NEW YORK (Reuters) – Major U.S. stock indexes are at multi-year highs but Wall Street does not seem to be running out of steam, not just yet.
Robust corporate earnings and the Federal Reserve's promise to keep liquidity cheap have fueled the Nasdaq to a 10-year high and driven the Dow and the S&P to their highest levels since 2008.
"We are clearly seeing signs of overbought conditions but there is still a lot of optimism, especially after the S&P broke well above the 1,340 range. The next ceiling is really not until the 1,400 level," said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.
Heading into May, a seasonally weak month for stocks, the Dow and the Nasdaq posted their best monthly performance since December. At Friday's closing bell, the S&P 500 was up 8.4 percent for the year.
With earnings season coming to an end, investors will shift their focus to economic data next week, especially the April employment report on Friday. Investors will scrutinize the jobs data for signs of improvement in the labor market.
After a mixed batch of data this week, investors would need to see a solid gain in jobs to believe in sustainable economic growth. Nasdaq's rebalancing of its index may also cause a bit of a stir in the market next week.
But despite the concerns, options investors were buying less protection against a market correction, according to James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
"It's surprising, but ironically, the put-to-call ratio on S&P 500 rose late last week and early this week, but fell in the last few days," he said.
"We might see some reaction to the overbought conditions depending on the jobs number, but still, that would be a minor pullback, maybe down to test the 1,340 levels."
Other economic data due next week include the ISM manufacturing data and domestic car sales on Monday, the ISM services-sector data on Wednesday, and weekly jobless claims on Thursday.
Nasdaq will be rebalancing its benchmark Nasdaq 100 index on Monday that will slash Apple Inc's (AAPL.O) weighting. The rebalancing will affect the relative weights of all the securities in the index and cause popular index-tracking funds such as the PowerShares QQQ (QQQ.O) to buy and sell shares to match the new composition.
"Apple shares are likely to see some volatility, but unlike 10 years ago, hedge funds and traders start trading on this (the rebalancing) from weeks ahead, so it won't be a huge event on the overall market," said Jack DeGan, chief investment officer of Harbor Advisory Corp in Portsmouth, New Hampshire.
The CBOE Volatility Index or VIX (.VIX), Wall Street's so-called fear gauge, was relatively low, ending Friday's session below 15, although it was up 0.9 percent for the day.
"While conditions of being overbought and oversold can stick around for a while, as a trader, I feel this market is just too complacent. That is why I advocate looking at insurance, but also at this stage in the wave, ride it and not try to swim against it," said Joe Cusick, senior market analyst at Chicago-based online brokerage firm optionsXpress.
The VIX usually moves inversely with the S&P 500, tracking options prices that investors are willing to pay as protection on the price moves of the underlying stocks.
So far, 324 of the S&P 500 companies have reported earnings, of which 73 percent were above analysts' expectations, according to Thomson Reuters data. In a typical quarter, 62 percent of companies beat estimates.
(Reporting by Angela Moon; Editing by Jan Paschal)
SAN FRANCISCO – A federal appeals court rejected a legal challenge Friday that sought to bar implementation of a California regulation meant to reduce greenhouse gas emissions by forcing automakers to make and sell less polluting cars in the state.
The three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled the U.S. Chamber of Commerce failed to identify any members affected by the regulation, and the National Automobile Dealers Association didn't prove its members would suffer future harm.
The suit by those groups argued that the U.S. Environmental Protection Agency should not have granted California a waiver under the Clean Air Act for its emissions program, saying it would create future harm to auto dealers and other businesses.
"Even if EPA's decision to grant California a waiver for its emissions standards once posed an imminent threat of injury to the petitioners — which is far from clear — the agency's subsequent adoption of federal standards has eliminated any independent threat that may have existed," the court wrote.
California's clean car program implements stricter emissions standards on cars starting with 2009 models. The emissions standards get increasingly tougher until 2015. Fourteen other states, including Arizona, New Jersey, New York and Massachusetts have also adopted California's program.
"It is important to note that this decision leaves intact EPA's confirmation that California's vehicle emissions program can address our state's compelling and extraordinary conditions to reduce greenhouse gases and clean our air," said Stanley Young, a spokesman for the California Air Resources Board.
Since the board adopted the state program, EPA has implemented a similar federal program meant to achieve the same greenhouse gas reductions from passenger vehicles and light trucks by 2016.
Further, the court found that automakers, not dealers, are regulated under the program and therefore would likely have the standing needed to proceed with the case. But automakers were not a party to the lawsuit and are barred from challenging the program under an earlier agreement.
The car dealers association said having state and federal regulations is a confusing way to proceed in reducing pollution, and is bad for business.
Returning the nation to a single, national fuel economy standard "would reduce this nation's dependence on foreign oil and harness the power of consumers to put more fuel efficient vehicles on the road," the association said in a statement.
SAN FRANCISCO (Reuters) – Chevron (CVX.N) and Total (TOTF.PA) became the latest big oil companies to post sharp increases in profits as crude prices surged and refining margins improved along with global fuel demand.
The price of oil has risen comfortably above $100 a barrel, putting a squeeze on drivers and raising talk of a U.S. legislative pushback, as global energy demand and unrest in the Middle East and North Africa darken the oil supply picture.
"Growing geopolitical tensions and the aftermath of the earthquake in Japan will shift the balance of the global energy markets," Total Chairman Christophe de Margerie said.
The surge in the price of crude, the oil refiners' main input, has led to a $1 surge in the price U.S. drivers pay for a gallon of gasoline, angering consumers already beleaguered by years of recession, while crimping the recovery.
The oil price-boosted profits also masked production declines for both Chevron and Total, despite the many billions of dollars they spend each year to maintain steady output.
Michael Yoshikami, whose YCMNET fund manages $1.1 billion and owns Chevron shares, saw potential trouble for oil companies now that even U.S. Republicans with eyes on the 2012 election are talking of abandoning oil company tax breaks, along with the very real risk of oil prices falling sharply.
"At that point, it's going to be even worse for the energy companies because they're going to make money, but a lot less money -- they still have to spend on research and development and drilling costs, and they're still going to be vilified," Yoshikami said.
U.S. House Budget Committee Chairman Paul Ryan said on Thursday he supports cutting tax breaks for the oil industry as lawmakers search for ways to battle rising gasoline prices.
Chevron Corp, the second-largest U.S. oil company, reported a larger-than-expected 36 percent rise in earnings on Friday, but said output slipped nearly 1 percent to the oil-equivalent of 2.76 million barrels per day (bpd).
France's Total said on Friday adjusted net income, which excludes unrealized gains related to increases in the value of inventories, rose to 3.1 billion euros ($4.60 billion) in the first quarter, from 2.3 billion a year earlier.
Total's oil and gas output fell 2 percent to 2.37 million bpd in the first quarter.
It was a similar story for BP Plc (BP.L) and Royal Dutch Shell Plc (RDSa.L), though industry leader Exxon Mobil Corp (XOM.N) increased production with the help of its acquisition of natural gas company XTO. (Graphic of Oil Majors Q1 reporting: http://r.reuters.com/kex29r )
Chevron is planning $26 billion of capital expenditure this year, while Total said on Friday it would have to spend between $20 billion and $23 billion annually in the years ahead.
The numbers from Chevron and Total came a day after Exxon and Shell beat estimates with their profits.
Total's (TOTF.PA) report on Friday of a 35 percent increase in profit added to the market glow it enjoyed a day before when it announced it would take a majority stake in U.S. solar power company SunPower Corp.
Shares of Total rose 0.5 percent on Friday to 43.22 euros.
Chevron shares were up 0.5 percent at $109.40 in afternoon trading. The stock has gained 19 percent since the start of 2011, in line with Exxon shares.
(Additional reporting by Matt Daily in New York and Marie Maitre in Paris; writing by Braden Reddall, editing by Matthew Lewis)