Wall Street ends quarter with new record highs

Posted at 03/29/13 9:40 AM

NEW YORK- Wall Street Thursday closed out an historic quarter with a flourish when the Dow Jones Industrial Average and the S&P 500 both hit new record highs.

The finale was fitting for a quarter that has seen US equity markets march inexorably higher for the first part of 2013, taking few pauses along the way.

The gains have been fueled by a generally improving economy, solid corporate earnings and an aggressive Federal Reserve stimulus policy that shows no signs of being revised.

The quarter has also seen some signs of renewed merger and acquisition activity, with proposed transactions announced involving Heinz and Berkshire Hathaway, US Airways and American Airlines and warring bids over computer maker Dell.

And most US banks were given a green light to repurchase stock and issue dividends following the Federal Reserve's stress tests.

All in all, the US appears to be on the upswing after a long and difficult recession following the financial crisis of 2008.

For the quarter, the Dow gained 1,474.40 (11.25 percent) to 14,578.54. The broad-based S&P 500 put on 143 points (10.03 percent) to 1,569.19. And the tech-rich Nasdaq Composite added 248.01 (8.21 percent) to 3,267.52.

The US' fortunes stand in contrast to Europe, where the recent Cyprus banking crisis reignited concerns about the viability of eurozone. Investors are fixated on a weakening outlook for Germany, high unemployment in France and political instability in Italy. That the US markets gained in spite of the European is fresh evidence of a "decoupling," say some analysts.

"There is confidence that the US has decoupled from Europe and the US financial system is likely to be immune to Europe and their current level of crisis there," said Chris Low, chief economist at FTN Financial.

The market's rise was also striking in that it came despite some middling economic data last week.

On the positive side, the S&P/Case-Shiller Home Price index showed prices rose 8.1 percent for 20 leading cities for the 12 months to January, the highest year-over-year increase since mid-2006.

But the Conference Board index of consumer confidence dropped 8.3 points to 59.7, weakened by concerns over federal budget cuts. And the revision of US growth for the fourth quarter came in at just 0.4 percent, lower than some analysts expected.

Despite these mediocre results, investor confidence is back on the rise.

The rise in stocks to fresh record levels is like a "self-fulfilling prophesy," said Sam Stovall, chief investment strategist for Standard & Poor's.

"There are an awful lot of people on the sidelines who would like to have more exposure to equities," Stovall said.

Next week features several key data releases, including construction spending, industrial orders and, most importantly, the report on unemployment and new jobs added on Friday. The week will also see the release of quarterly earnings by agricultural company Monsanto, although most company earnings do not kick off until the following week.

Art Hogan of Lazard Capital Markets is of the camp that argues stocks have further to run because they are not especially well valued by historic standards. He figures that another strong earnings season will attract more capital to markets.

"We still continue to have more tailwinds than headwinds in this market place," he said.

But Hugh Johnson of Hugh Johnson Advisors pointed to a number of headwinds, including the revival of Eurozone concerns and the effects of US budget cuts.

That equities have withstood these negatives to this point may reflect that stocks are the "only game in town" for investors, Johnson said. "So you do see small investors buying stocks. But believe me it makes professional investors scratch their heads."

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