Strong earnings from big U.S. companies drove stocks higher Friday, pushing the SP 500 to another record.
General Electric, Morgan Stanley and Google all rose after reporting higher earnings than financial analysts were expecting. Google topped $1,000 a share for the first time. Investors were also encouraged by a rebound in Chinese economic growth in the latest quarter.
The Standard Poor’s 500 index (^GPSC) gained 11 points, or 0.7 percent, to 1,744, to set a second consecutive daily record. The tech-heavy Nasdaq composite index (^IXIC) also moved higher, gaining 51 points, or 1.3 percent, to end the day at 3,914., while the Dow Jones industrial average (^DJI) added 28 points, or 0.2 percent, to 15,399.
Google (GOOG) shares rose almost 14 percent to $1,012.13 as investors bet on the Internet company’s continued dominance of the mobile and video advertising businesses, despite aggressive competition from Facebook (FB) and Yahoo (YHOO).
With the gain, Google’s market value has swelled to about $40 billion, surpassing Microsoft (MSFT) and Berkshire Hathaway (BRK-A, BRK-B) in capitalization. Google is now No. 3 among U.S. companies, behind only Apple (AAPL) and Exxon Mobil (XOM).
General Electric (GE) gained 3.6 percent to $25.58 despite posting lower quarterly earnings.
It was the best performer on the blue chip Dow index, although declines by Home Depot (HD), down 1.4 percent to $74.65, and UnitedHealth Group (UNH), off 3.8 percent to $68.66, kept the Dow’s gains in check.
GE said its third-quarter profit and revenue fell amid a shrinking finance business and negative effects of foreign currency exchange rates, but Wall Street looked beyond those numbers to GE’s improving profit margins and growing order demand.
Morgan Stanley (MS) shares rose 2.6 percent to $29.68 after the company reported a 50 percent rise in quarterly revenue as higher income from equities sales and trading offset a drop in its fixed-income business.
In commodities trading, benchmark crude for November delivery edged up 14 cents to $100.81, while gold slid $8.30, or 0.6 percent, to $1,314.40.
More Stocks in the News:
- Amazon (AMZN) reached a new all-time high of $325.64 a share after a UBS analyst raised the online retailer’s rating and price target, saying it has a chance to speed up revenue growth heading into the holiday season. The stock ended the day up 5.9 percent to $329.
- Chipotle Mexican Grill (CMG) jumped 16.3 percent to $510.58., the biggest gain in the SP 500. The company reported that its third-quarter earnings rose 15 percent on higher traffic to its 1,500 restaurants.
- Acacia Research (ACTG) skidded 21 percent to $15.50 — its lowest level in three years — after the company’s third-quarter results fell short of Wall Street forecasts.
- People’s United Financial (PBCT) fell 4.7 percent to $14.37 after the regional banking company’s third-quarter performance missed analyst expectations.
What to Watch Monday:
- The National Association of Realtors reports existing home sales for September at 10 a.m. Eastern time.
These major companies are scheduled to release corporate quarterly earnings statements:
- Discover Financial (DFS)
- Halliburton (HAL)
- Hasbro (HAS)
- Gannett Co. (GCI)
- McDonald’s (MCD)
- Manpower (MAN)
- Netflix (NFLX)
- SAP (SAP)
- Texas Instrument (TXN)
–Compiled from staff and wire reports.
Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That’s really all there is to it.
The dividend yield we know: It’s currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That’s totally unknowable.
Earnings multiples reflect people’s feelings about the future. And there’s just no way to know what people are going to think about the future in the future. How could you?
If someone said, “I think most people will be in a 10% better mood in the year 2023,” we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost SP 500 index fund in 2003 earned a 97% return by the end of 2012. That’s great! And they didn’t need to know a thing about portfolio management, technical analysis, or suffer through a single segment of “The Lighting Round.”
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return — still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it’s not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time — every single time — there’s even a hint of volatility, the same cry is heard from the investing public: “What is going on?!”
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the SP 500 (^GSPC) has returned about 6% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. “It will fluctuate,” he allegedly said. Truer words have never been spoken.
The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he’ll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.
“Everything else is cream cheese.”