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Stocks rise on earnings, confidence on Fed policy


A file photo of the US Federal Reserve building in Washington, DC. Photo - AFP

Washington: US stocks charted another winning week, riding the wave of good-enough earnings and growing confidence that the US Federal Reserve will maintain an aggressive stimulus for a while longer.

Last week's gains were not as robust as the prior week, and there was one day (Wednesday) when doubts took hold and pushed stocks lower. But all three indices still ended the week solidly higher.

The Dow Jones Industrial Average rose 170.63 (1.10 per cent) to 15,570.28. The broad-based S&P 500 put on 15.27 (0.88 per cent) at 1,759.77, a new all-time high, while the tech-rich Nasdaq Composite Index increased 29.08 (0.74 per cent) to 3,943.36.

After several weeks focused on Washington's political soap opera, corporate news came to the forefront with a plethora of earnings reports from leading firms.

Standouts included Dow component Boeing, which raised its earnings forecast and announced that it was upping production of its 787 Dreamliner plane, which remains popular despite battery problems.

Other strong reports came from tech icons Amazon, which continued to lose money even as revenue surged 24 per cent to $17.1 billion, and Microsoft, a Dow component that said profits rose 17 per cent to $5.2 billion.

The deluge of reports also included a handful of disappointments from Coach, Cameron International, Symantec, Xerox, Eastman Chemical and Dow component Caterpillar, which slashed its profit forecast for the third straight quarter in the wake of a downturn in mining investment.

"This year has proven to be difficult," said Caterpillar chief executive Doug Oberhelman, who was reluctant to predict an uptick in mining investment anytime soon.

Analysts have described the overall earnings season as fairly solid, with investors punishing individual underperformers, while bidding the market as a whole higher.

Of the 245 companies in the S&P 500 that have reported so far, 165 have beaten analyst expectations, 46 have missed and 34 have come in on target, according to a report by S&P Capital IQ.

However, of the 54 companies that have provided an outlook on the fourth quarter, 42 are negative, 8 are positive and 4 are in-line, said the report.

Scott Wren, senior equity strategist at Wells Fargo Advisers, said what has stood out about earnings season has not been the results but the tone of companies.

"No one is overly optimistic," said Wren, who attributed the caution in part to continued uncertainty about Washington and the ongoing fiscal wars.

Companies are reluctant to ramp up investment given the lack of clarity about federal taxation policies and regulation, analysts said.

The uncertainty about Washington "has hurt the real economy more," said Brent Schutte, market strategist for BMO Private Bank in Chicago.

"It hasn't hurt the market because the market in my mind has gotten more used to it and the market believes that it keeps the Fed in the game. It's almost like it's a backward positive for the market."

There have been signs in recent days that the "bad news is good news" rule has begun to govern again, with investors greeting poor or mediocre economic data as a sign the
Federal Reserve will not soon scale back its $85 billion per-month bond-buying programme.

The best indication came on Tuesday, when stocks bolted higher after a US Labour Department report showed the country added just 148,000 jobs in September, well below the 183,000 expected by analysts.

The upcoming week features a barrage of economic data, some of which was delayed due to the partial government shutdown. The reports include readings on industrial production, retail sales, consumer confidence and housing prices.

Also on the agenda: another busy week of earnings, including reports from Apple, Pfizer, General Motors, Facebook and ExxonMobil.

Finally, the Fed's Federal Open Market Committee meets on Tuesday and Wednesday.
William Lynch, director of investment at Hinsdale Associates, rated the FOMC gathering as "not all that important" because the Fed is unlikely to change course.

But others see the meeting as the week's most important event.

"You have to watch the Fed," Schutte said. "I think that's what it's all about next week."

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