Big rally on Wall Street
Stocks bounce back on IBM's earnings and strength in bank stocks.
NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday, recovering most of the previous session's losses, as investors welcomed IBM's earnings and scooped up bank shares hit hard in the recent retreat.
Investors also seemed to welcome signs that Treasury Secretary nominee Tim Geithner is likely to be confirmed after his confirmation hearing on Capitol Hill.
The Dow Jones industrial average (INDU) rose 3.5%, again reclaiming the 8,000 level. The Standard & Poor's 500 (SPX) index added 4.4% and the Nasdaq composite (COMP) rose 4.6%.
After the close, Apple (AAPL, Fortune 500) reported higher fiscal first quarter sales and earnings that topped estimates. The tech leader also issued a fiscal second quarter sales and earnings forecast that was short of forecasts. But investors focused on the earnings and sent shares 9% higher in extended-hours trading.
eBay (EBAY, Fortune 500) reported a lower fourth-quarter profit that nonetheless topped estimates. The online auctioneer also issued a current-quarter profit forecast that is short of expectations. Shares fell in extended-hours trading.
Also after the close, Intel (INTC, Fortune 500) said it was shuttering sites in Asia and scaling back U.S. operations in a restructuring move that will affect up to 6,000 people.
In addition to the corporate news, Thursday trading is likely to be influenced by the morning's economic news. Reports scheduled include December readings on housing starts and building permits and the weekly jobless claims.
Wednesday's market: Stocks fell to two-month lows Tuesday, closing below 8,000 for the first time since November, as worries about the banking sector overshadowed President Barack Obama's historic inauguration. It was the market's worst Inauguration Day performance ever, according to Standard & Poor's.
But after watching the S&P 500 tumble 14% in just over two weeks, investors were willing to step back into stocks Wednesday.
"It was a very welcome rally after yesterday," said Dave Hinnenkamp, CEO at KDV Wealth Management. He said that IBM's earnings helped offset a mix of earnings from other companies.
"IBM's earnings show us that there are some pockets of good news out there and financials are bouncing back after having their worst day ever," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
"Longer term, there are still major issues with the banking sector, but right now we're seeing an oversold bounce," he said.
The KBW Bank (BKX) sector index rallied 14.6% Wednesday, with Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) both jumping 31%. On Tuesday, the index slumped nearly 20% on worries that BofA, Citi or another financial firm might have to get taken over by the federal government. (Full story)
Hinnenkamp said market sentiment was better Wednesday as demonstrated by the CBOE Volatility index (VIX), or the Vix. The market's fear gauge dropped a good 10 points Wednesday after jumping more than 10 points on Tuesday.
Investors were also responding to the Dow closing below 8,000 Tuesday, said Darin Pope, chief investment officer at United Advisors of Secaucus. "It's a psychological level for traders," he said. "We've been in the 8,000 to 9,000 level since October."
IBM: Dow component IBM reported quarterly earnings late Tuesday that rose from a year earlier and topped estimates, on revenue that fell from the prior year and missed estimates.
The computer services company also forecast that it would earn $9.20 per share this year, 45 cents more than what analysts had been expecting. IBM (IBM, Fortune 500) shares gained 11.5%.
IBM's earnings and forecast were something of an anomaly in what is shaping up to be a very rough period for corporate profits. S&P 500 earnings are expected to have fallen more than 20% in the fourth quarter of 2008, according to the latest Thomson Reuters tallies. That would make it the sixth consecutive quarter of slowing earnings.
Geithner hearing: Obama's pick for Treasury Secretary, Tim Geithner, testified before the Senate Finance Committee Wednesday.
He said that bold action is needed to soften the blow of the economic downturn. Geithner also said that if confirmed, he would work to reform the Troubled Asset Relief Program (TARP), the government's much-maligned $700 billion bank rescue plan.
The New York Federal Reserve Bank president also apologized for underpaying past taxes, but said that the error was unintentional. He's expected to be confirmed, with a decision due tomorrow. (Full story)
Other company news: Dow component General Electric (GE, Fortune 500) shook off early weakness to end with modest gains. Shares had fallen earlier in the session on a series of negative analyst notes ahead of the company's earnings report, due Friday. Goldman Sachs cut its price target on the company. Oppenheimer & Co cut its earnings forecast and UBS also issued a dour outlook.
Dow component United Technologies (UTX, Fortune 500) reported higher quarterly earnings that topped forecasts on revenue that fell from a year earlier and missed forecasts. The company also reiterated its 2009 forecast. Shares ended little changed.
GM (GM, Fortune 500) lost its title of world's largest automaker to Toyota in 2008, as the company sold 610,000 fewer cars than its rival. GM's global sales fell 10.8% in 2008 to 8.36 million vehicles. Shares erased losses to end with modest gains.
Ericsson (ERIC) reported fourth-quarter earnings that beat estimates and also said it was cutting 5,000 jobs to save costs. Shares of the Swedish telecom rose 16.6%.
Other companies announcing job cuts over the last two days included radio station owner Clear Channel (CCU, Fortune 500), mining giant BHP Billliton (BHP), chemicals maker Rohm and Haas (ROH, Fortune 500), industrial parts maker Eaton (ETN, Fortune 500) and United Airlines (UAUA, Fortune 500).
United Airlines' parent UAL (UAUA, Fortune 500) also reported a wider quarterly loss versus a year ago. However the loss was not as steep as some analysts were expecting. Shares fell 6%.
Fellow airline AMR (AMR, Fortune 500) reported a wider quarterly net loss that was worse than expected. AMR shares fell 24%.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by almost four to one on volume of 1.74 billion shares. On the Nasdaq, advancers topped decliners three to one on volume of 2.14 billion shares.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.52% from 2.33% Tuesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates were mixed. The 3-month Libor rate held steady at 1.12%, according to Bloomberg.com. Overnight Libor rose to 0.19% from 0.14%. Libor is a bank-to-bank lending rate.
Other markets: The dollar fell against the euro and the yen.
U.S. light crude oil for March delivery rose $2.71 to settle at $43.55 a barrel on the New York Mercantile Exchange.
COMEX gold for February delivery fell $5.10 to settle at $850.10 an ounce.
Gasoline prices rose one-half of a cent to a national average of $1.848 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.
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