Stocks closed at fresh multi-year highs on Friday shrugging off lukewarm economic news to focus on broadly strong earnings, as the Dow and the S&P 500 marked six consecutive gains for the month of April.
The Dow Jones Industrial Average rose 490.81 points, or 3.98 percent, in April, to close at 12,810.54, the highest close since May 20, 2008. On Friday, the blue-chip index gained 47.23 points or 0.4 percent.
A third of the Dow components traded at multi-year highs Friday, including Kraft, Caterpillar, Boeing, AmericanExpress, IBM, UnitedTechnologies, 3M, Johnson& Johnson,DuPont and Pfizer.
The S&P 500 rose 37.78 points or 2.85 percent in April, to close at 1,363.61, the highest close for the index since June 5, 2008. On Friday, the S&P 500 gained 3.13 points, or 0.2 percent.
The Nasdaq rose 92.47 points or 3.32 percent in April to about 2,873, the highest close for the tech-heavy index since Dec. 12, 2000. On Friday, the index edged 1.01 points higher or 0.04 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose slightly to 14.77. The VIX posted its third consecutive monthly decline, losing nearly 17 percent in April.
Among key S&P 500 sectors, energy and industrials rose, while telecom and financials fell.
Traders caught their breath Friday after a week filled with earnings announcements, economic news and an unprecedented press conference by Federal Reserve Chairman Ben Bernanke.
The upshot was stocks rallied to levels not seen for up to three years or more. Aside from the major indexes, the Russell 2000 Index of small cap stocks and the Dow Jones Transportation Index both hit all-time highs. That was despite news on Thursday that the economy slowed in the first quarter, and that jobless claims remained above 400,000 for a third straight week. Steady job growth occurs when claims are less than 400,000.
"I think we’re on the road to recovery," said Jim Russell, managing director at The Collingwood Group, a financial advisory firm. But, Russell added, "I think it’s fragile, and we have to be very cautious in how we build on this."
The problem is the weak dollar, and the resulting higher cost of imported goods. As inflation in countries overseas builds, the U.S. may find it is importing more inflation than the U.S. economy can handle, Russell said.
"If we walk into an inflation spiral, maybe it’s through no fault of our own economic gains, it will shatter this recovery," he said.
Nonetheless, Russell is encouraged by strong earnings in key industries, including steel, lumber, commodities, and corrugated boxes, and by "keystone" companies, including UPS ,Microsoft and Caterpillar.
"Those earnings are coming out fairly strong and that’s why I’m encouraged," he said.
Of the 323 companies that reported earnings as of Thursday, representing 63 percent of the S&P 500, 73 percent beat earnings estimates and 69 percent beat revenue estimates, according to Thomson Reuters.
Caterpillar gained after soundly beating first-quarter earnings estimates, and giving a better forecast for the full year. The heavy-equipment maker's net income was $1.84 a share on sales of $12.95 billion, beating estimates for $1.31 a share on sales of $11.69 billion.
Merck rose slightly after also delivering better-than-expected first-quarter results. The pharmaceutical company maintained its long-range forecast.
And another Dow component, Chevron , rose slightly after a boost in quarterly profits.
The tech sector was under pressure Friday after disappointing news Thursday evening from
Microsoft , beat estimates for both profits and sales, buta drop in sales for Windows hinted that a downturn in personal computer sales may be underway, sending shares of the tech giant spiraling lower in the biggest one-day drop for the stock since July 2009.
Also Research In Motion sank after the Blackberry maker delivered a forecast for weaker earnings and revenues after the market closed on Thursday.
D.R. Horton , meanwhile, gained after reporting a surprising doubling of profits, helped by a tax benefit. The homebuilder's revenues slumped, however.
ITT fell after the global engineering and manufacturing firm said its defense sales would be hurt this year by U.S. budget issues.
Another varied mix of earnings will be released next week, including results from General Motors, AIG, Kraft and Comcast, CNBC's parent company. Also Chrysler will release earnings on Monday even though the company is privately held.
In M&A news, Ralcorp soared after news Conagra made an unsolicited bid for the maker of Post cereals and other private-brand foods about two months ago, according to a CNBC report. Ralcorp's stock has appreciated significantly since then. Circuit breakers were triggered after the news, but shares have resumed trading.
And SunPower skyrocketed more than 30 percent after Total SA , an integrated oil and gas company, said it plans to buy a 60 percent stake in the U.S. maker of solar panels for about $2.3 billion.
The news lifted the solar sector as it showed potential value in the industry. GT Solar , Trina Solar , and First Solar all gained.
And Verizon fell after Citigroup cut the wireless communications provider to "hold" from "buy," citing valuation.
Apple gained slightly, although in lost momentum late in the session, after slumping Thursday a day before the Nasdaq 100 is rebalanced, reducing Apple's weighting from about 20 percent of the index to about 12 percent.
Volume on the consolidated tape of the New York Stock Exchange was about 3.6 billion shares, while about 975 million changed hands on the NYSE floor.
Silver and gold rose slightly as the dollar sank to a three-year low against a basket of currencies. Silver futures for May delivery surged 28.3 percent in April to close at $48.58, the largest monthly gain in Comex history, while gold futures for May delivery rose 8.14 percent in April to close at a record $1,556. (Read more: Silver Reaches for Record)
The market shrugged off news of slowing first quarter growth to climb to new highs on Thursday because the news was expected, given unusually bad winter weather, unrest in the Middle East and the multiple catastrophes in Japan, said Phil Orlando, chief market strategist at Federated Investors.
But none of these events is considered long-lasting, and Federated, along with other market observers, expect the U.S. economy will continue to grow.
"Much like a year ago, I think this is going to prove to be a temporary soft patch, not an inflection point leading to a double-dip recession," Orlando said.
Meanwhile, corporate earnings are good, and stock valuations remain reasonable, so the market is likely to continue rising, he said. Federated expected the S&P to hit 1,350 by the middle of this year, which it did this past week. Now the investment firm sees the broad-market index gaining another 5 to 10 percent at most before the end of the year.
"Stock price performance and valuation will be much more of a grind over the next year or two from here versus the surge over the last two years," Orlando said.
In U.S. economic news Friday, the Thomson Reuters/University of Michigan Consumer Sentiment fell in Aprilto 68.9, down from 70.6 in March.
The Chicago purchasing managers index for April came in at 67.6, slightly less than expected, and down from 70.6 in March.
Also, personal income rose 0.5 percent in March, and personal spending rose 0.6 percent, the Commerce Department said. Consumer spending rose as gasoline and food prices gained.
Trading was thin in Europe with the London Stock Exchange closed on Friday as the UK had a public holiday to celebrate the wedding of Prince William to Catherine Middleton. European stocks closed higher,posting the best monthly performance since December.
On Tap Next Week:
MONDAY: ISM manufacturing index, construction spending, Boeing shareholder meeting, first GOP Presidential debate, RIM capital markets day, Sirius XM Radio antitrust case; earnings from Humana, Anadarko, Chesapeake and Massey.
TUESDAY: Factory orders, auto sales, Bristol-Myers shareholder meeting, Nokia annual meeting, Wells Fargo shareholder meeting; earnings from Pfizer, Clorox, NYSE Euronext, MasterCard, Comcast and CBS.
WEDNESDAY: Weekly mortgage applications, Challenger job-cut report, Fed's Rosengren speaks, ADP employment report, ISM non-manufacturing index, oil inventories, Fed's Lockhart speaks; earnings from Anheuser-Busch, AOL, Kellogg, Electronic Arts, MetLife, News Corp, Transocean and Whole Foods.
THURSDAY: Bank of England rate announcement, European Central Bank announcement, chain store sales, jobless claims, productivity and costs, Treasury STRIPS, money supply; Fed Chairman Bernanke speaks, Fed's Kocherlakota speaks, UPS shareholder meeting, Verizon shareholder meeting; earnings from GM, Cigna, CVS, AIG, Kraft and Visa.
FRIDAY: Non-farm payroll report, consumer credit, Alcoa shareholder meeting, flash crash anniversary; earnings from Constellation Energy and Berkshire Hathaway.
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