STATE OF BUSINESS: Bad Earnings & Good Stocks

A heavy stream of first-quarter earnings reports last week showed many important companies down sharply. To the surprise of some and the relief of many, Wall Street reacted more with a yawn than a yowl. Stocks on the Dow-Jones industrial average climbed higher on four of the five trading days, wound up at 449.31 with an eight-point weekly gain, 30 points above the low.

After dropping 20% from its bullmarket high, the Big Board has already discounted the recession—at least in its current state—and is looking ahead for the upturn. The 20% decline is perhaps too conservative, since it counts...

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