While you were sleeping Wall Street touches high

Thursday 14th February 2013

While the Standard & Poor's 500 Index touched a fresh five-year high shortly after opening, it failed to hold those gains as investors sought to assess the impact of President Barack Obama's second-term initiatives.

With a focus on renewing America's middle class, President Obama announced in his State of the Union address last night plans to lift the minimum wage to US$9 an hour, from the current US$7.25. Among OECD nations, 10 countries pay a higher minimum wage than the US, with Australia topping the list at a minimum wage equivalent to US$15.75, according to Business Insider.

House Speaker John Boehner expressed doubt about the plan. "When you raise the price of employment, guess what happens? You get less of it," Boehner told reporters today in Washington. "Why do we want to make it harder for small employers to hire people?"

As the American earnings season is drawing to a close, it has proved to be a far better one than feared-a key reason investors have been pouring money into equities.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.3 percent, according to Thomson Reuters data, exceeding a 1.9 percent forecast at the start of the earnings season.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.31 percent. The Nasdaq Composite Index rose 0.22 percent. The S&P 500 was steady at 1,519.46, after earlier climbing as high as 1,524.69, the highest since November 2007.

"I was expecting a 12-15 percent return on the S&P for the whole year of 2013, and we have done about half of that in just 5-6 weeks," Jack De Gan, principal at Harbor Advisory in Portsmouth, New Hampshire, told Reuters.

"We will hit resistance, but the fundamentals and micro picture are looking good, so if there is a correction it's going to be a brief one."

US retail sales advanced 0.1 percent last month, following a 0.5 percent increase in December, according to a Commerce Department report. Economists blame higher taxes in January for the tepid gain.

"We are starting to see the impact of higher taxes, but we have a positive wealth effect from increasing house prices and a boost from equities," Robert Dye, chief economist at Comerica in Dallas, told Reuters. "My expectation is that consumers are able to continue to increase spending but only moderately."

Among the gainers today were shares of General Electric, last up 3.3 percent, and Comcast, last up 4.3 percent, after GE agreed to sell its remaining stake in NBC Universal to Comcast for US$16.7 billion. GE announced plans to return US$18 billion to shareholders as it continues to refocus on its core industrial businesses.

In Europe, the Stoxx 600 Index finished the day with a 0.4 percent gain from the previous close. Germany's DAX climbed 0.7 percent, while the UK's FTSE 100 and France's CAC 40 both rose 0.3 percent.

The recent round of corporate earnings is bolstering optimism that the region's economy is showing signs of recovery. About 54 percent of western European companies that have reported earnings since January 8 surpassed analysts' projections for profit, according to Bloomberg data, while 51 percent beat revenue forecasts.

The pace of production rose at a faster clip than expected at the end of 2012. Factory production in the euro zone increased 0.7 percent in December, after dropping a revised 0.7 percent in November, according to data by the European Union's statistics office released today.

In London, Bank of England chief Mervyn King said there was little else that the central bank could do to bolster growth. He also said the bank doesn't expect inflation to reach its target until 2016.

BusinessDesk.co.nz

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