- The Washington Times - Monday, October 11, 2004

NEW YORK (AP) — Stocks drifted higher yesterday, brushing aside another high for oil prices amid the hope that the impending tide of third-quarter profit reports will override worries about a struggling economic recovery.

With no major economic or earnings data to steer market sentiment on Columbus Day, investors appeared to be betting that the quarterly reporting season might divert attention from a disappointing employment report on Friday and rising fuel costs.

However, analysts were dubious that the market could build much momentum on profit news alone without some resolution to the big question marks dogging the near-term outlook.

“The big troika here is economic data, oil and the election, and those things are keeping a stranglehold on the market,” said David D. Legeay, investment strategist for McDonald Financial Group.

Stocks managed to hold their modest gains even as oil futures pushed toward $54 a barrel. Contracts for shipments next month rose 33 cents a barrel to $53.64 on the New York Mercantile Exchange as a strike began in Nigeria, Africa’s largest exporter of crude, adding to supply concerns at a time of reduced output in the hurricane-ravaged Gulf of Mexico.

The Dow Jones Industrial Average rose 26.77, or 0.27 percent, to 10,081.97, a modest rebound after a drop of 1.35 percent last week.

Broader market measures also posted modest gains. The Nasdaq Composite Index rose 8.79, or 0.46 percent, to 1,928.76, and the Standard & Poor 500 index rose 2.25, or 0.20 percent, to 1,124.39.

The biggest movers among the Dow 30 were Home Depot Inc., up $1.05 to $40.07; Altria Group Inc., up 50 cents to $47.01; and American International Group Inc., up 58 cents to $67.48. Drug makers also lifted the Dow, with Merck & Co. rising 39 cents to $30.74 and Pfizer Inc. rising 51 cents to $30.31.

Despite a spate of worrisome earnings previews in the past month, Wall Street expects the companies in the S&P; 500 to show at least a 10 percent increase in profits from a year ago, and the newly tempered outlook may enable most of the reports to top market forecasts.

But even with a strong showing, third-quarter profits are expected to come in lower than the second quarter’s results, breaking a string of six straight quarters of improving profits.

“The stall in sequential earnings growth in Q3 has been accompanied by a stall in the equity market. We doubt that this is a coincidence,” Edward Keon, chief investment strategist for Prudential Financial, said yesterday in a note to investors. “We think that growth will be hard to come by for the next several quarters. … Without much earnings growth and with valuations still higher than historical averages (although our valuations concerns are mitigated by low inflation and interest rates), we continue to think that the equity market will struggle for a while.”

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