NEW YORK (AFP) — Wall Street heads into a big week for corporate earnings with strong upward momentum as investors appear to be viewing the latest economic ills as short-lived, analysts said Friday.
Stock indexes have been holding near record or multiyear highs as fears of a credit squeeze in global financial markets ebb.
The Dow Jones Industrial Average chalked up a modest gain of 0.19 percent for the week to end Friday at 14,093.08 points, after notching up an all-time high on Tuesday.
The broad market Standard & Poor's 500 index also hit a fresh record early in the week and posted a gain of 0.27 percent for the week at 1,561.80.
The tech-heavy Nasdaq, near its highest levels since early 2001, closed a volatile week at 2,805.68, a gain of 0.91 percent.
While economic news has been mixed and the US housing market is still reeling, analysts say tight credit conditions that led to a market rout in August appear to be easing, making the outlook brighter for the economy and the stock market.
"Wall Street appears to have largely shaken off the scare of the credit crunch that gripped markets over the summer," said Diane Swonk, chief economist of Mesirow Financial.
"The stock market is hitting new highs and recent economic data suggest that the bust in housing is limited to itself and related industries. Employment rose, real income growth expanded, businesses invested, exports grew, and consumers spent," she said.
"There's no mistaking the healing underway in both money and credit markets, and thus the partial reversal of the summer's liquidity squeeze," said Morgan Stanley economists Richard Berner and David Greenlaw in a note to clients.
But the Morgan Stanley economists said the stock market may be a bit too optimistic and that the economy and corporate sector may feel more pain in the coming months.
"Near-term downside risks to growth -- and especially to earnings -- still predominate," they wrote.
Fred Dickson, a market strategist at DA Davidson, said he is cautious with stocks riding at such high levels, since the economy remains fragile and rate cuts by the Federal Reserve had yet to be felt.
"We continue to be concerned about the ability of the economy to regain much steam following the credit market shocks last summer even with the help of interest rate cuts by the Fed," he said.
"The economic data suggests that consumer spending is still positive but has slowed as the housing market continues to weaken. A rebound in oil prices back to 83 dollars a barrel will pressure consumers as heating oil prices surge and gasoline prices at the pump remain elevated.
"Caution continues to be the watchword of the day regarding timing new purchases in the stock market," Dickson added.
In the coming week, investors will get a better picture of the health of the corporate sector with earnings reports from the likes of Intel, Yahoo, Google, Delta Air Lines, Citigroup, Coca-Cola and others.
Larry Wachtel at Wachovia Securities said the solid equity performance comes even as earnings for the S&P 500 are now projected to grow just 1.2 percent during the third quarter.
The trend in earnings is "largely because of big bank and broker write downs," said Wachtel, who argued that companies were now trying to take writeoffs for mortgage and other problems in one stroke, to get them out of the way.
"Why not throw all the bad stuff into the mix and come back strongly the following quarter," he said. "Projections (for profit growth) for the fourth quarter remain in the 10-11 percent plus range."
Bond prices fell over the past week. The yield on the 10-year Treasury bond increased to 4.687 percent from 4.640 percent a week earlier, and that on the 30-year Treasury rose to 4.905 percent against 4.871 percent. Bond prices and yields move in opposite directions.
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