Market Dispatches

Market Dispatches3/10/2009 11:40 PM ET

Dow surges 379 in year's biggest rally

Financial stocks set off a big snap-back rally after Citigroup says it's been profitable so far this year. Fed chief Bernanke says the government won't allow big banks to fail. Gold falls below $900. Hovnanian sees weak home sales for some time to come.

By Charley Blaine and Elizabeth Strott

Stocks soared to their biggest one-day gains since mid-November after Citigroup (C, news, msgs), the troubled banking giant, disclosed that it was enjoying its best quarterly performance since 2007.

The Dow Jones industrials closed up 379 points, or 5.8%, to 6,926. The Standard & Poor's 500 Index was up 43 points, or 6.4%, to 720, its first close above 700 in five sessions, and the Nasdaq Composite Index was up 90 points, or 7.1%, to 1,358.

It was the best point for the Dow since Nov. 24 and the blue chips' largest percentage gain since Nov. 21. The S&P 500 and Nasdaq enjoyed the best point and percentage gains since Nov. 24.

Citigroup shares jumped 38.1% to $1.45, by far the best performer among the 30 Dow stocks and third-best among S&P 500 stocks, even if the gain was off a very low level.

Citi's news generated large amounts of buying across financial stocks. JPMorgan Chase (JPM, news, msgs) jumped 22.6% to $19.50. Wells Fargo (WFC, news, msgs) soared 18.5% to $11.81, and Bank of America (BAC, news, msgs) was up 27.7% to $4.79.

General Electric (GE, news, msgs), which has been trading as a financial stock, was up 19.7% to $8.87.

Analysts were skeptical that today's surge, while welcome, was anything more than a bear-market rally. The market has fallen more than 50% since peaking in October 2007; the Dow is off 21% this year, with the S&P 500 down 20% and the Nasdaq off 13.9%.

A number of analysts have suggested that the Dow could fall below 6,000, with the S&P 500 dropping to perhaps as low as 500.

Rallies during big downturns are common and can last a while; futures trading suggest U.S. stocks will open higher. The rally off the market's Nov. 20 closing low lasted nearly seven weeks and saw the Dow rise as much as 19%.

But Michael Binger, a fund manager at Thrivent Asset Management in Minneapolis, offered a bullish slant on the market. "If we’re not at a bottom, we’re pretty close," he told Bloomberg News today. Stocks have fallen so far that they may really be cheap, he said, and governments around the world are enacting big stimulus programs that will eventually lift corporate earnings.

A big test will be whether the S&P 500 can cross 740.61, its intraday low on Nov. 21 before the market rallied strongly. Many traders are watching that level closely now.

Much of the rally was short-covering, buying by short-sellers who were taking profits after the market's big declines in the last week or so.

However, the rally had been building for days. If measured by the gap between current levels and a 200-day moving average, stocks had become very oversold; the S&P 500 closed Monday nearly 35% below its 200-day moving average. Only twice before -- in 1974 and 1982 -- has the gap been that big.

So, the market needed only a trigger to reverse course. In fact, there were three triggers, starting with Citigroup. The other triggers were:

  • A report in The Wall Street Journal that the Securities and Exchange Commission may reinstate the uptick rule, perhaps as early as next month. (An earlier version of this article incorrectly said the decision could come next week.) The rule requires short-sellers to wait until a stock rises before putting in a short position. The rule expired in 2007, and critics say its absence has exacerbated market volatility. Rep. Barney Frank, D-Mass., also said he believes the rule will be reinstated soon.

  • Federal Reserve Chairman Ben Bernanke, who said in a Washington speech that any institution whose failure could threaten the financial system "must receive especially close supervisory oversight of its risk-taking, risk management, and financial condition." Wall Street appeared to interpret that as saying it would take a total disaster to let the institution fail.

The rally is a clear sign that "investors were dying for any piece of news that could be construed as positive," Chris Conefry, a trader at Madison Prop Trading in New York, told MSN Money today. That Citigroup and others could be generating operating profits might quell the fear that's gripped markets this year.

The rally cut across the entire market. Gambling company Wynn Resorts (WYNN, news, msgs) jumped 25.4% to $19.50. Steel maker Steel Dynamics (STLD, news, msgs) jumped 14.1% to $8.91, and appliance maker Whirlpool (WHR, news, msgs) was up 19.2% to $23.11.

Tech stocks were very strong, with all of the stocks in the Philadelphia Semiconductor Index ($SOX.X)showing sizable gains, led by SanDisk (SNDK, news, msgs), up 19.2% to $9.12. Google (GOOG, news, msgs) jumped 5.9% to $308.17. The shares had fallen under $300 on Monday for the first time since Jan. 21.

About the only stocks that did not go up were gold stocks. Gold was down $22.10 an ounce to $895.90, its first close below $900 since Feb. 9. It peaked at $1,002.20 on Feb. 20. Newmont Mining (NEM, news, msgs) fell 7.3% to $35.03.

All of the 30 Dow stocks were higher, the first time that's occurred since Jan. 2. In addition, 487 S&P 500 stocks and all of the stocks in the Nasdaq-100 Index ($NDX.X) had gains. The Nasdaq-100 closed up 69 points, or 6.6% to 1,112.

Hovnanian reports a loss and complains

Until something happens to get foreclosures off the market and stimulate demand, home builder Hovnanian (HOV, news, msgs) said after today's close, its goal is to preserve cash and wait.

Hovnanian said revenue for the fiscal first quarter fell 66% from a year ago to $373.8 million from a year ago.

Stock Charts (Year)

Graphical chart for HOV
The company, which builds homes across the country, said it lost $178.2 million, or $2.29 a share, a wider loss than a year ago's $130.9 million, or $2.07 a share.

Deliveries of new homes was down 66% from a year ago to 1,208. Orders fell to 961 homes, but Hovnanian faces a cancellation rates more than 30%.

The situation isn't likely to turn around soon, CEO Ara Hovnanian said in a statement. "There were no significant provisions designed to stimulate housing demand in the stimulus bill signed into law last month or the subsequent plan to stem foreclosures."

Prospective buyers have to weigh their decisions against a tough economic backdrop, and, he added, "We expect demand for all homes, both new and existing, to remain far below normalized levels."

Shares closed 3.3% higher to 62 cents in regular trading and fell back to 61 cents after hours. The stock peaked at $72.06 in July 2005.

Citigroup spins optimism

Citigroup's two months of profits were disclosed in a memo to employees from CEO Vikram Pandit, Thomson Reuters reported today.

Citigroup saw $19 billion in revenue for the first two months of this year and said that its capital position is "strong."

Stock Chart (Year)

Graphical chart for C
Pandit also said that the bank's reputation was suffering from "broad-based misperceptions."

Citigroup has received $45 billion in government aid.

Other banks have issued similarly optimistic comments in recent weeks. JPMorgan Chase and Bank of America and Bank of America have both said their core businesses have been profitable this year.

But they face big hurdle yet, including problems with mortgages gone bad and portfolios of weak credit card debt.

Energy prices -- New York close
 Tues.Mon.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$45.71$47.07-$1.362.12%2.49%
Heating oil (per gallon)$1.1987$1.2154-$0.0167-5.31%-14.73%
Natural gas (per million BTU)$3.8400$3.8650-$0.0250-8.53%-31.70%
Unleaded gasoline (per gallon)$1.2972$1.3351-$0.03791.29%28.66%

Bernanke: Bank stabilization crucial to recovery

The Fed chief talked about regulatory changes and the banking system in a speech to the Council on Foreign Relations in Washington this morning.

He signaled that the Federal Reserve will defend the rescue of banks that are key to the smooth functioning of international finance.

"Until we stabilize the financial system, a sustainable economic recovery will remain out of reach," Bernanke said.

Bernanke said that big banks should not be allowed to fail. He said that governments around the world must work together to address problems with any of the large, global institutions that international markets depend on.

Bernanke suggested a need for closer regulatory supervision of banks considered too big to fail.

"Any firm whose failure would pose a systemic risk must receive especially close supervisory oversight of its risk-taking, risk management, and financial condition, and be held to high capital and liquidity standards," the Fed chief said.

Recovery coming soon?

The recession will likely end early next year, according to a survey of 51 economists.

Lower oil prices, tax cuts and better credit conditions will help encourage consumers to start spending again in the second half of this year, according to the Blue Chip Economic Indicators newsletter. The newsletter predicts that growth will follow.

United Technologies to cut jobs

United Technologies (UTX, news, msgs) this morning said it will eliminate 11,600 jobs because of worldwide economic contraction.

"The outlook for commercial aerospace and global construction markets has continued to deteriorate," said Louis Chenevert, the company's chief executive, in a statement. "The economic recovery previously anticipated in the second half of 2009 now appears unlikely."

The company also said it will spend an additional $600 million to restructure, bringing the total to $750 million for the year.

And United Technologies lowered its 2009 earnings forecast to between $4 and $4.50 per share; the consensus estimate is $4.61 per share.

Shares of United Technologies rose 8.6% to $40.79.

Today's economic data

Wholesale inventories fell 0.7% in January, the Commerce Department reported this morning, slightly better than the 1% drop economists had predicted. Inventories fell 1.4% in December.

A decline in wholesale inventories generally follows cutbacks in wholesale orders and in production, as retailers adjust to diminishing demand. When inventories reach minimal levels, orders pick up.

"Producers are trying to cut back on inventories to better meet the new reality of sharply reduced consumer demand," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, told Bloomberg News. "There needs to be a better balance between producers and consumers, and until the supply and demand picture is back to normal, the economy will remain in deep recession free fall."

Roche close to buying Genentech

Swiss pharmaceuticals giant Roche (RHHBY, news, msgs) is close to completing the acquisition of the U.S. biotechnology company Genentech (DNA, news, msgs), The Wall Street Journal reported today.

Roche already owns 56% of the U.S. company. Roche would buy the rest of Genentech's equity at $95 per share in a deal worth $46.7 billion.

The announcement of the deal is expected this week. Should Roche succeed in acquiring Genentech, it will become the world's largest biotech firm in terms of sales.

Genentech shares fell 1.2% to $91.50.

Dow moves forward with Rohm & Haas

Dow Chemical (DOW, news, msgs) and Rohm & Haas (ROH, news, msgs) buried the hatchet late Monday and will finally merge.

All Rohm & Haas shareholders will receive $78 per share, except for the company's two biggest, the Haas Family Trust and Paulson & Co., which will take a $2.5 billion stake in Dow through preferred shares.

The deal was first announced last summer, but Dow put it on hold late last year when a joint venture with a Kuwaiti company failed. Rohm & Haas proceeded to sue Dow Chemical to move forward with the deal.

Texas Instruments narrows outlook

Chip maker Texas Instruments (TXN, news, msgs) late Monday said it expects first-quarter earnings between $1.79 billion and $2.05 billion, narrower than its previous forecast of between $1.62 billion and $2.12 billion.

The midpoint of TI's new outlook is approximately $1.92 billion, which is higher than analysts' expectations of $1.87 billion.

Still, the company was not optimistic about the chip market.

"Demand is currently deteriorating," Vice President Ron Slaymaker said on a conference call with analysts. "We don't see signs of stabilization. Until it does, we won't see a bottom."

TI shares rose 6.6% to $15.66 this afternoon.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close
 Tues.Mon.Chg.Month chg.YTD chg.
13-week Treasury bill0.235%0.200%0.035-6.00%104.35%
5-year Treasury note yield1.984%1.891%0.093-1.78%27.92%
10-year Treasury note yield2.982%2.886%0.096-1.94%32.89%
30-year Treasury bond yield3.707%3.593%0.114-0.40%37.76%
U.S. Dollar Index88.94089.000-0.0600.90%8.27%
British pound in dollars$1.3765$1.3785-0.0021-3.90%-6.58%
Dollar in British pounds £0.7265£0.72540.00114.05%7.04%
Euro in dollars$1.2689$1.26090.00800.06%-9.43%
Dollar in euros€ 0.7881€ 0.7931-0.0050-0.06%10.41%
Dollar in yen 98.6398.77-0.141.04%8.80%
Canadian dollar in U.S. dollars$0.779$0.769$0.0101-0.77%-4.70%
U.S. dollar in Canadian dollars$1.284$1.300-$0.01590.77%4.93%
Crude oil (NYMEX) (per barrel)$45.71$47.07-$1.362.12%2.49%

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