Stocks closed sharply higher after IBM's improved outlook kicked off a market rally.
In a preliminary earnings projection, International Business Machines said profits rose 24 percent in the fourth quarter from a year ago, sending shares up more than 6 percent and triggering a wave of enthusiasm among investors with a thirst for tech investments.
Yet with the Dow and the S&P falling about 4 percent since the beginning of 2008 and the Nasdaq off nearly 7 percent, the big question is how long the rally will last.
"This is probably a short-term bounce," said Jay Wong, portfolio manager at Los Angeles-based Payden & Rygel. "There's still a lot of overhang in the financial sector and there's no sign of it clearing itself up anytime soon. Earnings are going to be real important over the next couple of weeks."
A number of big banks have earnings reports out this week; M&T Bank was the first of major US banks to post earnings and said profit fell, hurt by turmoil in residential real estate markets. Earnings of 60 cents per share were well below expectations and shares were down about 1 percent.
Also, Philadelphia-based Sovereign Bancorp , the second-largest U.S. savings and loan, announced $1.58 billion of write-offs, sending its shares lower as well.
More news from the subprime collapse came to the sector when CNBC reported that Citigroupcould write down as much as $24 billion due to mortgage related losses when it reports quarterly earnings Tuesday. The company could also lay off as many as 22,000 employees as it attempts to cut costs and is looking to raise capital from a foreign investor.
Also expected to report dismal earnings are Merrill Lynch and a handful of others in the sector, though Merrill shares actually gained on the day as did those for most other investment banks.
Credit Suisse upgraded the market generally to "overweight" on the sense that a looming interest rate cut would boost Wall Street.
But the Fed is unlikely to cut rates ahead of its policy meeting at the end of the month, The Wall Street Journal reported.
Talk of a rate cut slammed the dollar, which dropped to a record low versus the Swiss franc and seven-week lows against the euro and yen. Gold, though, moved to a historic high about $910 as investors sought to buy on rate-cut expectations.
Tech Tough, but Retail Still Weak
But for today, tech ruled the market.
Bellwethers Google, Apple and Microsoft all scored on the IBM momentum. Chipmaker Intel also moved well to the upside, a day ahead of its earnings report.
"What you're seeing is a good announcement from IBM and some rumors that the Fed might be a little more proactive in preventing a recession -- all that equals good news," Wong said. "Enjoy the gains while you can, that's the camp I come from."
On the downside, Sears Holdings was hurting after the company reported that the poor December holiday shopping season saw same-store shares fall and would hinder fourth- quarter results.
Retailers overall were not sharing in the day's prosperity, after Goldman Sachs cut price targets for a number of companies in the sector, including Coach , Tiffany and Family Dollar.
In pharmaceuticals, shares dropped at Merck and Schering Plough after a closely watched study involving their Vytorin cholesterol treatment failed to reach its main goal.
There were no economic reports on tap today -- though the rest of the week held a busy slate -- but more earnings were due after the bell from Genentech , which analysts expect to show a profit of 67 cents per share.