Wall Street eyes second wind from earnings

NEW YORK: Wall Street's long-running rally has gotten boost from the first batch of corporate earnings reports, but faces another barrage of results this week that will test its momentum.

Investors will see dozens more third-quarter earnings reports from key firms, especially in the banking sector, that could provide clues on the health of the corporate sector and the overall economy.

In the week to Friday, the blue-chip Dow Jones Industrial Average vaulted 3.98 per cent to 9,864.94, reaching its highest level in over a year.

The market was energised in the past week by positive earnings surprises, notably from aluminium maker Alcoa, traditionally the first of the blue chips to report results.

Alcoa managed a profit of US$77 million (US$1 = RM3.39), surprising analysts who had expected a fourth consecutive quarterly loss. The group also offered a better-than-expected outlook for the coming months, boosting hopes for recovery from the global recession.

"We see some signs that things are getting better, not getting great, but stabilising, and that's what this third quarter is all about," said Marc Pado, analyst at Cantor Fitzgerald.

Stephen Auth at Federated Investments said he sees more upside surprises on the economy and earnings.

"Our sense remains that investors continue to underestimate the strength of the economic recovery which is already upon us," Auth said in a noted to clients.

Auth said economic activity is rebounding, housing is stabilising and that jobs will come back slowly despite the current trend of rising unemployment.

"We expect this better-than-consensus economic news to drive earnings and stocks higher through year-end, with equities set to enter what we'd call a third leg of the market recovery," he said. - AFP