Wall Street opened higher today, as the growing list of US companies producing better-than-expected quarterly earnings encouraged investors to buy equities.

However, trading is beginning to appear somewhat cautious, with the S&P 500 struggling to maintain gains above the 950 level so far today.

Caterpillar, a major manufacturer of industrial equipment, soared 12% to $41.07 a share this afternoon after surprising the market with earnings of 72 cents a share which was substantially above Bloomberg’s analyst’s estimates.

The company explained that it was cost cutting, the US government’s stimulus programs, improved credit markets and the stabilising in demand for bulldozers and excavators that had helped the company’s bottom line.

Caterpillar said it now expects its full-year earnings to come in between $1.15 and $2.25 a share and revenues to range from $32 billion to $36 billion. Once again, above Bloomberg’s expectations of $1.12 a share; while revenues were in line with forecasts.

Although Caterpillar’s second-quarter results were stronger than expected, they compare less favourably with the previous years; second-quarter net income more than halved to $371 million or 60 cents a share, from $1.11 billion or $1.74, the year before. In addition, its quarterly revenues sank 41% to $7.98 billion, trailing Bloomberg’s average estimate of $8.7 billion.

Drug maker Merck also produced stronger-than-expected earnings today, which have led investors to believe that the recent stock market rally may have a healthy foundation after all.

Merck, a Dow component, advanced 5.5% to 29.47 a share after unveiling second- quarter earnings of 82 cents a share, beating Reuters estimates of 77 cents a share. The drug maker’s net income came in at $1.59 billion, or 74 cents a share, down 10% from the $1.77 billion, or 82 cent earnings per share, the year before. Its second-quarter revenues, meanwhile, sank 3% from a year ago to $5.9 billion.

The company’s bottom line was helped by a rebound in sales for asthma drug Singulair as well as a 10% decline in marketing and administration expenses. It also benefitted from favourable tax settlements. Merck also said that it expects its acquisition of Schering-Plough to close in the fourth quarter.

Going forward, Merck maintained its full-year 2009 profit forecasts of $3.15 to $3.3 a share and said that its full-year revenues are likely to come in between $23.2 billion and $23.7 billion.

Chemical maker DuPont and beverage giant Coca-Cola also produced earnings that exceeded analyst estimates, yet the former traded 0.2% lower at $28.28, and the latter declined 0.80% to $50.60 a share.

Technology shares were also trading lower, with Apple, which scheduled to release its second-quarter results later today, down 0.9% to $151.65 and Texas Instruments 3.35% lower at $22.82 – after management failed to provide a convincing outlook this year. The company reported second-quarter net income of $260 million, equivalent to 20 cents a share. This was marginally higher than Bloomberg’s 19-cent average projection but more than half of last year’s $588 million, or 44 cent a share profit. The chip maker said it expects earnings to come in between 29 and 39 cents a share this year.

United Technologies was among the casualties, meanwhile, declining 1.5% to $54.11 after posting a 23% drop in profits. The company lowered its 2009 full-year earnings on the back of weaker-than-expected demand for equipment.

By 3:30pm (London time), the Dow Jones Industrial Average had advanced 59.03 points (+0.67%) to 8907.18, while the wider S&P 500 had edged 0.94 points higher (+0.10%) to 952.07. The Nasdaq, meanwhile, had declined 1.41 points (-0.09%) to 1542.59.

It is also important to note that Federal Reserve Chairman Ben Bernanke was in focus today. At his semi-annual congressional testimony held this afternoon, Mr Bernanke said the US economy was showing ‘tentative signs of stabilisation’. He also indicated that the Fed will start to tighten monetary policy once the economy starts to show greater signs of recovery, mentioning falling unemployment as one of the perquisites. He also spoke about exit strategies and mentioned that the country’s record deficit needs attention, as it poses a threat to recovery.

By Anthony Grech, Research Analyst, IG Index.

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