Financials Lead Rally; Dow Gains 3.4% on Week
Stocks closed higher Thursday, boosted by a late-breaking Federal Reserve announcement, a better-than-expected regional manufacturing report and an upbeat analyst note on financials. Oil prices were back above $100 a barrel.
Financials led the rally, with the Standard & Poor's financial index finishing up 6.6 percent. The XLF fund, which contains a variety of financial-services firms, climbed 7.2 percent.
Financial markets in the U.S., Canada, France, Germany and Hong Kong will be closed Friday. Japan, however, will be open. The U.S. bond market closes at 2 p.m. ET today.
The Dow Jones Industrial Average closed up more than 260 points, or 2.2 percent. The blue-chip index gained more than 400 points, or 3.4 percent, for the week.
For the week, the Dow's biggest gainers were JPMorgan , which rose 25 percent; Bank of America , up 16 percent; Citigroup , up 13 percent; General Electric , up 11 percent; and Wal-Mart , up 7 percent.
Still, after a tumultous couple of weeks, the Dow is about where it started out at the beginning of March.
"This has been like commuting by rollercoaster," Art Cashin, director of floor operations for UBS Financial Services, told CNBC. "Sharp ups and downs, heartstopping chills and thrills. And, at the end of it, you get off just about where you started and it cost you money."
As for the big rallies we've seen -- of 3 percent or more -- recently, Cashin advises that you wait and measure it three or four days later. "If there is no gain or even a small loss, that was a rally in a bear market," Cashin said.
Stocks got an early boost after the Philadelphia Federal Reserve's report on regional manufacturing activity beat forecasts. The index came in at minus 17 in March, compared with minus 24 in February. That was better than the minus 20 many economists had expected and significantly better than the minus 33 that had been making the rounds in the market rumor mill earlier today, which some economists said was based on the recent Empire State report from the New York Fed.
The Philadelphia report is the most closely watched regional report for signs of what to expect from the national reading on manufacturing, which is due out on April 1 from the Institute for Supply Management.
In other economic news, the Conference Board's measure of leading economic indicators fell 0.3 percent, as expected, in February, the fifth straight month of decline. Jobless claims rose by 22,000, more than expected, to 378,000 last week.
The rally picked up steam at the end of the day after the Fed expanded the collateral it will accept from dealers in exchange for some of the $75 billion in funding it will hand out next Thursday. The central bank said it will accept bonds backed by shopping malls and office buildings in addition to triple-A rated residential-mortgage bonds.
All three major indexes -- the Dow, S&P 500 index and Nasdaq -- all finished up more than 2 percent for the day and for the week. The gains helped pare year-to-date losses and pull the Nasdaq to within 30 points from being out of bear-market territory. The Dow is down 6.8 percent year to date, while the S&P is down nearly 10 percent and the Nasdaq is off about 15 percent.
Financials led Thursday's rally after Wall Street began debating if the financial crisis is over.
The buzz started with a report from Punk Ziegel analyst Richard Bove with the bold heading, "The Financial Crisis Is Over." He says that Bear Stearns was the watershed event that heralded the end and that "this is a once in a generation opportunity" to buy financial stocks.
Still, not everyone was convinced.
"I’m not sure we’re totally out of the woods," Cashin told CNBC. "The focus is going to shift from the brokers and the bankers to the hedge funds now. And that’s so opaque that the rumor mongers are going to have a field day," Cashin said.
Among some names in the news this week, JP Morgan, Bear Stearns , Merrill Lynch , Goldman Sachs and Lehman Brothers all posted strong gains.
Citigroup plans more job cuts in its securities division in order to offset writedowns from subprime and credit problems. The largest U.S. bank is expected to lay off about 2,000 investment bankers and tradersbefore March, the New York Times reported, citing people close to the situation.
British billionaire Joseph Lewis plans to fight to protect the value of his 8.4 percent stakein Bear Stearns, after a weekend offer by JPMorgan Chase to buy the fifth-largest U.S. investment bank for $2 a share.
CIT Group said it is drawing on a $7.3 billion bank line to help conduct daily operations, a move that highlights the commercial finance company's difficulty in raising cash to pay off debt.
Fannie Mae and Freddie Mac soared for a third straight day. Keefe, Bruyette & Woods upgraded its rating on the stocks, saying Ofheo's decision to reduce the amount of capital the government-backed home lenders are required to hold will help stabilize the housing market.
Profit-taking continued in commodities, but oil was back over $100 a barrelafter posting its biggest drop in more than 17 years on Wednesday. Oil settled Thursday at $101.84 a barrel on the New York Mercantile Exchange. Gold declined, settling at at $919.60 an ounce after logging its biggest dollar decline in 28 years in the prior session. Earlier this week, oil topped $111 a barrel and gold surpassed $1,003 an ounce.
On commodities, Cashin said, "I think what you’re seeing is the equivalent of a kind of margin call." When commodities start to slide, Cashin said, "it kind of feeds on itself for a couple of days."
In earnings news, Nike shares increased 8.8 percent after the athletic-gear maker reported its earnings shot up 32 percent, beating expectations, helped by strong overseas sales, particularly in Asia. Net income jumped to $463.8 million, or 92 cents a share, from $350.8 million, or 68 cents a share, a year earlier. Analysts had expected earnings of 81 cents a share. Sales shot up 16 percent, with increases of 23 percent in Europe and 27 percent in Asia.
FedEx, which is often viewed as a gauge of the health of the overall U.S. economy, beat earnings expectations but lowered its outlook, citing high fuel prices and slowing U.S. economic growth. Net income slipped 7 percent to $393 million, or $1.26 a share, from $420 million, or $1.35, a share a year earlier. Analysts had expected earnings of $1.23 a share, according to Reuters Estimates. Revenue increased 10 percent.
Shares of Borders Group tumbled nearly 30 percent after the bookseller posted a profit but suspended its dividend and said it is exploring the sale of its business.
Larger rival Barnes & Noble saw its shares gain more than 8 percent after the bookseller reported its profit declined but issued a strong forecast.
Chip giant Intel announced plans to raise its quarterly dividend by 10 percent to 14 cents a share, payable June 1 to shareholders who own the stock as of May 7. Earlier this week, Intel said that under-$300 laptops are going to be available very soon in U.S. and Europe. The laptops were intended for poor children but may drive down computer prices.
On Tap for Next Week:
MONDAY: Existing-home sales; Tiffany, Walgreens earnings
WEDNESDAY:Durable goods; new-home sales; oil inventories; Oracle earnings
THURSDAY: GDP; jobless claims; Lennar earnings; Fed auction
FRIDAY: Personal income and spending; consumer sentiment; KB Home earnings
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