The Dow’s gains keep trickling in

The stock market’s rally this spring may feel like the equivalent of someone dropping small change into your retirement account every day: It’s a slow process, but the money is adding up.

The Dow Jones industrial average rose Monday for the 24th time in 27 trading sessions, a streak the blue-chip index last achieved in the Roaring ‘20s.

The day’s gain was typical of the market’s advance over the last two months. The Dow notched yet another record high, but without much flash, except for a sharp jump in shares of aluminum giant Alcoa Inc. after it made a takeover bid for rival Alcan Inc.

The 30-stock index rose 48.35 points, or 0.4%, to 13,312.97.

A series of modest gains this spring has left the Dow up 6.8% year to date, and the broader market also has climbed. That has meant a healthy start to the year for many investors’ mutual fund balances in popular 401(k) retirement savings plans.

The average domestic stock fund is up 7.2% this year, after rising 12.6% for all of 2006, according to Morningstar Inc.

Despite a slowdown in the U.S. economy, stocks have been boosted by a continuing wave of takeover activity and by surprisingly strong first-quarter earnings reports, analysts say.

Expectations were that profit growth would be dismally weak because of the downshifting economy.

Instead, companies in the Standard & Poor’s 500, the broadest blue-chip index, are on track to post an 8.1% rise in first-quarter operating earnings compared with a year earlier, according to earnings tracker Thomson Financial.

That would be more than double the meager 3.7% increase analysts had estimated as of April 1.

Abby Joseph Cohen, chief investment strategist at Goldman Sachs Group in New York, on Monday raised her full-year earnings forecast for the S&P; 500 companies, “reflecting the solid start to the year in many industries,” she said in a report to clients.

She noted that strength in overseas economies, particularly Europe, was underpinning profit growth for many U.S. multinational companies, offsetting slower domestic demand.

Cohen also lifted her year-end estimate for the S&P; index from 1,550 to 1,600. That would mean a 6% gain from Monday’s closing level of 1,509.48.

The S&P; index is nearing its all-time closing high of 1,527.46 reached March 24, 2000 -- the zenith of the last bull market.

That market peak was marked by frenzied buying of shares, mainly technology issues. In the 3 1/2 -week period leading up to its all-time high in 2000, there were six trading days during which the S&P; 500 index rose at least 1.5% per session.

By contrast, the index has posted just one gain exceeding 1.5% in the last two months.

The lack of frantic buying is comforting to bullish analysts who say a slow-but-steady advance may mean the rally has a better chance of sustaining itself.

Investors also have been encouraged by the ongoing wave of merger activity because it suggests that corporate and private equity buyers believe they can still grab bargains at current share prices.

Alcoa said Monday that it made an unsolicited offer of $73.25 a share, or nearly $27 billion, for rival Alcan. Alcoa said it wanted to gain more critical mass to take on global competitors such as Russia’s Rusal.

The news drove Alcan’s shares up $21.08, or 35%, to $82.11, well above the offer price, as traders bet that Alcoa would have to raise its bid or be trumped by another buyer.

Alcoa’s shares surged $2.97, or 8.3%, to $38.63. In takeover offers, shares of the buyer often decline on the news. But investors may be hoping that a deal would reenergize Alcoa, which has badly lagged behind shares of many other commodity companies over the last three years.

Or, some investors may be figuring Alcoa itself may become a target.

Many large companies are flush with cash from the long economic expansion. And private equity firms remain on the hunt, looking for companies they can take private in the hope of selling the business down the road for more than they paid.

New York-based Fortress Investment Group, a major private equity firm, said Monday that it was launching a $5-billion buyout fund.

Investors’ appetite for more mega-deals may have been whetted on Sunday by billionaire Warren E. Buffett. After the annual meeting of his company, Berkshire Hathaway, he said at a news conference that he would like to make a “huge” acquisition if he could find the right opportunity. He later told Bloomberg News that a $60-billion deal was within the realm of possibility.

Even as the fundamentals seem to look healthy for Wall Street, some analysts can’t help but wave caution flags.

Bob Howard, who writes the Positive Patterns market newsletter from Turners, Mo., told subscribers Monday that it would be smarter to wait for a pullback than to jump in now.

Stocks also had a good run in the first 4 1/2 months of 2006 -- until the Federal Reserve met May 10 of last year and disappointed investors who expected the central bank to stop raising short-term interest rates at that meeting. Instead, the Fed’s warning of more credit-tightening to come helped trigger a market slump that lasted five weeks.

The Fed meets again Wednesday. This time, policymakers are expected to keep their key short-term rate at 5.25%, where it has been since June 29. But many Wall Street pros are hoping that the Fed will hint at the possibility of rate cuts in the second half of this year.

As for the Dow’s best winning streak since 1927, according to Dow Jones data, some investors naturally may wonder whether the rally is a sign that history will repeat -- meaning that this may be leading up to a crash on par with the 1929 market collapse.

Even if it is, the 1927 streak was followed by two years of rising prices before the bull finally died, noted Steve Todd, editor of the Todd Market Forecast newsletter in Crestline, Calif.

The recent market trend, he said, “is most likely a sign of strength [rather] than one of impending doom.”

tom.petruno@latimes.com