Wall Street is surprising itself with a quaint trading playbook from yesteryear – stocks jumping due to real companies earning real profits.
“It was a refreshing change to see Wall Street driven again for old-fashioned reasons – real companies making real money,” said Hugh F. Johnson, chairman and chief investment officer of Johnson Illington Advisors.
Two of every three companies in the current earnings season – which is about halfway done – have beat expectations of analysts, a relatively rare event for a slowing economy.
The latest earnings muscle yesterday came from Microsoft and Proctor & Gamble, which pushed up blue chip stocks for a two-day rally.
Another boost to stocks came when the Commerce Department said the economy has slowed to a 3.5 percent annual growth rate, a clear sign that interest rate hikes won’t have to be pushed up much higher to put brakes on an overheated economy.
“We’ve had a very impressive and strong earnings season, and it’s being taken as a sign that a rebound is ahead for 2006,” said Johnson.
“Maybe that old Wall Street truism is working again, ‘As goes January, so goes the rest of the year,’ ” Johnson said.
He said earnings of reporting companies show a 14.2 percent jump in profits from a year ago.
“Many investors feared the growth would be down to around 12 percent, but that worry has faded.”
The Dow Jones industrial average rose 97.74 to end at 10,907.21 – a healthy 2.24 percent jump for the week.
The Standard & Poor’s 500 Index added 9.89 to 1,283.72 for a 1.76 percent weekly gain. The Nasdaq gained 21.23 to 2,304.23 for a 2.52 percent gain this week.
Microsoft jumped 4.9 percent to $27.79, up $1.29, while Procter & Gamble rose 92 cents, or 1.6 percent to $59.74. Broadcom Corp. soared $11.15, or 19 percent to $69.87. Crude rose $1.50 a barrel here to $67.76 amid geopolitical fears.
The Commerce Department said the economy’s growth in the last three months slowed to just 1.1 percent, a steep decline from the fall’s 4.1 percent.
Higher energy prices siphoned away cash from consumer pockets, contributing to slower spending.
“The economy hit a pothole in the fourth quarter. I’m not at all worried about the health of the economy,” said Mark Zandi, chief economist at Moody’s Economy.com.
In another Commerce Department report, new home sales in 2005 climbed 6.6 percent to an all-time high of 1.28 million homes. paul.tharp@nypost.com
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