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NEW YORK – US stocks scored their third straight week of gains on Friday as anticipation of a fairly solid third-quarter earnings season trumped worries about Europe and weak economic growth.
With just barely enough positive data to convince that the country will skirt – for now – a new recession, and just enough news on the European political front to convince that the eurozone crisis would be under control, investors drove a solid rally on Friday to cap off another volatile but ultimately positive week.
The Dow Jones Industrial Average ended the week up 4.87 percent at 11,644.49. The broader S&P 500 advanced 5.98 percent to 1,224.58, and the tech-heavy Nasdaq Composite gained 7.59 percent to 2,667.85.
Since September 23, the three indices have put on between 8.3 and 8.5 percent, even while hitting the year’s low point on October 3.
The push upward has put the Dow and Nasdaq back to just a hair higher than where they were on January 1, while the S&P 500 remains 2.6 percent down for the year.
“Third-quarter earnings season is in full swing and we expect it to be modestly positive after numerous reductions of expectations due largely to economic concerns,” said analysts at broker Charles Schwab.
“We continue to believe the US economy will avoid a dip into recession and, for now, the data seems to support that view.”
The analysts said the Federal Reserve’s new “Operation Twist” to drive down long-term interest rates by modifying its own bond purchase strategy has also contributed to the newfound optimism.
“But mortgage applications have yet to jump and companies continue to cite concern over governmental policies for their continued caution,” they warned.
Analysts were encouraged by retails sales data for September released Friday that showed a 1.1 percent rise over the previous month, and that the annual pace of the advance was about eight percent.
“It’s a good indication that the economy is not heading into recession,” said Peter Cardillo of Rockwell Global Capital.
“Also we are starting to see some real positive signs coming out of Europe, that there will be some announcement shortly.”
Economists were also encouraged by the week’s data.
“The retail sales data put another dent into the recession talk as sales not only beat high expectations, but also increased by their strongest amount since February,” said Jeffrey Rosen at Briefing Research.
“This suggests that economic trends may be returning to where they were expected to be at the end of Q4 2010.”
“Data continued to reflect an economy that is improving modestly, although well below its long-run trend,” said a Wells Fargo analysis.
The first major company results from the week – Alcoa, JPMorgan Chase and Google – were solid. Alcoa’s profits tripled from a year earlier but unsurprisingly sagged from the second quarter as aluminum prices fell.
JPMorgan’s earnings beat expectations but still slipped slightly. Google surprised on the upside, pulling up others in the tech sector.
The coming week will bring similar results, analysts forecast, but trading will also be shaped by what comes out of the G20 finance chiefs meeting in Paris this weekend and news on the eurozone crisis.
Also coming up will be number of US economic data releases, especially markers of the inflation rate: industrial production (Monday); producer prices (Tuesday); consumer prices and housing starts (Wednesday); and existing-home sales and weekly jobless claims (Thursday).
IHS Global Insight analysts said they expect a slight pick-up in producer and consumer price rises, mainly due to higher energy costs.