Company Revenues Rise, as Do Investor Expectations

Thanks to strong business results from American companies, stock prices on Wall Street reached their highest levels in 19 months last week, although trading on European exchanges was more cautious due to the deepening Greek debt crisis.

On Wall Street last week, the Dow Jones index rose by 1.7 percent to 11,204 points, while the S&P 500 jumped by 2.1 percent to 1,217 points, and the Nasdaq index increased by 2 percent to 2,530 points. This marks the eighth consecutive week of growth for the Dow Jones and Nasdaq indices, while the S&P has risen in seven of the last eight weeks. All three indices reached their highest levels in 19 months.

The rise in leading indices is primarily attributed to better-than-expected business results from the majority of American companies. Of the approximately 100 companies in the S&P 500 index that have reported earnings so far, 85 percent reported better results than anticipated, suggesting that the current earnings season could be record-breaking. In a typical quarter, expectations exceed an average of 61 percent of companies.

"The results reported so far are very strong. Particularly encouraging is the growth in revenues, which indicates that the private sector is beginning to spend again. Consumers are waking up, signaling better times ahead," says Tim Ghriskey, director at Solaris Asset Management. However, the stock prices of some companies, such as Microsoft, Coca-Cola, Yahoo, and Amazon, fell last week, even though these companies also exceeded expectations with their results.

"The earnings of most companies are very good, but it seems that investor expectations have risen significantly, so revenue and profit growth would need to be much higher to stimulate further stock price increases. It appears that investors have already priced in good business results ahead of the earnings announcements," says Peter Boockvar, strategist at Miller Tabak.

The biggest winner last week was the construction sector, with the sector index rising by 12.8 percent, thanks to signs of improvement in the real estate market. Last week, it was reported that new home sales in the U.S. rose by as much as 27 percent in March, moving away from record low levels in February.

However, the healthcare and pharmaceutical sectors are under pressure as investors fear the negative impact of healthcare reform on the operations of these companies. Since the beginning of April, the S&P healthcare sector index has weakened by 2.5 percent. Nevertheless, losses in this sector have also decreased after pharmaceutical giant Merck announced on Friday that its costs related to healthcare reform would be lower as a percentage of total sales than initially estimated.

"This sector has been under pressure for some time, but perhaps investors have finally examined all the provisions in the reform law and what it means for healthcare companies," says Jeff Kleintop, strategist at LPL Financial.

Among the winners last week was the energy sector, benefiting from the rise in oil prices to $85 per barrel, while a week earlier it was below $82. While stock prices on American exchanges rose significantly, trading on European exchanges was very uncertain last week.

The London FTSE fell by 0.4 percent to 5,723 points, and the Paris CAC index dropped by 0.9 percent to 3,951 points. However, the Frankfurt DAX index rose by 1.3 percent to 6,259 points. This is a result of investor fears regarding the deepening Greek debt crisis, after it was announced that the budget deficit there last year was significantly higher than previously estimated, leading to a rise in the costs of financing Greek debt to record levels. Nevertheless, on Friday, markets calmed after Greek authorities officially requested assistance from the EU and IMF, worth about 45 billion euros.

On the Tokyo Stock Exchange, the Nikkei index fell by 1.7 percent last week to 10,914 points, marking the third consecutive week of decline. (H)