- The Washington Times - Wednesday, April 25, 2007

The Dow Jones Industrial Average surged nearly 136 points yesterday to close above 13,000 for the first time as investors dismissed concerns about rising energy prices and a slowing economy to focus instead on the strong performance of multinational corporations such as Boeing, Pepsico, Amazon.com and Exxon Mobil.

Market gains are rapidly picking up speed as more investors join in the buying spree. It took only six months for the Dow to leap from 12,000 to 13,000 after taking 7 years to wander in the wilderness before crossing from 11,000 to 12,000.

“It’s a global spring fling,” said Frederic Dickson, chief market strategist at D.A. Davidson & Co., noting that the profits of large corporations with global operations have consistently come in ahead of Wall Street’s modest forecasts for the first quarter. “It’s really caught investors by surprise.”

Keva M. Sturdevant, a financial adviser with Merrill Lynch’s Private Client Group, said yesterday’s record vindicates the patience of small investors in the market for the long term. Although big-name companies are the rage right now, she said investors should remember to keep their portfolios diversified to take advantage of the trends in all segments as the market evolves.

“Large caps are the darling of the dance. The tried-and-true, the dividend-paying stocks are what’s in right now,” she said. “But keep in mind, the markets are very cyclical.”

The outstanding performance of large-company stocks, which often post their greatest gains toward the end of an economic expansion, benefits the Dow and Standard & Poor’s 500 Index, which consist of blue-chip stocks. All but one of the Dow’s 30 stocks rose yesterday, lifting the index 1 percent to 13,090, while the S&P; 500 rose 1 percent to 1,495, its highest level since September 2000.

The Nasdaq Composite Index, which is driven by smaller technology stocks, also posted a 1 percent gain yesterday but remains at barely half its record high of 5,000. The small stock Russell 2000 and Wilshire 5000 indexes both posted gains just shy of 1 percent.

Propelling the Dow powerfully yesterday, Boeing shares rose $1.02 to a record $94.69 after earnings surged 27 percent on 737 aircraft sales. Amazon jumped $12.06, the most in five years, to $56.81 after the online retailer unexpectedly raised its 2007 projections. So far this earnings cycle, more than two-thirds of S&P; 500 companies have reported profits that topped analysts’ forecasts.

Perhaps not coincidentally, a spike of 37 percent in civilian aircraft orders helped lift orders for durable goods in the U.S. by 3.4 percent last month, providing a modest rebound from recent deep drops in such big-ticket orders. Much of the demand for new aircraft has come from fast-growing economies overseas, which is providing a boost to U.S. manufacturers such as Boeing even as a deep recession in housing and auto sales cuts into production at home.

Although some investors took yesterday’s Commerce Department reports on orders and higher new-home sales as a sign that the U.S. economy is reviving, Cliff Waldman, economist with the Manufacturers Alliance/MAPI, said, “The general economic outlook remains precarious” because of “mounting evidence that the housing slump is worsening.”

“Healthy export demand should allow for continued expansion in the factory sector, albeit at a subdued pace,” he said. “But the outlook for the domestic U.S. economy remains a considerable question mark.”

Federal Reserve staff yesterday reported “only modest or moderate” economic growth across the country. Economists expect a report tomorrow to show the economy grew at a sluggish 1 percent to 2 percent during the first quarter as a result of increasing weakness in housing, manufacturing, and business and consumer spending.

Large-company stocks not only benefit from orders from abroad and robust growth overseas, where they have established stakes in developing markets, but also are considered less vulnerable to an economic slowdown at home because they are better able to contain costs with economies of scale than small companies. They also benefit from the weak dollar, which is approaching a record low against the euro, because they translate their overseas earnings into dollars back home.

Pepsico Inc. said its overall profit rose 16 percent in the first quarter despite a drop in operating profit in North America. Alcoa Inc. posted the Dow average’s biggest percentage gain yesterday — climbing $1.81, or 5.33 percent, to close at $35.76 — after saying it might sell some units, including its signature Reynolds Wrap division, and focus on the increasingly lucrative international metal production business.

Strong growth in developing countries such as China, Russia, Brazil and India have pushed up prices for basic metals and created shortages of aluminum and other vital commodities.

Energy stocks were among the best performers yesterday, gaining as the price of oil jumped to $65.84 a barrel in New York after a government report showed gasoline inventories at unusually low levels — a development that did not deter the broader stock market as it would have in previous years. Oil analysts noted that U.S. and foreign consumers have been undeterred by prices that have topped $3 a gallon and are rising.

Exxon Mobil Corp., the world’s largest oil company, rose $1.32 to a record $79.92 while Valero Energy Corp., the largest U.S. refiner, climbed $1.80 to $70.32. Baker Hughes Inc. surged $5.71, or 7.8 percent, to $78.51 as the major oil field-services provider said first-quarter profit rose 10 percent from robust spending on exploration and development abroad.

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