Stocks extend gains into 6th straight day after Alcoa, CSX report upbeat profit, outlook

By Stephen Bernard, AP
Tuesday, July 13, 2010

Stocks surge after Alcoa, CSX report strong profit

NEW YORK — The stock market got a shot of confidence from the start of second-quarter earnings season.

Investors sent stocks sharply higher Tuesday after better-than-expected profits from aluminum maker Alcoa Inc. and railroad operator CSX Corp. The Dow Jones industrial average rose more than 145 points for its sixth straight gain, and the major indexes were up well over 1 percent.

There was more good news from Intel Corp. after the close of trading. The chip maker reported earnings and revenue that beat analysts’ expectations, and it also raised its forecast for the year. Its stock shot up more than 5 percent in after-hours trades.

The companies, among the first to report second-quarter earnings, also issued upbeat forecasts for the rest of the year. That was heartening news for investors who have been concerned that the recovery was stalling, or that the economy might even fall back into recession.

“When we go back to earnings and fundamentals, companies are delivering,” said Tom Karsten, senior managing partner at Karsten Financial in Fort Worth, Texas.

Alcoa’s earnings reports are closely watched because its varied customer base provides a snapshot of a broad range of other industries. CSX also provides insight into economic activity because it ships a wide range of products. And Intel’s results are considered a good gauge of the health of the economy since its sales are driven by consumers and businesses buying computers.

Alcoa said global consumption of aluminum will grow this year by more than it had forecast just three months ago. There have been concerns that the global economic recovery will end as many European nations face mounting government debt problems and high unemployment slows growth in the U.S.

CSX, meanwhile, said it sees its the economy’s upward momentum continuing this year.

Frank Ingarra, co-portfolio manager of Hennessy Funds in Stamford, Conn., said the results from Alcoa and CSX results lifted the market because they hit on the two themes that traders are looking for in earnings: revenue growth and optimistic outlooks.

“That’s why the earnings were so good,” Ingarra said. “You saw that top-line growth and good guidance.”

Intel’s report followed that pattern.

During the recession, companies that made money often did so by cutting costs rather than bringing in sales. So sales growth is a sign that business is indeed picking up.

Earnings will likely continue to dictate trading over the next few weeks as hundreds of companies release results. Major banks begin reporting their results on Thursday.

The Dow rose 146.75, or 1.4 percent, to 10,363.02. The Standard & Poor’s 500 index rose 16.59, or 1.5 percent, to 1,095.34, while the Nasdaq composite index rose 43.67, or 2 percent, to 2,242.03.

Only 376 stocks fell on the New York Stock Exchange while 2,669 rose. Volume came to 1.13 billion shares.

Alcoa rose 13 cents to $11. CSX fell 74 cents to $51.72 after rising earlier in the day. Intel shares rose 44 cents to $21.01 but rose to $22.15 in after-hours trading.

One company whose shares struggled despite the broad gains Tuesday was Apple Inc. The stock dropped $5.49, or 2.1 percent, to $251.80 a day after Consumer Reports said it would not recommend buying the company’s new iPhone because of its antenna design.

The Commerce Department reported Tuesday that the U.S. trade deficit increased to its widest level in 18 months as an increase in exports was outpaced by rising imports. A jump in both imports and exports is a sign that the economy is growing.

Stocks had sold off in May and June because of worries that the economy was slowing. Tim Courtney, chief investment officer at Burns Advisory Group in Oklahoma City, said investors were selling as they tried to predict how much a slowdown in the economy would affect earnings. However, Courtney said, the sell-off went too far, which has helped the market in recent days.

“Generally the market overreacts,” he said.

Many analysts had predicted that strong second-quarter earnings reports would lift the market.

Bond prices dipped as investors taking more chances on stocks retreated from the safety of government debt. The yield on the 10-year note rose to 3.12 percent from 3.07 percent late Monday. Its yield helps set interest rates on consumer loans and mortgages.

The Russell 2000 index of smaller companies rose 21.21, or 3.4 percent, to 642.82.

European markets rose following the earnings reports from Alcoa and CSX. Investors there brushed off a credit rating downgrade to Portugal’s debt.

Britain’s FTSE 100 rose 2 percent, Germany’s DAX index gained 1.9 percent, and France’s CAC-40 rose 2 percent. Japan’s Nikkei stock average fell 0.1 percent.

July 15, 2010: 4:42 am

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