Dow wipes out loss to give investors profit for year

Analysts predict the worst is nearly over and the economy is starting to climb out of recession.

The Dow Jones Industrial Average erased its loss this year, becoming the last major United States stock gauge to give investors a profit for the year, as confidence increased that the worst recession since World War II is ending.

The Dow, down 25 per cent on March 9 after its worst start to a year, completed the recovery on Friday after rising four straight weeks.

American Express, the biggest US credit-card company by purchases, and International Business Machines, the largest computer-services provider, are up the most this year among the average's 30 companies.

Speculation that US$12.8 trillion in government spending would revive growth helped push the Dow above breakeven after the bankruptcy of General Motors and more than US$100 billion of losses at Citigroup led the gauge lower.

The 113-year-old average wiped out its loss this year two weeks after the S&P 500 and nine weeks after the Nasdaq Composite Index. "We're reaching a bottom in the economy and looking forward to the climb out," said Hans Olsen, who helps oversee US$120 billion as chief investment officer of JPMorgan Private Wealth Management in New York.

"The Dow erasing its losses is clearly good news. The Dow holds a special place in investor psyche."

US stocks rose last week, pushing the S&P 500 to the highest level since November, after oil's climb above US$72 a barrel drove energy stocks to a seven-month high.

Schlumberger and Halliburton have gained more than 5 per cent since June 5 as oil rallied.

Bank of America soared 16 per cent after analysts at Morgan Stanley and Stifel Financial raised their profit estimates for the lender.

A measure of utilities jumped 3.8 per cent, the most among the S&P 500's 10 industries last week.

Goldman Sachs Group said in a June 11 report that it was becoming bullish on the group because of its higher dividend yield compared with the payout on 10-year Treasuries.

The S&P 500 Utilities Index has a yield of 4.66 per cent, compared with 3.79 per cent on the 10-year note.

The Dow climbed for a fourth week, increasing 36.13 points, or 0.4 per cent, to 8799.26. It ended 2008 at 8776.39. The S&P 500 added 0.7 per cent to 946.21.

"We're still relatively optimistic towards the equity market," said Marc Harris, co-head of global research at RBC Capital Markets in New York.

"In the short term, we may be stalled out, but we're starting to see the right kind of recovery."

The Dow, now up 0.3 per cent this year, has risen 34 per cent from a 12-year low on March 9 in the steepest 68-day rally since November 1982, the start of a bull market that lasted five years.

Bank of America and American Express increased the most during the surge, jumping 266 per cent and 136 per cent respectively.

American Express is up 36 per cent this year.

It reported more first-quarter profit than analysts estimated and won approval to repay the Government's Troubled Asset Relief Programme.

IBM has gained 29 per cent this year as the world's biggest computer-services provider increased its dividend by 10 per cent to expand shareholder returns after scrapping a bid to buy Sun Microsystems.

Sixteen of the 30 companies that began the year in the Dow remain lower for this year.

Last week, Wall Street Journal editors who oversee the gauge kicked out the two worst-performing companies, Citigroup and GM, and replaced them with insurer Travelers and Cisco Systems, the biggest maker of network equipment.

Pfizer, the drugmaker, and General Electric, maker of power-plant turbines that got 33 per cent of its operating profit last year from lending, have both slumped 17 per cent since December 31.

New York-based Citigroup, once the world's biggest financial company by assets, and Detroit-based GM, formerly the largest carmaker, have plunged 48 per cent and 63 per cent this year, respectively.

The first global recession in seven decades crippled their earnings.

The Dow turned positive this year for the first time since January 6 as better-than-estimated data on unemployment claims and retail sales bolstered confidence that the economy is recovering.

The Conference Board's measure of leading economic indicators, including stock prices and manufacturing, increased in April for the first time since last June.

"If you're a long-term investor, this is a great time to buy," said Frank Ingarra, the Connecticut-based manager of the $167 million Hennessy Focus 30 Fund that beat 98 per cent of its peers in the past five years.

"People are starting to get the feeling that they're missing out on something big."

- BLOOMBERG