February 10, 2013
After turning squeamish early in the week, investors returned to the stock market and sent the Standard & Poor's 500 index to 1,517 Friday, the highest level since November 2007.
It hasn't hit the all-time high of 1,565 of October 2007, but it was an impressive rise nonetheless after some analysts insisted last week that stocks had soared too fast over the last six weeks and needed a break.
Corrections, or downturns of 5 to 10 percent, are considered healthy after a sharp rally, although investors didn't seem to be in the mood for one last week.
The Dow Jones industrial average sold off by double digits Monday as investors worried that some key Spanish and Italian leaders who forged agreements to stabilize Europe amid a debt crisis could lose their jobs in scandals or elections.
But investors shrugged off the concerns and pushed the Dow to 13,992, or just slightly below the 14,009 it hit a week earlier.
Technology stocks, in particular, have been strong. LinkedIn dazzled investors with an 81 percent increase in revenue, and the stock climbed 21 percent. And Michael Dell, the founder of Dell, showed investors Tuesday that he thought the company was worth substantially more than the market was giving it credit for. In a proposed leverage buyout, he offered to buy the company at about a 25 percent premium over the market price, but major shareholders balked at the deal, claiming the stock was worth more. That pacified investors, who have worried that technology stocks were too pricey.
Investors have also been calmed by earnings reports, which look like they will be up 5.2 percent over the same quarter last year and about double analysts' expectations, according to Thomson Reuters. In addition, about 70 percent of companies are beating earnings estimates, higher than the 65 percent norm. Investors get excited about stocks when they see them doing better than expected. Still, analysts have pointed out that beating estimates was easy this earnings season because analysts had slashed expectations when the economy slowed in the third quarter.
Investors continue to focus on the momentum they see in the market. That means improvement in auto, housing and employment in the U.S., but especially stronger data for China. Next week, investors will take the pulse of American consumers as January retail sales are reported. It will be the first read of how people are responding to higher payroll taxes, which took effect last month.
Europe could also cause twinges of angst as Italian elections approach and as scandals continue to make it into Spain's news. But investors should not doubt the resolve of European leaders to continue to hold the eurozone together and work on the debt problems involving countries such as Greece, Spain and Italy, according to two European ambassadors who spoke at the Chicago Council of Global Affairs on/Friday.
"Give us some time; we are working on it," said German Ambassador Peter Ammon. "People who have bet against the euro have been burned."
Ammon noted the compromise that's been needed between 17 countries to deal with debt in parts of the eurozone "has not been easy." But he said efforts so far have already cut the deficit of the eurozone in half and interest rates in countries on the periphery are now lower than when they joined the eurozone.
French Ambassador Francois Delattre noted that in just 13 years, European countries "have achieved a great success story. The euro limited the financial instability that plagued Europe for years."
Copyright © 2014 Chicago Tribune Company, LLC