Stocks rally for 2nd straight day
Dow jumps more than 200 points for second session on tumbling oil prices and better-than-expected financial sector results.
NEW YORK (CNNMoney.com) -- Wall Street posted strong gains Thursday for the second session in a row. Investors cheered a string of large oil price declines and welcomed more encouraging earnings results from the financial sector.
The Dow Jones industrial average (INDU) gained 207 points to rise 1.9% on the day. The big boost followed Wednesday's gain of 277 points - the largest one-day increase in the Dow since April 1.
The broader Standard & Poor's 500 (SPX) index added 1.2%. The tech-heavyNasdaq composite (COMP) also gained 1.2% despite a downgrade of Internet auctioneer eBay.
Stocks roared immediately after the market open, with indexes jumping on strong earnings from JPMorgan Chase. But the major gauges quickly pared those gains as crude oil shot up.
Stocks briefly dipped into negative territory before rebounding strongly as oil prices fell more to their lowest levels in more than a month.
Oil prices fell $5.31 to settle at $129.29 a barrel, bringing the contract's 3-day decline to nearly $16. One reason for Thursday's slide was a 7.6% plunge in natural gas prices. (Full story)
"With lower oil prices, there's some hope that consumers will be a little better off," said Robert Philips, president of Walnut Asset Management. "Investors also hope that the cost of materials is reduced for corporations, especially with the airlines."
The two straight days of big market gains led some observers to believe that stocks will sustain a rally despite continued weak economic indicators. (Full story)
"The market generally comes out of the doldrums before the economy does," said Philips."There's lots of value out there - investors just need to look at stocks' fundamentals as opposed to what pundits tell them."
But as no major economic reports are due Friday, investor sentiment may be tested by some discouraging earnings reports released after the market's close.
Internet search leader Google (GOOG, Fortune 500), software giant Microsoft (MSFT, Fortune 500) and chipmaker AMD (AMD, Fortune 500) all missed analysts' earnings-per-share estimates. Shares tumbled 8%, 6% and 9% respectively in after-hours trading.
Investment bank Merrill Lynch (MER, Fortune 500)'s loss of $4.95 per share was far worse than analysts' expectations. Merrill rose 9.8% on the day but fell more than 8% after hours. (Full story)
IBM (IBM, Fortune 500) posted earnings that beat analysts' expectations, but shares still fell less than 1% in after-hours trading.
Citigroup (C, Fortune 500), which posted a 9.1% gain Thursday, will report earnings Friday morning.
Another big day for financials: Financials, which have been hammered by the subprime mortgage collapse and credit crisis, showed some follow through from Wednesday's rebound, sending the Dow Jones U.S. banks index up 10.62% Thursday.
JPMorgan Chase (JPM, Fortune 500) said its second-quarter profit plunged 53% due to $1.1 billion in writedowns. But the bank, which incurred a large loss from acquiring embattled investment bank Bear Stearns, still managed to beat Wall Street projections. Shares jumped 13.5% (Full story)
Also reporting better-than-expected earnings Thursday was investment manager BlackRock (BLK, Fortune 500). Its profit rose 23% in the second quarter on a significant increase in assets. Shares rose 16.4% Thursday.
Other financials continued strong gains from the previous session. Washington Mutual (WM, Fortune 500) rose 10.2% and Bank of America (BAC, Fortune 500) soared 16.9%.
Shares of Wachovia (WB, Fortune 500) rose 27.5% despite action by regulators in several states to seek documents from the Wachovia Securities unit tied to the company's auction-rate securities sales. (Full story)
Government-backed mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) also rose for the second consecutive session. Fitch Ratings affirmed the 'AAA' long-term issuer default ratings for both firms Thursday, though the credit rating company chopped Fannie's preferred stock rating and put Freddie on watch for possible downgrade. Shares of Fannie rose 18.2% and Freddie gained 22%. (Full story)
"JPMorgan's earnings and assurances that Freddie and Fannie won't go down were pretty influential in adding some confidence to the markets Thursday," said Philips.
The embattled firms were the focal points of downtrodden investor sentiment toward financials for several of the previous sessions before rebounding strongly Wednesday.
Mortgage insurers Fannie and Freddie's lead Thursday, with MGIC Investment (MTG) leading the pack with a 39% gain. Radian Group (RDN) added 31.6% and PMI Group (PMI) also rose strongly with a 25.5% gain.
Investment banks also fared well, with Morgan Stanley (MS, Fortune 500) rising 9.3%, and Lehman Brothers (LEH, Fortune 500) posting an impressive 13.5% gain.
Goldman Sachs (GS, Fortune 500) rose 4.9%, even after a Wall Street Journal report Wednesday that said the former Bear Stearns chief executive is questioning whether Goldman traders in London were manipulating the collapsing firm's stock. (Full Story)
Some analysts believe that the new "naked" short-selling bans have helped financial stocks recover.
The Securities and Exchange Commission issued an emergency order Tuesday to curb naked short-selling - which is when an investor shorts a stock before actually borrowing it - in shares of more than a dozen beleaguered financial firms. (Full story)
"Naked shorts have been extremely negative, putting many businesses out of business," said Peter Cardillo, chief market economist with Avalon Partners. "Obviously we need shorts in the markets, but the SEC is finally awakening to naked shorts because of what it has done to the economy."
Economy: Construction of single-family homes fell 5.3% to the slowest pace since January 1991, according to a Commerce Department report. (Full story)
The Philadelphia Fed Index, a regional manufacturing survey, posted a reading of minus 16.3 in July, worse than economists' expectations.
And the Labor Department reported that initial jobless claims rose by 18,000 last week, although the jump was smaller than economists had forecast. The four-week moving averages of initial jobless claims and continued claims from those already receiving benefits both fell slightly.
"We had some good earnings this morning, but the fact that we had a mixed bag of economic numbers is keeping the market from moving higher," said Cardillo.
Earnings beat expectations: Shares of online auction Web site eBay (EBAY, Fortune 500) fell sharply after it issued a disappointing earnings forecast for the current period. After the market close Wednesday, eBay said its second-quarter net rose 22%, but its outlook for the third quarter failed to impress investors. Goldman Sachs and Merrill Lynch both downgraded the stock, sending the stock plummeting 13.9%
Continental Airlines (CAL, Fortune 500) said it swung to a loss due to higher fuel charges, but the airline still managed to beat analysts' expectations. Shares rose 8.4%
Dow component Coca-Cola (KO, Fortune 500) said its second-quarter profit dropped 23% on a one-time charge related to its bottling company. Excluding the charge, the world's largest soft drink maker beat analysts' expectations. Shares fell 3.8%.
Diversified manufacturer United Technologies (UTX, Fortune 500), another Dow component, reported a 11% jump in earnings, sending its shares higher by 5.9%
Market breadth was very positive. On the New York Stock Exchange, advancers topped decliners by a five to two margin on volume of 2 billion shares. On the Nasdaq, winners beat losers by two to one on volume of 2.6 billion shares.
Gas prices: The average price of regular unleaded gasoline remained at the all-time high of $4.114 a gallon set Wednesday, according to a daily survey from motorist advocacy group AAA. (Full story)
Dollar falls: In currency trading, the dollar sank against the euro as inflation worries in both the U.S. and in the European Union mounted. The dollar gained against the Japanese yen, however. (Full story)
Other markets: COMEX gold for August delivery rose $8 to settle at $970.70 an ounce. Gold has crept back near record levels recently after falling into the $800 range in the past few months.
Treasury prices fell Thursday, bringing the yield on the benchmark 10-year note up to 4.04% from 3.95% late Wednesday. Bond prices and yields move in opposite directions. 
