msnbc.com news services
updated 6/22/2006 8:26:38 AM ET 2006-06-22T12:26:38

Stocks mounted a strong rally Wednesday, with the Dow Jones industrial average posting a triple-digit gain, as an early wave of stronger-than-expected earnings reports reassured investors that corporate profits can grow despite rising interest rates.

Major Market Indices

Investment bank Morgan Stanley and package delivery company FedEx, often seen as a gauge for U.S. business activity and the health of corporate spending, reported quarterly results early Wednesday that beat analysts’ estimates.

The earnings reports, among the first for the latest quarter, bolstered views that corporate earnings can continue to show robust growth despite rising interest rates. The Federal Reserve is expected to raise rates for a 17th consecutive time next week.

“With the backdrop of rising interest rates, if we’re still able to see good earnings for the second quarter, it will bode well for the market,” said Jim Herrick, director of equity trading at Baird & Co.

Inflation jitters have been shaking stocks recently, with the major indexes swinging to losses in early June before rebounding. May was Wall Street’s worst month of the year by far, as investors sold off on fears the Fed would continue its streak of rate hikes.

“I think the correction we’ve had may have been overdone,” said Ed Keon, chief investment strategist with Prudential Equity Group in New York. “If we get even the slightest bit of encouragement from the Fed and if earnings are as good as I think they’ll be, this could be a pretty good summer for stocks.”

Rising rates make investors nervous because corporate borrowing becomes more expensive, slowing growth. At the same time, higher rates make investments other than equities look more attractive.

The Dow Jones industrial average finished Wednesday up 104.62 points, or 1 percent, having rallied as much as 157 points earlier in the day. The index closed above the emotionally-key 11,000 mark. The Standard & Poor’s 500-stock index jumped 12.07 points, or 1 percent, while the Nasdaq composite index rallied 34.14 points, or 1.6 percent.

Crude oil futures rose after the U.S. Department of Energy reported that gasoline inventories grew at a slow pace last week, despite high production levels.

In company news, Morgan Stanley, the nation’s second largest securities firm, rose $2.46, or 4.3 percent, to $59.48 after its second-quarter profits jumped . The company reported record revenue driven by stronger underwriting, merger and acquisition, and trading results. The results far exceeded analysts expectations.

FedEx Corp. rose $5.54, or 5.1 percent, to $113.86, after it reported a 27 percent jump in fourth-quarter earnings , citing solid economic growth in U.S. and international markets. FedEx is the world’s largest express shipping company and its results beat Wall Street expectations by a wide margin.

Darden Restaurants Inc., operator of Red Lobster, Olive Garden and other restaurant chains, rose $1.74, or 4.9 percent, to $37.30 after reporting strong increases in fourth-quarter profits and same-store sales.

Overseas, Japan’s Nikkei stock average fell 0.03 percent. In Europe, Britain’s FTSE 100 rose 0.12 percent, Germany’s DAX index gained 0.18 percent and France’s CAC-40 rose 0.09 percent.

The Associated Press and Reuters contributed to this report.

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