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Caterpillar Inc.

Stocks end higher, Ebola scare trims gains

Adam Shell
USA TODAY

What a day. Stocks got a major boost Thursday from a slew of strong earnings reports from companies ranging from heavy equipment maker Caterpillar (CAT) to automaker General Motors (GM).

A trader at his post on the floor of the New York Stock Exchange.

The Dow Jones industrial average came close to having its best day of 2014, but news about a New York City doctor being rushed to a hospital on Ebola fears trimmed a 300-point gain to 216.58 points for the day. The blue-chip benchmark ended up 1.3% to close at 16,677.90.

The Standard & Poor's 500 index rose 23.71 points, 1.2%, to close at 1950.82, while the tech-laden Nasdaq composite ended up 69.95 points, 1.6%, to finish at 4452.79.

The 10-year Treasury note yield rose to 2.28% from 2.22% as investors jumped out of bonds and back into stocks.

The news flash that a health care worker, who has returned recently from one of the three countries in West Africa where the Ebola epidemic is rampant, was being tested Thursday for the virus at a New York city hospital, was cited as a reason why the Dow's gains were trimmed by about 85 points late in the trading session.

"I gather (the news) didn't help," says Gary Kaltbaum, president of Kaltbaum Capital Management.

Today's rally on Wall Street is part of a larger recovery story for the stock market that began late last week when intense selling pressure suddenly reversed course amid a drop in so-called "headline risk," says Katrina Lamb, head of investment strategy and research at MV Financial.

Lamb points out that the both the S&P 500 and Dow have been able to climb back above their average price levels over the past 200 days after dipping briefly below that closely watched 200-day moving average last week. Stocks are considered in an uptrend when the major stock indexes are trading above that key long-term trend line.

Better-than-expected profit reports in the transportation sector, where companiesSouthwest (LUV) and United Continental(UAL) topped forecasts, and the media space, where Comcast(CMCSA) beat expectations -- set up the market for a good day.

The batch of strong earnings is easing fears that economic slowdowns in Europe and China will have a meaningful negative impact on U.S. growth.

Earnings beats from two Dow components, Caterpillar and conglomerate 3M (MMM), are helping to erase Wednesday's losses, which were due in part to profit-taking after a few big up days in a row and news reports of a deadly shooting in Ottawa, which sparked initial fears of terrorism.

"Wall Street is taking the earnings news as a signal that the global slowdown that everyone was worried about is unlikely to be as pronounced as feared earlier," says Kate Warne, investment strategist at Edward Jones.

Warne stresses that earnings reports that will flood the market the next two weeks will continue to drive the direction of stock prices, either up if they come in strong or down if the profit news turns downbeat.

Lamb of MV Financial calls the recent market swoon, which knocked the S&P 500 down 9.5% -- very close to the 10% correction level -- as a "little squall" that hits the market from time to time, but is nothing more than a short-term hiccup in the bigger uptrend.

Investors also reacted Thursday to the latest weekly reading on initial jobless claims, which rose 17,000 to 283,000. While that was slightly above the estimate of 281,000 people seeking first-time unemployment benefits, the important four-week moving average – which smooths out short-term noise in the numbers – came in at 281,000, its lowest reading since May 2000, according to UBS.

More good news comes from overseas, as analysts including Alex Eppstein of Schaeffer's Investment Research note: The economy in Europe may be looking up. A closely followed purchasing managers' index, or PMI, edged up in October in Germany, topping expectations. The PMI came in at 54.3, a tad higher than estimates but investors focused on the manufacturing component, which rose to a three-month high.

Europe benchmarks started the day in the red and closed up. The DAX of Germany powered 1.2% higher. Major Asia indexes all lost, the Nikkei of Japan off 0.4%.

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