones closed the week up 1.1 per cent at 13,264.62, the S&P 500 gained 0.77 per cent to 1,505.62 and the Nasdaq Composite Index rose 0.58 per cent to 2,572.15.
Of the 408 companies in the S&P 500 that have reported earnings from the first quarter, 279 have beat expectations, or 68.4 per cent, according to Reuters Estimates.Telecommunications equipment maker Cisco Systems Inc. and Walt Disney Co. report earnings on Tuesday, and American International Group Inc., the world's largest insurer, reports on Thursday.
Driving stocks higher are corporations that have shown an “unprecedented savvy” in managing operations and delivering record profit margins, said Michael Jones, chief investment officer at Clover Capital Management in Rochester, New York.
“Earnings continue to be robust. The growth rate in earnings is slowing but by any measure profitability is at record highs,” said Jones, who oversees about $2.8 billion in assets at Clover Capital.
Big US corporations, such as the stocks which make up the Dow 30, are bucking slower economic growth with strong exports and a higher profile abroad. The Dow has risen 23 of the past 26 trading days, the longest streak since 1955, Dow Jones Indexes said.
“The Dow stocks have indicated they can all offset the slowdown in domestic operations with higher demand from overseas operations and greater exports,” Metz said.—Reuters