Stocks close at session highs on earnings

By Abby Schultz, CNBC.com

Stocks gained, closing at the highs of the session after starting the week in a sharp slide in the wake of Standard & Poor's revised outlook for U.S. long-term debt as largely positive earnings propelled stocks higher.

The Dow Jones Industrial Average rose about 52 points a day to close at about 12,505, after technology stocks sparked a rally that sent the blue-chip index to a nearly 3-year high.

Among Dow components, Travelers, IBM and Alcoa gained, while Pfizer and Verizon fell.

The S&P 500 rose 0.5 percent, ending shy of new highs, while the Nasdaq also gained. The CBOE Volatility Index fell below 15, nearing lows from June 2007.

Most key S&P 500 sectors gained, led by materials and technology.

"After a bit of a rough start with names like Bank America, Google and Alcoa, companies are starting to come through with solid reports, as investors had expected," said Michael Sheldon, chief market strategist at RDM Financial.

More companies have been beating on the top line instead of the bottom, indicating they are still able to increase their profit margins, Sheldon said.

"There's a large debate going on about how much higher margins can go to help boost profits since we’re already at or near record levels," he added. "I think as we go along for the next couple quarters and into 2012 especially, corporate earnings will be driven by revenue growth as opposed to increases in margins."

So far, earnings are up 18.2 percent for the 137 companies that have reported so far (representing 27 percent of all S&P 500 companies), according to Thomson Reuters. Of the firms that have reported, 75 percent have delivered results ahead of estimates, Thomson Reuters said.

S&P revised its outlook for U.S. debt to "negative" from "stable" because of the inability of lawmakers to tackle the nation's rising deficit. That question will take center stage in hte markets again before long, but Raj Mahajan, president, of SunGard Global Trading, says markets are likely to remain wobbly until investors know whether Congress will be taking its cues from Sen. Paul Ryan's plan, which calls for deep budget cuts, or President Obama's plan, which calls for some tax increases and reinvestment in the country infrastructure.

"Until the market knows the answer to that question, we’ll have a sustained period of choppiness," Mahajan said.

Pfizer took a hit in mid-afternoon trading after reports that four patients died in a clinical trial of an experimental treatment for rheumatoid arthritis, Dow Jones reported. Abbott Labs, which has a competing drug, gained.

Verizon sank despite reporting strong growth, helped by sales of the iPhone as investors focused on the implications for Verizon's profit margins, which dropped, and the fact Verizon didn't add as many iPhone subscribers as analysts had expected, according to Reuters.

General Electric slid despite delivering an 80 percent gain in first-quarter earnings and raising its quarterly dividend by 1 cent to 15 cents, its third hike since July. The diversified manufacturer benefited from a boost in business spending, but some analysts noted that the firm's revenue results may have been inflated by a longer fiscal calendar. GE is a minority shareholder in CNBC.

And McDonald's fell despite beating expectations on strong sales throughout all regions as the fast-food chain said it planned small price increases to cover some, but all, of its increased food costs, Reuters said.

But Travelers soared after reporting a 30 percent jump in profits Thursday, thanks to a gain in investment income. Net profit rose to $839 million, or $1.92 a share, from $647 million, or $1.25 a share, a year earlier. The insurer raised its dividend 14 percent to 41 cents a share.

Morgan Stanley jumped despite a drop in profit as its results beat expectations.

Dupont gained after reporting a 27 percent rise in quarterly profits, thanks to double-digit sales growth in all of its business units.

And Schlumberger advanced after reporting a 40 percent gain in first quarter profits, although the results were slightly less than expected. The company gave an upbeat outlook, though.

The tech rally continued after the market closed on Wednesday when Apple delivered results powered by sales of iPhones and Macs that easily topped what analysts had expected.

In other earning news,

Dow component American Express also beat earnings estimates on both the top and bottom lines after the bell on Wednesday.

Regional bank BB&T sank despite a 21 percent gain in profits as the bank didn't need to set aside as much money to cover loan losses. PNC Financial Services traded slightly higher, however, after reporting a 24 percent gain in profits.

Citigroup, meanwhile, traded slightly lower as the bank met with criticism from shareholders at its annual meeting.

Qualcomm was among tech companies leading the sector higher. Demand for the company's technology in smartphones sent the company's fiscal quarter earnings up 29 percent, the company reported on Wednesday.

In IPO news, 21Vianet Group, an Internet data services provider based in China, soared more than 20 percent after being priced at $15 a share.

In other company news, BP has filed a lawsuit against Halliburton, which cemented the blown-out well which caused the oil spill in the Gulf of Mexico, and agains the rig's owner Transocean.

In related news, the U.S. Department of Justice said BP agreed to provide $1 billion for resotration projects in the Gulf of Mexico.

And Italian carmaker Fiat has agreed to pay $1.27 billion for another 16 percent stake in Chrysler.

The dollar traded at a three-year low against a basket of major currencies after the weak U.S. economic news was released. Gold futures hit a new record settling high, rising 1.2 percent this week to $1,503.20 an ounce. Silver gained 8.21 percent this week to close at $46.06, the highest close since Jan. 18, 1980.

Oil prices traded mixed. London Brent crude for June delivery was down slightly to just below $124 a barrel, while U.S. light crude for June delivery rose above $112.

The Philadelphia Fed Survey surprisingly sank in March to 18.5 from 43.4 a month ago, indicating a slowdown in Mid-Atlantic manufacturing. The index of leading indicators, however, rose 0.4 percent to 114.1 in March, according to the Conference Board. The gain was more than expected, and marked the ninth straight rise.

Earlier, the Labor Department reported that initial claims for unemployment fell by 13,000 to 403,000 last week from an upwardly revised level of 416,000 the week before, the Labor Department said. The government had previously reported claims were 412,000.

The four-week moving average of claims rose 2,250 to 399,000. The four-week average has now been below that level for eight weeks.

In Europe, earnings pushed stocks to a one-week high.