Money's Got to Go Somewhere

Investors just have to put their money to work somewhere and most of them opted for US equities again today. With volume on the moderate to light side - as it has been during most of this recent upturn - all major indices recorded happy gains to close out the week.

Dow 12,612.13 +59.17; NASDAQ 2,491.94 +11.62; S&P 500 1,452.85 +5.05; NYSE Composite 9,522.86 +45.10

The joy wasn't spread broadly, however, as Merck was the standout on the Dow, leaping 3.85 - a gain of more than 8% - on positive news regarding Vioxx lawsuits and improved first quarter and full year outlooks. Merck's move accounted for more than 26 of the Dow's 59-point gain.

Late Thursday, Merck released guidance, saying that first quarter earnings would come in around 84 cents per share. Analysts had been widely expecting 64 cents. The company's full year guidance was also boosted by about 20 cents per share.

In New Jersey, a federal court judge threw out an investor class action lawsuit on statute of limitations grounds while the Wall St. Journal reported that a Texas judge was about to throw out a key Vioxx case. Such a move would defang another 1000 cases in the state which Merck is appealing.

All in all, Merck could not have asked for better news as Goldman Sachs analyst James Kelly upgraded the company to Neutral from Sell.

Elsewhere, good news from GE and Cisco boosted techs and blue chips alike, with the NASDAQ rising off the flatline late in the day on Cisco's suggestion that the 1st quarter would come in at the high end of estimates.

Company news overshadowed a 1% rise in the Producer Price Index (PPI), though core PPI, excluding food and energy, was tame, increasing only 0.4%. Even though the PPI number may not have been alarming to most, some speculated how hard the figures would impact Fed policy and that kept buying volumes somewhat restrained. Indeed, if energy and food accounted for a rise of 0.6% in just one month, that translates to an increase in those "non-core" (shouldn't they actually be "core"?) elements of 7.2% over the course of the year. That would be cause for concern, and there's plenty of evidence - as noted in yesterday's posting - that food prices may be headed higher. As for energy costs, they're already too high.

Advancing issues outpaced decliners by nearly a 5-3 margin and new highs surged to 411 against just 56 new lows, again indicative of a possible breakout. These figures continue to jump around without providing solid indications.

Crude slipped 22 cents to $63.63, but gold and silver, reflecting the resumption of inflationary pressures, responded with sizable gains. Gold was boosted 10.20 to close at $689.90, while silver approached recent high territory, adding 24 cents to $14.09 per ounce.

With earnings dominating the news, inflation fears may be shoved aside for the next few weeks, at the peril of many unseasoned investors. The Fed doesn't meet until May 9, which may already be too late to forestall the effects of higher inflation. Look for choppy trade until then, as the possibility of a Fed rate hike becomes a serious consideration.