Stocks mostly higher on strong profits

NEW YORK�Blue-chip stocks regained their winning form Friday thanks to better-than-expected profit reports from key bellwether companies such as longtime Dow Jones index members Microsoft, McDonald's and General Electric.

Good news on the global front, including word that the IMF was poised to get $430 billion to help battle widespread economic woes, also buoyed investors. An announcement to that effect came later in the day.

The Dow Jones industrial average closed up 65 points, ending at 13,029. The S&P 500 posted a 0.1% gain.

A third major market gauge, however, the Nasdaq, dropped, losing 0.2%.

Overseas, Germany's DAX was up 1.1%, and other major stock indexes were slightly higher. Britain's FTSE 100 closed 0.5% higher and the CAC-40 in Paris increased 0.4%.

Stock trend
Dow Jones industrial average, five trading days

A closely watched survey in Germany, the continent's economic powerhouse, showed business optimism rising for the sixth straight month. Most economists expected the index to decline.

A gauge of optimism six months ahead was also positive. Growth in Germany could help weaker nations in the 17-country eurozone as demand for their goods increases.

The world's leading economies are also set to pledge more than $400 billion in new resources to the International Monetary Fund, according to British Chancellor of the Exchequer George Osborne. The U.K., which has long resisted getting pulled into helping the eurozone, promised $15 billion in support.

The first-quarter earnings season, which kicked off last week amid low expectations, has proven to be far better than analysts had expected. Of the 121 companies in the Standard & Poor's 500 stock index that have reported quarterly results, 97 have topped expectations, according to S&P Capital IQ. The 80% "beat rate" is much higher than the 59% of companies that topped forecasts in the fourth quarter of 2011.

At the start of April, cautious Wall Street analysts were calling for year-over-year profit growth of less than 1% for S&P 500 companies. But that estimate appears to have been too conservative and is making it easier for Corporate America to top estimates and reassure investors that profit growth is in no danger of slowing dramatically. As of Friday, thanks to the early batch of better reports, companies in the S&P 500 are now on pace to grow earnings 4.4%.

Earnings growth ticks up

At the start of April expectations for first-quarter profit growth for S&P 500 companies was very conservative. But since then, eight out of 10 companies that have reported quarterly earnings have topped expectations.
Estimated first-quarter earnings growth
As of April 20	As of April 2
4.39%	0.95%
Source: S&P Capital IQ

"The bar was set low and companies have been exceeding expectations," says Andy Brooks, head trader at mutual fund company T. Rowe Price.

Microsoft's (MSFT) solid profit report after the market close Thursday was the key market-moving event, according to Brooks. Microsoft reported a profit of 60 cents per share, topping estimates by two pennies. Better-than-expected sales also added up to a revenue beat for the software maker.

"Microsoft is a bellwether company," says Brooks. "If Microsoft is doing well it might imply that the economy is doing well because its products are used so broadly."

McDonalds (MCD) reported a profit gain of 7% and said its global sales rose 7.3% in the first quarter. General Electric's (GE) earnings topped estimates by a penny and said its profit growth was driven by its industrial segment.

"The positive earnings numbers helped shift the sentiment in the market," says Quincy Krosby, market strategist at Prudential Financial.

On Thursday, the Dow fell nearly 70 points after weaker-than-expected readings on manufacturing, home sales and initial jobless claims, sparked worries that the economic recovery might lose steam as it did in the spring of 2011 and 2010. But the strong earnings reports overshadowed those fears � at least for now.

Brooks said better economic news out of Europe also eased fears about the ongoing debt crisis in the eurozone and allowed investors to focus on better conditions domestically.

Stocks, Brooks added, are also benefiting from a low-interest rate environment, which makes stocks a good alternative to cash, which is yielding around 0%, and 10-year U.S. government notes, which are now paying out less than 2% in annual interest.

Earnings season continues in earnest next week with key reports from homebuilder DR Horton, video company Netflix and energy giant ConocoPhillips.

If the quarter ends with more than 80% of companies topping profit estimates, it will be the highest percentage of companies beating estimates since S&P Capital IQ started collecting data in 2001, according to a report by Michael Thompson, managing director of S&P Global Markets Intelligence.

Tokyo's Nikkei 225 index dropped 0.3%, while South Korea's Kospi lost 1.3%, with the government saying that exports are likely to face headwinds in the second quarter due to Europe's debt crisis and China's slowdown.

Benchmarks in Singapore, Taiwan, India and New Zealand also fell. Australia's S&P/ASX 200 closed marginally higher.

Shares in Hong Kong and mainland China, meanwhile, rose amid expectations that Beijing will soon lower the ratio of deposits that banks are required to hold in reserve � a move that would boost lending. Hong Kong's Hang Seng rose less than 0.1% and the Shanghai Composite Index gained 1.2%.

Despite the hedged optimism on European markets going into the weekend, concerns over some of the continent's largest economies � Italy and Spain � is far from over.

Italy and Spain, the eurozone's No. 3 and 4 economies, are generally seen as too big to bail out � limiting the options of the currency union which has already spent billions rescuing Greece, Ireland and Portugal.

On Monday, the European Union's statistics office will release its figures for 2011 government deficits in the 27-country bloc. Spain's deficit, which was 8.5% of economic output according to the Spanish government, will be under close scrutiny with investors eager to see the reasons for the unexpectedly high financial shortfall.

Contributing: The Associated Press.