Dow hits five-year high amid strong earnings and House vote plans

TradingPub Admin | January 18, 2013

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If you want an example of how news can impact the stock market through its effect on investor confidence, simply look at how the Dow surging to a five-year high on January 18 amid strong earnings and news that House lawmakers plan to vote for a temporary debt-limit increase the following week.

Rising stocks

The Dow Jones Industrial Average had a strong day, gaining 0.4 percent to close at 13,649.70, according to Bloomberg. In addition to this group of stocks, the blue-chip S&P 500 Index gained 0.3 percent to reach 1,485.98. These two indices rose amid strong trading activity, as 6.6 billion shares were traded during the day on U.S. exchanges. This figure was 6.9 percent higher than the three-month average.

"It's a bonbon market," John Manley, who contributes to the management of approximately $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York, told the news source during a telephone interview. "We've had little pleasant packets of surprises as these corporations keep coming through. I don't think the box's finished. Yet you need to remember that the market is near a five-year high and the economy is recovering at a subpar rate."

Debt-limit vote

Stocks received a boost after Majority Leader Eric Cantor indicated in a statement that members of the House and Senate members won't receive paychecks if they don't approve a budget before the proposed three-month extension on the debt limit ends, the media outlet reports.

According to Reuters, key Republican lawmakers announced their plans to get the three-month debt limit extension approved so that the Senate has the time needed to approve a budget that will cut deficits.

The Treasury Department has previously estimated that the U.S. federal government has until sometime between mid-February and early March before it runs out of money.

"Anything that gets Congress to think about things and come up with a solution ahead of time provides some reassurance," Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, told Bloomberg during a phone interview. His company has $20 billion under management.

He added that there are various other factors that could put downward pressure on confidence, telling the news source "don't forget that we still have substantial debt problems, the economy is still sluggish and companies are beating low-balled estimates. It's pretty early to be exuberant."

Corporate Earnings

Various stocks experienced robust gains after releasing earnings results that surpassed estimates, and the stock of global conglomerate General Electric Co. rose 3.5 percent to $22.04, according to the news source. The stock of financial services giant Morgan Stanley surged 7.9 percent. The restructuring plans previously announced by chief executive officer James Gorman has caused the company shares to spike 28 percent in the last two months.

Declining Fear

Another example of how investor sentiment was positively effected by the news from lawmakers and the strong corporate earnings was the decline in a widely-used measure of fear. The Chicago Board Options Exchange Volatility Index, or VIX, plunged 8.2 percent to reach 12.46, the media outlet reports. This figure represents the lowest figure for the measure since April 2007.

Lofty stock values

U.S. stocks are close to their all-time highs. At the end of trading, the S&P 500 was 5.1 percent less than its record high of 1,565.15 set in October 200. Bloomberg data indicates that around 72 percent of the companies contained in the index that have report their earnings exceeded analyst predictions.In addition, the Dow is less than 4 percent below its all time high of 14,164.53.

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