The majority of fourth-quarter earnings reports are in. While companies such as Caterpillar and Nike reported slower Asian business, investors have concluded that rebounding European economies and the steady expansion of the domestic US economy will boost most companies' earnings in 1998.
"The conclusion from fourth-quarter earnings is that the impact from Asia wasn't so bad," said Richard Pender, money manager at National Life Investment in Vermont.
Analysts said the recent surge in trading volume in New York is a sign that investors are increasingly confident that the worst of Asia's problems are over. An daily average of 676 million shares changed hands on the big board last week, eclipsing January's average of 608 million.
The new optimism was reflected in the performances of the US market's major indices last week. The S&P 500 jumped 3.3 per cent to an all-time high of 1012.46, topping 1000 on Monday for the first time. The Dow Jones gained 3.6 per cent, to 8189.49 and is now just 69.82 points below its record close of 8259.31 set on 6 August.
While profits are expected to hold up even as Asia's economies slow, some investors said the pace of US growth was a concern. Of 385 companies reporting earnings for the fourth quarter, 45 per cent surpassed analysts estimates, 34 per cent fell short and the rest were in line. "The market continues to be priced for perfection," said Thomas O'Neill, chief investment officer at Fleet Investment Advisors.
Oil shares may rally if tensions in the Persian Gulf escalate. The crude price rose 6.1 per cent in the past two weeks on fears that exports from the region could be disrupted if the US attacks Iraq.
Many big US bond firms are advising investors to add to corporate securities holdings, as some stability returns to Asian markets and economies and corporate profits stay on track to rise this year. By contrast, benchmark Treasuries have rallied so much that 30-year bonds began the month with yields near their lowest ever. That makes corporates a better buy, bond strategists said.
Already high-yield bondshave been the best performers so far this year, returning 1.5 per cent since 1 January. That puts returns on track to top 19 per cent this year.
However, some investors are resisting the urge towards corporate securities, betting that the problems in Asia will curb growth and keep investors piling into Treasuries as a safe haven.
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