U.S. Stocks Bolstered by Strong Corporate Earnings

By Joyce Yu

Philadelphia, PA–Wall Street drifted higher Thursday as better-than-expected quarterly results boosted sentiment and the European Central Bank kept its ultra-easy policy firmly on hold.

Caterpillar released its fourth-quarter results with $2.16 earnings per share. This is significantly higher than market expectation of $1.79 per share. Buoyant global demand and a recovery in commodities markets drove a 35% surge in sales of its construction and mining equipment. The company also issued 2018 guidance that exceeded analysts’ expectations, expecting adjusted earnings per share between $8.25 and $9.25. Its shares soared 3.8% on open before erasing its gains as a result of profit taking.

The machinery manufacturer was the second-best performing stock on the Dow Jones industrial average in 2017. “We are in the early stages of implementing our strategy for profitable growth,” Caterpillar CEO Jim Umpleby said.

3M also reported better-than-expected results, and its shares gained 2.0%.

“It’s more of the same, it’s more investor optimism with regard to the economy, with regard to earnings,” said Andre Bakhos, managing director at New Vines Capital LLC in Bernardsville, New Jersey. “The optimism is there that people don’t want to miss this.”

Earnings growth for S&P 500 is expected to be at 12.4%, with 88 companies in the index having posted results, 78.4% of which have topped expectations, based on data from the Thomson Reuters through Wednesday morning.

Over in Europe, European Central Bank President Mario Draghi in his latest speech at the Jackson Hole, Wyoming central banker’s conference, did not express concern about a strong euro zone currency as some analysts had expected. A strong euro is a headwind for the export-driven euro zone economy, but Draghi instead focused on other aspects such as a solid global recovery.

Outgoing Fed chairman Yellen also made no reference to U.S. monetary policy in her speech. Yellen focused on U.S. regulations, commenting measures introduced after the 2007-2009 crisis had strengthened the financial system without impeding economic growth, and any future changes should remain modest.

On a soft greenback, U.S. Treasury Secretary Steven Mnuchin said on Wednesday a weaker dollar benefited U.S. trade balances in the short term but that he believed in the long-term strength of the currency.

In data news, jobless claims totaled 233,000, up from revised 216,000 in the prior month, but were less than the 240,000 forecast, indicating the labor market continues to tighten.


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