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BusinessWeek.com
October 12, 2006
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Dow: Next Stop, 12,000?

The blue-chip average topped 11,900 Thursday on good news from McDonald's and Costco. The Fed's Beige Book report showed continued growth

Wall Street touched another new milestone Thursday, as the Dow industrials passed 11,900 for the first time en route to a new all-time closing high. The blue chip benchmark ended the session within 53 points of the 12,000 mark. Stronger-than-expected earnings reports and the moderate tone of the Federal Reserve's Beige Book report helped cheer investors.

On Thursday, the Dow Jones industrial average rose 95.57 points, or 0.81%, to 11,947.7, its best-ever close, after reaching a fresh all-time intraday high of 11,959.63during the session. The broader Standard & Poor's 500 index added 12.88 points, or 0.95%, to 1,362.83. The tech-heavy Nasdaq composite climbed 37.91 points, or 1.64%, to 2,346.18.

NYSE breadth was decidedly positive, with 26 issues advancing for every 7 declining. Nasdaq breadth was 23-7 positive.

Recent economic figures suggest a bullish scenario for economic growth and inflation, some analysts say. "The market's really in a sweet spot in terms of the economic data, and it's driving prices higher," says Chris Johnson, managing quantitative analyst at Schaeffer's Investment Research.

The Fed's Beige Book report provided the bulk of the upbeat economic news Thursday. The report showed continued economic expansion, with tight labor markets in some districts. Its moderate tone was in line with expectations and less hawkish than the FOMC minutes released the previous day, says Action Economics.

The Fed's report noted "few signs of increased pricing pressure" and "generally modest" wage growth, analysts noted. This benign outlook suggests the Fed can successfully guide the economy to a soft landing, says Standard & Poor's Equity Research.

Elsewhere on the economic front, the U.S. trade deficit unexpectedly widened to a record $69.9 billion in August after a $68 billion deficit in July. Jobless claims rose 4,000 to 308,000 in the week ended Oct. 7, from an upwardly revised 304,000 a week earlier.

On Friday, retail sales numbers may give investors further clues on the health of the economy. September retail sales are expected to rise 0.2%, holding flat excluding automobiles, according to Action Economics. The economic docket also holds August business inventories and September trade prices.

In corporate news Thursday, McDonald's (MCD) was higher after the fast-food giant said third-quarter sales would be better than forecast following a 7.7% increase in September same-store sales.

Shares of Costco (COST) rose as the wholesale club operator's fourth-quarter results topped Wall Street expectations. In August, Costco lowered its fourth-quarter earnings forecast, citing markdowns on big-ticket items like furniture and big-screen TVs.

Among other stocks gaining on stronger-than-expected quarterly earnings were motorcycle maker Harley-Davidson (HOG ) and fast-food chain operator Yum! Brands (YUM ).

Beverage maker Pepsico (PEP) reported a 71% jump in third-quarter profit, but shares fell after initial gains as the company's full-year outlook missed Street projections.

Companies set to report earnings Friday include Dow component General Electric (GE ).

In the energy markets, November West Texas Intermediate crude futures rose 27 cents to $57.86 a barrel, after a weekly report showed larger-than-expected increases in oil and gasoline inventories alongside an unexpected decline in distillate supplies.

European markets finished higher. In London, the FTSE-100 index rose 47.8 points, or 0.79%, to 6,121.3. Germany's DAX index added 40.83 points, or 0.67%, to 6,160.28. In Paris, the CAC 40 index was up 48.32 points, or 0.91%, to 5,361.51.

Asian markets ended mixed. In Japan, the Nikkei 225 index slipped 31.76 points, or 0.19%, to 16,368.81. In Hong Kong, the Hang Seng index edged up 10.3 points, or 0.06%, to 17,873.09. Korea's Kospi index gained 6.29 points, or 0.47%, to 1,331.78.

Treasury Market

Treasury prices drifted ahead of Friday's retail sales report. The 10-year note was little changed at 100-24/32 for a yield of 4.78%, while the 30-year bond was also flat at 93-22/32 for a yield of 4.91%.