Wall Street extended its October winning streak into a fifth day Tuesday, although trading was erratic as investors shied away from big commitments in advance of third-quarter earnings.
Analysts said investors were likely to remain cautious as economic news trickles in, and they warned that the market could become volatile if company results hold many negative surprises.
“I think we’re going to have a choppy market here for a while as the earnings come out,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee. “But the tone of the market is still optimistic ... we could see a continuation of the positive trend.”
The Dow Jones industrial average closed up 59.63, or 0.6 percent, at 9,654.61, after recovering from midday losses.
The broader market also reversed course to close higher. The Nasdaq composite index rose 14.39, or 0.8 percent, to close at 1,907.85. The Standard & Poor’s 500 index rose 4.90, or 0.5 percent, to close at 1,039.25.
Trading was understandably quiet as many investors were waiting for third-quarter earnings. Companies were beginning to report results this week, starting with Alcoa Inc. after the close of markets Tuesday and Yahoo! Inc. on Wednesday. Many analysts believe earnings will have to not only meet, but exceed, estimates for stocks to move higher after six months of gains.
Alcoa, the world’s largest aluminum maker, said its earnings had risen 45 percent, beating analyst expectations by 4 cents a share. Investors were pleased with the news; the Dow component rose 77 cents in after-hours trading after losing 8 cents to close at $28.19 in regular dealings.
Few companies have issued earnings warnings, which bodes well for the market during the next few weeks of third-quarter reports, said Neil Massa, an equity trader at John Hancock Funds. The lack of news hasn’t exactly enticed investors, but low trading volume is normal for a time like this, he said.
“I don’t think there’s any worry here, people are just taking some money off the table, and that’s a natural progression, not a fundamental shift in sentiment,” Massa said.
Investors are wary, but it’s not because they don’t believe there’s a recovery under way, said Arnie Holzer, senior investment strategist at Deutsche Asset Management Americas. “They’re just waiting to see that it is self-sustaining,” he said.
Stocks appeared to be getting some support from the dollar, which weakened slightly against the Japanese yen, trading at 109.79 Tuesday, down from 111.03 Monday. Analysts said this could be good news for large-cap companies, technology firms and industrial goods producers that rely heavily on exports that are cheaper to buy when the dollar is down.
McDonald’s Corp. gained 62 cents to close at $24.72 after Citigroup’s Smith Barney unit upgraded the fast-food company’s rating to “buy” from “hold,” citing good sales prospects.
PepsiCo Inc. declined 10 cents to close at $47.40, in spite of the soft drink maker’s reported 13 percent rise in profits, which met analysts’ expectations.
El Paso Corp. fell 20 cents to close at $7.65 after the Securities and Exchange Commission notified the energy company that it was investigating some of its filings.
Terayon Communication Systems Inc. closed up $1.50, or 24.2 percent, at $7.71, after the broadband equipment provider said its third-quarter revenues would beat estimates.
LookSmart Ltd. slid $1.58, or 52.3 percent, to close at $1.44 after Microsoft Corp. said it would end a licensing agreement with the company in January 2004.
Advancing issues outnumbered decliners nearly 3 to 1 on the New York Stock Exchange. Volume remained light for a second day, with 1.278 billion shares traded, compared to just over 1 billion shares Monday, when market activity slowed on the Yom Kippur holiday.
The Russell 2000 index, a barometer of smaller company stocks, closed up 4.05, or 0.8 percent, at 520.77.
Overseas, Japan’s Nikkei stock average finished 0.8 percent higher Tuesday. In Europe, France’s CAC-40 declined 0.8 percent, Britain’s FTSE 100 was up 0.04 percent and Germany’s DAX index dropped 1.4 percent.