Tepid Profits, Roaring Stocks; A Passable Earnings Season Can't Dissuade Investors, Who Have Few Other Options
A so-so first-quarter earnings season hasn't dented investors' enthusiasm for stocks.</br></br>Profit at large U.S. companies modestly exceeded Wall Street analysts' expectations, while revenue was weak and many companies ratcheted down growth projections.</br></br>But stock prices have been rising, with the Dow Jones Industrial Average up 16% for the year and 4.2% since earnings season began April 8 with a mixed report from aluminum company Alcoa Inc.</br></br>The developments have added up to a rise in stock-market valuations. The price/earnings ratio on the Standard & Poor's 500-stock index now stands at 14.5, its highest level since 2010.</br></br>Stock-rally skeptics said that spells trouble. They contend soft U.S. economic growth and expanding P/E multiples can't coexist forever. Economists predict U.S. gross domestic product will expand at a slower rate in the second quarter than the first, when it increased at a 2.5% annual rate. Government spending cuts known as the sequester came into effect March 1. The Labor Department said Thursday that initial jobless claims increased by 32,000 to a seasonally adjusted 360,000 in the week ended May 11, the largest one-week gain since November.