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With Bonds Out of the Picture, Earnings Put the Wind in Stocks' Sails

With the fixed-income market closed for what the folks out in Berkeley call Indigenous Peoples Day, Wall Street gets to conduct an experiment testing the proposition that good earnings news would lead the market higher if not for those pesky bonds.

And it looks like traders are saying "QED," because stocks are cruising comfortably higher through the bond vacuum. Around noon EDT, the

Dow Jones Industrial Average

was up 40 to 8085, the broad

S&P 500

was up 3 to 970, the tech-marinated-and-grilled-with-a-garlic-coulis

Nasdaq Composite Index

was up 5 to 1744 and the small-cap

Russell 2000

was up less than a point to just under 486.

"Since there are no bond people here today, I guess people are spending a little money in the stock market," said Edward Collins, head of trading at

Daiwa Securities

. He said he saw few compelling stories on this quiet day, although he noted strength among the brokerage stocks.

That surge could be coming in large part from

Donaldson Lufkin & Jenrette

(DLJ)

, whose third-quarter earnings of $1.80 per share blew away the six-analyst

First Call

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consensus estimate of $1.26 and the year-ago 86 cents.

Raphael Soifer, an analyst at

Brown Brothers Harriman

who covers DLJ, wasn't too concerned about the 54-cent miss. "It's 'Where do you think the market's going to go?' " he said of estimating brokerage earnings. The market obviously has been going up, but DLJ further confounded analysts by achieving greater-than-expected gains in key areas like mergers and acquisitions, equity trading and bonds, Soifer said.

DLJ said its fee income, derived mainly from M&A activity and private equity placements, leapt 68% in the third quarter to $209.7 million. For the first nine months of the year, DLJ moved to fifth place from 10th among M&A advisers. Underwriting revenue moved up 89%, trading gains were up 48% and commission revenue rose 38%.

Despite the huge outperformance, Soifer said he continues to rate DLJ market perform on the basis of valuation. "While we undoubtedly will increase estimates along with everybody else, the shares have been rather fully valued on previous estimates," he said. "They're now more fairly valued than fully valued, but the issue continues to be the takeover speculation that's in the stock, which we think is unfounded."

DLJ was up 1 1/4 to 76 3/4 at midday, having traded at an all-time intraday high of 78 5/16.

Travelers

(TRV) - Get Travelers Companies, Inc. Report

, which reported third-quarter earnings 11 cents per share better than expectations, was up 13/16 to 75 5/16. Also on the upside were soon-to-be-subsumed-by-Travelers

Salomon

(SB) - Get Safe Bulkers, Inc. Report

, up 1 1/16 to 83 3/8,

Merrill Lynch

(MER)

, up 1 5/16 to 76 7/8, and

Raymond James Financial

(RJF) - Get Raymond James Financial, Inc. Report

, up 9/16 to 35 3/16.