- The Washington Times - Wednesday, April 12, 2006

Commodities, rate speculation limit gains


Stocks advanced after quarterly earnings reports boosted optimism that companies can sustain profit growth even as commodity prices and interest rates increase.

Boeing Co. rose after the world’s second-largest maker of commercial aircraft said it plans to sell more planes to China. Circuit City Stores Inc., the second-largest U.S. electronics retailer, and Progressive Corp., the country’s third-biggest auto insurer, gained as earnings exceeded analysts’ forecasts.

“Profits will be greater than expected,” said Joseph Zock, who helps manage $600 million as president of Capital Management Associates in New York. The market will move higher, he said, “as solid earnings growth continues giving investors the confidence necessary to invest in stocks.”

The Standard & Poor’s 500 Index rose 1.55, or 0.1 percent, to 1288.12. The Dow Jones Industrial Average climbed 40.34, or 0.4 percent, to 11,129.97 as Boeing and General Motors Corp. advanced. The Nasdaq Composite Index increased 4.33, or 0.2 percent, to 2314.68, its first gain in four days.

Four stocks rose for every three that fell on the New York Stock Exchange. Almost 1.4 billion shares changed hands on the Big Board, the fourth-slowest trading day this year on the Big Board as some investors took off early for the Passover and Easter holidays. The stock market will be closed tomorrow.

Speculation that rising commodity prices will lead to higher interest rates limited yesterday’s gains. Gold extended its 35 percent rally of the past year, driven by its appeal as a hedge against inflation.

Analysts expect S&P; 500 companies to report first-quarter profit growth of 10.4 percent, according to Thomson Financial, which would mark the 11th straight quarter of increases at least 10 percent.

Boeing rose $2.64, or 3.3 percent, to $83.21 for the second-largest advance in the Dow average. The company aims to win orders for 20 more planes in China this year to protect its lead over Airbus SAS in that country. Boeing plans to sell 120 planes in China this year, matching last year’s total, Rob Laird, vice president of China sales, said in a conference call.

Circuit City rose $2.04, or 8.3 percent, to $26.65 for the top gain in the S&P; 500 after it reported better-than-expected profit on holiday sales of digital-music players and flat-panel televisions. Net income for the fourth quarter ended Feb. 28 was 80 cents a share. Analysts surveyed by Thomson expected 77 cents, on average. Thomson does not disclose the parameters of its estimates to Bloomberg News.

Progressive added $2.27 to $104.50. Net income in the first quarter was $2.21 a share, up from $2.04 a year earlier, as auto claims were lower than the company expected. Profit excluding investment gains was $2.20, higher than the $1.96 average estimate of analysts in a Thomson survey.

GM, the world’s largest automaker, rallied 81 cents, or 4.2 percent, to $20.03 for the best performance in the Dow average. Vice Chairman Bob Lutz said GM can complete a plan to end losses in North America with a 25 percent U.S. market share if it keeps incentives low and boosts margins. Mr. Lutz also said GM doesn’t expect a strike at its largest supplier, Delphi Corp.

Crude oil for May delivery touched $69.60 a barrel, the highest since Sept. 2, before closing down 0.5 percent at $68.62 a barrel in New York. Gold futures for June delivery rose 0.3 percent to $601.30 an ounce.

The stock market advanced even as bond yields rose. The yield on the benchmark 10-year note increased more than 5 basis points, or 0.05 percentage point, to 4.98 percent. Traders increased their bets the Fed will increase borrowing costs at least two more times to keep inflation in check.

“In the case of oil and interest rates, they’re twin killers of both economic growth and potentially market appreciation,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in New York.

Reports tomorrow on retail sales and consumer confidence may provide clues about the outlook for interest rates. A government report may show sales increased 0.4 percent last month, said economists surveyed by Bloomberg. The University of Michigan will show a reading of 89 for April consumer confidence, economists said.

General Electric Co., the world’s second-biggest company by market value, may say tomorrow that first-quarter profit rose 18 percent, according to analysts surveyed by Thomson, a pace that would lead to the fastest annual earnings growth in six years. GE added 41 cents to $34.46.

A government report yesterday showed the U.S. trade deficit narrowed more than expected in February. The deficit declined to $65.7 billion on a drop in Chinese imports. Economists expected a deficit of $67.5 billion in a Bloomberg News survey.

The Treasury Department said the U.S. budget deficit widened last month on Social Security and tax refund payments. The $85.5 billion gap compares with a $71.2 billion shortfall in the same month of last year. Economists expected $84.1 billion.

Allied Waste Industries Inc. and Motorola Inc. both rose after analysts upgraded the stocks.

Allied Waste rose 46 cents to $13.40. The second-largest U.S. trash hauler will benefit from more business and the ability to charge higher prices, JPMorgan analyst Amanda Tepper wrote in a note. She raised the rating on the shares to “overweight” from “neutral.”

The gains in Allied Waste and Boeing pushed up an index of industrial shares 0.8 percent for the biggest increase among 10 industry groups in the S&P; 500.

Motorola, the world’s second-biggest maker of mobile phones, rose 41 cents to $23.98. The stock was upgraded to “outperform” from “peer perform” by Bear Stearns & Co., which said that the company will improve its profitability as it sells more phones. They said 188 million phones will be sold this year, up from their previous estimate of 176 million.

Ceradyne Inc. rallied $4.69 to $51.88. The maker of body armor for the U.S. military said first-quarter profit was as much as 90 cents a share on sales of up to $136 million. Analysts expected 73 cents and revenue of $132.3 million, according to Thomson.

Harley-Davidson Inc., the world’s most profitable motorcycle maker, lost $3.14, or 5.9 percent, to $49.83 for the second-biggest drop in the S&P; 500. JPMorgan analyst Dean Gianoukos said in a note that the company’s production targets may be too high and inventories at its retailers are growing. Harley-Davidson reported first-quarter earnings of 86 cents a share, matching the average analyst estimate.

Bausch & Lomb Inc. dropped $3.42, or 7 percent, to $45.61 for the biggest decline in the S&P; 500. The stock has fallen 15 straight days, slumping 32 percent since March 22. Two days after Bausch & Lomb said it stopped shipping a contact-lens cleaning solution linked to a rare eye infection that can cause blindness, retailers including CVS Corp. said they pulled the product off their shelves.

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