Stocks rallied Monday after JPMorgan Chase raised its offer for Bear Stearns and a report on home sales came in better than expected.
The Dow Jones Industrial Average and S&P 500 index closed up 1.5 percent Monday. Both indexes gained more than 2 percent on Thursday, making it their biggest two-day jumps since the end of November. (Financial markets were closed Friday.)
The tech-heavy Nasdaq had its best two-day percentage gain in five years, a cumulative total of 5.2 percent. That was enough to catapult the Nasdaq out of bear-market territory. The index is now down less than 19 percent from its October high; a bear market is technically defined as 20 percent below a recent high.
"It's the beginning of a bottoming process," said Art Hogan, chief market analyst at Jefferies & Co., not a bear-market rally.
"There are several different bells ringing at the bottom" signaling capitulation, Hogan said. First, the pullback in commodities. Then, if you believe that we are in a typical recession that started in November, you realize that we're at the halfway point. "What do stocks do at the halfway point in a recession?" Hogan asks. "They turn higher as people start to look ahead to better times, better earnings, etc." Plus, this is the last week of the quarter, Hogan points out, and that means there's a lot of cash out there that can be put to work.
The big news of the day came from JPMorgan, which increased its offer for Bear Stearns to about $10 a share from the previous $2 a share after outraged shareholders promised to fight the bid.
Under terms of the new deal, JPMorgan would bear the first $1 billion of losses from Bear Stearns assets, while the Federal Reserve would be responsible for the remaining $29 billion of the originally agreed-upon $30 billion.
Bear Stearns shares shot up more than 50 percent, closing at $11.25 a share. JPMorgan shares gained 1.3 percent.
The news, coupled with a weekend report in Barron's that bank stocks stand to gain 10 to 20 percent by year end, propelled financials to their highest point in a month. Major gauges, however, finished off earlier highs. The S&P 500 financial index added just 0.7 percent and the XLF fund, which contains a variety of financial-services firms, advanced 1.6 percent.
In other banking news, Bank of Americais likely to set aside as much as $6.5 billion in the first quarter, to cover for possible losses, Richard Bove of Punk Ziegel said.
The housing sector received some much-needed good news: Existing-home sales rose by 2.9 percentto a 5.03 million annual rate in February, snapping a six-month losing streak, according to a report from the National Association of Realtors. Compared to a year earlier, however, sales were down 24 percent and the median home price dropped 8.2 percent -- the largest decline on record -- to $195,900.
Homebuilder stocks had their best day in six months, with notable gains in Toll Brothers , D.R. Horton and Hovnian Enterprises all up more than 4 percent.
Shares of BlackRock advanced after the money manager announced a new venture with hedge fund Highfields Capital Management. The new company, called Private National Mortgage, or PennyMac, will help restructure mortgage loans to keep homeowners out of foreclosure. PennyMac will be run by Stanford Kurland, the former president and operating chief of Countrywide Financial.
In another move aimed at stabilizing the mortgage-finance market, regulators voted to allow the Federal Home Loan Bank system to increase their holdings in Fannie Mae and Freddie Mac securities by more than $100 billion.
Shares of CIT Group rebounded, after sliding 27 percent last week, after a report in the Wall Street Journal said the company is in talks with overseas banks to provide funding for its core-lending practice. Stifel Nicolaus raised its rating on the stock to "buy" from "hold," saying the company's recent actions will buy it time to "seek alternatives."
Crude oil for May delivery fell nearly a dollar to $100.86 a barrel as profit-taking put the squeeze on the recent commodities surge that sent oil over $111 a barrel. Gold, which had gone as high as $1,003 an ounce, dropped back to $918.30 an ounce.
In currencies, the dollar gained some ground, with the euro, finishing the U.S. trading day around $1.5422 against the dollar, and the yen at 100.80 to the dollar.
Monsanto gained more than 7 percent after UBS upgraded the seed maker's stock to "buy" from "neutral," saying near-term downside is limited and a lot of the weakness due to crop shifts have already been priced into the stock. UBS also cited the company's strong pipeline.
Google jumped more than 6 percent after the Internet-search giant filed a proposal to the FCC requesting that the "white space" between broadcast channels be used for mobile-broadband services. Less than two weeks ago, Bill Gates urged the FCC to free up that space for broadband services. Google and Microsoft are part of a coalition lobbying the FCC to use that space. Dell and H-P are also part of that group.
Elsewhere in tech land, satellite-radio providers Sirius and XM soared 8 percent and 15 percent, respectively, after the Justice Department approved Sirius's $5 billion buyout of rival satellite-radio provider XM. The deal is still pending approval from the FCC.
Electronic Arts announced that CFO Warren Jenson will step down, but didn't provide a reason for his departure. The videogame publisher is currently pursuing a hostile takeover of rival Take-Two Interactive.
Shares of Tiffany rang up a gain of more than 10 percent after the high-end retailer beat earnings estimates, helped by increased sales overseas. U.S. same-store sales fell 1 percent, while international same-store sales jumped 6 percent. The jeweler said it remains "cautious" about its domestic outlook, predicting a slight decline in U.S. same-store sales this year, but expects strong growth outside the U.S.
Shares of Walgreen rose about 5 percent after the drugstore chain posted higher-than-expected earnings, helped by cost-cutting measures and an extra day in the quarter due to leap year.
Sherwin-Williams shares slipped after the paint maker cut its earnings forecast, citing sluggish sales and high raw-materials costs.
TUESDAY: Consumer confidence
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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