After two straight days of massive gains for the stock market, most investors would have expected at least a small pullback for the major market averages on Friday to close out a strongly positive week. Yet despite yesterday's gains of more than 400 points, the Dow Jones Industrials (DJINDICES:^DJI) continued rising, albeit at a modest pace. As of 11 a.m. EST, the Dow was up 13 points, adding to its 700-point climb of Wednesday and Thursday, and the S&P 500 was also up slightly. Yet what makes the move even more surprising is that Dow component Nike (NYSE:NKE) didn't have a greater negative influence on the average, especially with Nike shares falling nearly 4% so far this morning.
Nike reported its fiscal second-quarter financial results Thursday afternoon, and on their face, Nike's prospects looked reasonably strong. Revenue for the athletic shoe and apparel giant jumped 15% from the year-ago quarter to $7.38 billion, and earnings per share soared 25% to $0.74 as the company's margins expanded. Both figures were far above what investors had expected from Nike; the analyst consensus called for sales of $7.15 billion and earnings of $0.70 per share. But bearish investors focused instead on somewhat tepid growth in futures orders, with double-digit percentage gains in North America and China getting offset by more sluggish gains in Europe due to highly adverse currency movements and falling orders in dollar terms from Japan and from Nike's Emerging Markets segment. Moreover, many investors fear the rising influence of rival Under Armour (NYSE:UAA) and other competitors in the athletic apparel business, which have the potential to break Nike's once-unbreakable chokehold on the industry.
Yet investors didn't see Nike's slowing growth as a reason to sell stocks more broadly. More Dow components rose than fell this morning, with strong positive moves from multiple sectors of the market. Financial giant Goldman Sachs (NYSE:GS) led the Dow's gainers with a 1.3% gain, continuing its positive performance after the Federal Reserve expressed its interest in being measured and moderate in the pace of future interest rate hikes. Energy powerhouse Chevron (NYSE:CVX) and chemical specialist DuPont (NYSE:DD) also posted gains of more than 1%, showing the breadth of the market's strength even after such a big rally earlier in the week.
As market participants position their portfolios for 2015, many see the stock market as still presenting the most compelling opportunities. Bonds have low yields, and the prospect of potential increases in rates next year could further erode their returns due to falling bond prices. Meanwhile, with cash investments still paying less than 1% from most sources, even the dividend yields of the stocks in the Dow and S&P 500 easily produce more income.
For now, even many of those investors who are somewhat skeptical about the market environment see stocks as the best choice of a bad lot. Time will tell whether they're correct, but until they change their minds, the stock market is likely to keep performing well.