Stocks Rebound on Strong Earnings

Updated from 4:12 p.m. EDT

The Dow drifted up in Wednesday's final hour of trade to close positive along with other major indices as an upbeat earnings season ultimately lured cautious buyers after Federal Reserve Chairman Alan Greenspan provided more hints of higher interest rates to come.

The Nasdaq led gains, adding 17 points, or 0.86%, at 1995.63; the S&P 500 gained 5.96 points, or 0.53%, to 1124.09; and the Dow finished up 2.77 points to 10,317.27. In other assets, the 10-year Treasury note moved up 5/32 in price to yield 4.44%, while the dollar was at a five-month high against the euro and trading up against the yen.

Volume on the New York Stock Exchange exceeded 1.7 billion shares, and decliners outnumbered advancers by about 5 to 4. Over 2 billion shares changed hands on the Nasdaq, where advancers outpaced decliners by about 3 to 2.

Airline stocks led the market higher during Wednesday's session, with the Amex Airline Index closed up 2.5%. The Philadelphia Semiconductor index rose 1.9%, the iShares Dow Jones Healthcare basket climbed 1.1% and the Amex Network Index gained 2%.

The Dow's move was held back by Alcoa ( AA), which fell more than 3.9% on a broad decline in mining and precious metals, and United Technologies ( UTX), which dropped 2.8% despite better-than-expected first-quarter results.

In testimony before the Joint Economic Committee, Greenspan said inflation is not yet building but the Fed would act to limit it by raising the fed funds rate when needed. He said the broad economy is strong.

In addition, San Francisco Fed President Robert Parry told an audience Wednesday at Gettysburg College in Pennsylvania that interest rates will rise "significantly at some point."

Following Greenspan's testimony, the Fed's Beige Book report described economic growth as widespread, inflation modest and the job market tightened with modest wage gains.

"I think it's interesting that there's not a lot of follow-through to all the selling that happened yesterday," said John Hughes, equity strategist at Shields & Co. "It means it may have just been a knee-jerk reaction. I think the market's recent weakness is more transitional than anything else. The important thing is that the economy is beginning to recover and I think this is just part of the corrective process.

"The market knows that higher rates are coming and it's just trying to figure out what that is going to mean," he added.

Rate fears and further global instability wreaked havoc on commodities. Silver futures plunged 11.2% and copper lost 6.2%, while crude oil and gold prices each dropped close to 2%.

More violence erupted Wednesday in the Middle East, giving investors pause. In Basra, a mainly Shiite city in Iraq, five suicide attackers detonated car bombs against police buildings during rush hour Wednesday, killing 68 people, including children in passing school buses, according to a report from the Associated Press. Separately, two car bombs blasted the national police headquarters in Riyadh, Saudi Arabia, killing at least nine people and wounding 125 others, just days after a U.S. warning of a possible terrorist attack.

The sting of interest rate paranoia and geopolitical unrest was blamed somewhat by news from Motorola ( MOT), which reported after Tuesday's closing bell that it earned $609 million, or 25 cents a share, on revenue of $8.6 billion in the first quarter of 2004, up from $169 million, or 7 cents a share, on sales of $6 billion a year ago.

On an operating basis, Motorola earned 18 cents a share in the latest period, wiping out the 7-cent analyst consensus compiled by Thomson First Call. Motorola also lifted second-quarter guidance, sending the stock up $3.08, or 19%, to $19.30.

After Wednesday's close, shares of eBay ( EBAY) gained almost 5.5% in after-hours trading following the Internet auctioneer's announcement that its quarterly profits nearly doubled.

Qualcomm ( QCOM) jumped 2.9% after the session subsequent to reporting after the bell that its quarterly profits increased 78% thanks to growth in the global cellular market. It also boosted its outlook for the year.

Wednesday was another huge day for earnings, kicked off by Coca-Cola ( KO), which said first-quarter net income jumped 35% from a year ago to $1.13 billion, or 46 cents a share, easily beating analysts' forecasts. Revenue jumped 13% to $5.08 billion. Its shares lost 15 cents, or 0.3%, to $52.13.

Ford ( F) doubled its first-quarter profit and blew away expectations. The carmaker earned $1.95 billion, or 94 cents a share, up from last year's 45 cents a share. Excluding special items, net income totaled 96 cents a share, beating Wall Street's consensus estimate of 44 cents a share. Its shares added $1.38, or 10.2%, to $14.94.

First-quarter profits at J.P. Morgan Chase ( JPM) rose 38%, helped by strength in the bond market. It earned $1.93 billion, or 92 cents a share, up from $1.4 billion, or 69 cents a share, in the same quarter last year. Its shares closed down 86 cents, or 2.2%, to $37.68.

Shares of SBC Communications ( SBC) finished up 41 cents, or 1.7%, at $24.77 after the telecommunications company reported a 61% drop in first-quarter earnings. It earned $1.95 billion, or 59 cents a share, down from last year's $5 billion, or $1.50 a share. Last year's results included $2.54 billion in accounting adjustments and other one-time effects.

Computer Associates ( CA) stripped its Chairman and Chief Executive Sanjay Kumar of his power amid a federal probe into the software company's accounting practices. Its shares climbed $1.09 cents, or 4.3%, to $26.66.

Honeywell ( HON) reported higher first-quarter earnings that easily beat estimates, as the weak dollar and volume growth spurred a 14% year-over-year jump in revenue. It earned $295 million, or 34 cents a share, up from last year's $254 million, or 30 cents a share. Its shares shed 3 cents, or 0.1%, to $33.97.

Shares of United Technologies dropped $2.46 to $85.02 after it reported a 15% jump in first-quarter profits. The company earned $579 million, or $1.14 a share, vs. $502 million, or $1 a share, for the same quarter last year.

Also, satellite radio operator Sirius ( SIRI) posted a first-quarter loss, but said its subscriber base grew 35% in the quarter. Its shares closed down 33 cents, or 8.7%, to $3.47.

Overseas markets closed mostly lower, with London's FTSE 100 off 0.6% to 4540 and Germany's Xetra DAX down 0.9% to 4026. In Asia, Japan's Nikkei was flat at 11,944, while Hong Kong's Hang Seng lost 1.35% to 12,277.

Over 100 companies are scheduled to announce first-quarter results before Thursday's opening bell, including UPS ( UPS), expected to report profits of 62 cents a share, up from last year's 52 cents a share; Viacom ( VIA), expected to report earnings of 30 cents a share, up from last year's 26 cents a share; Merck ( MRK) is expected to report profits of 72 cents a share, down from last year's 76 cents a share; Nextel ( NXTL) is expected to say it earned 44 cents a share, up from 20 cents a share; and AIG ( AIG) is expected to report earnings of $1.06 a share, up from last year's 90 cents a share.

On the economic front, last week's initial claims tally is due out from the Labor Department at 8:30 a.m. EDT. Economists predict that claims fell to 340,000 from 360,000 reported for the previous week. Also at that time, the government is expected to report that the producer price index rose 0.3% in March, up from a 0.1% jump in February. Excluding food and energy prices, economists forecast the index gained 0.1% for the second month in a row.

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