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Stocks gain on earnings; fake tweet shakes stocks

Glenn Kessler, right, works at the New York Stock Exchange. Stocks had a tumultuous day on Tuesday.
Glenn Kessler, right, works at the New York Stock Exchange. Stocks had a tumultuous day on Tuesday.
Associated Press

NEW YORK — Companies that do the best when the economy is improving led the market higher Tuesday after several of them reported strong quarterly earnings.

Coach, a maker of luxury handbags, and Netflix, which streams TV shows and movies over the Internet, were winners after announcing profits that impressed investors. Financial stocks rose after Travelers' earnings beat the expectations of financial analysts who follow the company.

That's a change from earlier this year. The stock market's surge in 2013 has been led by so-called defensive industries such as health care, consumer staples and utilities. Investors buy those stocks when they're unsure about the direction of the economy and want to own companies that make products people buy in bad times as well as good. Until now, they've been less enthusiastic about stocks of companies that provide discretionary goods and services and do best in good times.

"For a change we are actually seeing more cyclical parts of the economy lead the market," said Michael Sheldon, chief market strategist at RDM Financial Group.

The Dow Jones industrial average and the Standard & Poor's 500 index both rose 1 percent, and for a third straight day.

Stocks closed higher even after all financial markets were shaken in the early afternoon when a fake tweet on The Associated Press Twitter account prompted a sudden sell-off.

A posting saying that there had been explosions at the White House and that President Barack Obama had been injured was sent at 1:08 p.m. The Dow immediately plunged 143 points, from 14,697 to 14,554. The AP said its Twitter account had been hacked and the posting was fake.

Within five minutes, the Dow had snapped back.

AP spokesman Paul Colford said the news cooperative is working with Twitter to investigate the issue. The AP disabled its other Twitter accounts following the attack, Colford added.

Joe Fox, chairman and co-founder of online brokerage Ditto Trade, was at work in Los Angeles when he got a call from his Chicago brokerage offices telling him what had happened. Fox watched the market tanking, and its quick bounce back.

"It was a topsy-turvy rollercoaster for a few minutes there," Fox said.

After the brief sell-off, investors turned their focus back to earnings.

Netflix soared $42.62, or 24 percent, to $216.99 after reporting a big gain in subscribers in the first quarter. Coach jumped $4.96, or 11 percent, to $55.55, after it announced higher sales in North America, beat earnings forecasts from financial analysts and raised its dividend. Travelers rose $1.77, or 2.1 percent, to $86.35. The insurer paid out less in claims compared with the premiums it took in

So far, 69 percent of companies that have reported earnings for the first quarter have beaten analysts' expectations, better than the 10-year average of 62 percent, according to data from S&P Capital IQ.

Still, profits are expected to rise just 2.3 percent, slower than the 7.7 percent growth in the fourth quarter.

There are still plenty of earnings for investors to get through this week.

Tuesday's upturn in stock markets put both indexes back in the black for April and closer to the record highs they reached on April 11. It was a sharp change of tone from last week, when the market had its worst weekly drop since November. That sell-off started after economic growth in China, the world's second-largest economy, slowed.

The yield on the 10-year Treasury note rose to 1.71 percent, from 1.70 percent late Monday.