Citigroup's better-than-expected earnings report turned the tide ahead of the open.
Citigroup's earnings was expected to be the story of the day, and the mood going into it was already dampened by a string of weak earnings reports after Thursday's closing bell. Futures were weaker overnight but staged a dramatic turnaround into positive territory, as investors looked at the Citigroup numbers. The dollar also gained.
Some of the biggest names - Google, Microsoft , Merrill Lynch - all delivered shockers, either with disappointing numbers, forecasts or both. Google reported net of $1.25 billion, or $4.63 per share, below the $4.74 per share expected. Google said consumers are cautious about online spending patterns.
IBM was the exception, and even with a positive outlook, its stock took a hit.
Citigroup announced a smaller than anticipated writedown of $7.2 billion. The bank reported a loss of $0.54 per share, narrower than the expected $0.66 per share loss.
Other big names ahead of the opening include Honeywell and Schlumberger. Honeywell earnings rose 18 percent. Its per share profit of $0.96 per share beat analysts forecasts of $0.94 per share, and it raised its forecast for the year by $0.05 to a range of $3.75 to $3.85 per share.
Also encouraging to investors is news Friday morning of a $7.46 billion off for Barr Pharmaceuticals from Teva Pharmaceuticals.
There is no economic data of note, but stocks could be volatile around options expirations.
(Note to readers: the Look Ahead has been updated to reflect market developments)
Stocks were on a tear Thursday, with financials leading the charge once more. The Dow rose 207 or 1.8 percent to 11,446, and the S&P 500 was up 14 points or 1.2 percent to 1260.
The S&P financial sector leapt 6.5 percent. For the week so far, the group is up 10.2 percent. Traders said the group was propelled by better-than-expected earnings reports from Wells Fargo and J.P. Morgan but the heavily shorted sector also rose as traders moved positions after the SEC announced changes to the short selling rules.
Financial stocks scored double digit gains. Washington Mutual was up 10 percent; Lehman was up 13 percent; J.P. Morgan was up 13.5 percent, and Bank of America was up about 17 percent.
After the bell, Moody's lowered Lehman Brothers rating to A2 from A1 and said its rating outlook is negative. Moody's said it initiated the rating actions June 13 and said its actions reflect expectations for more mark-to-market losses on Lehman's residential and commercial mortgage portfolios. Moody's said even though Lehman has been successful in reducing leverage on its balance sheet, its exposure and concentration remains high and that has hurt operating results and market confidence.
Merrill stock, meanwhile, was up nearly 10 percent during the trading day. After the close, the stock gave up ground after Merrill revealed $9.7 billion in writedowns and wider than expected losses. But comments from CEO John Thain that he is comfortable with the firm's capital levels appeared to have helped its stock pare some losses in late trading.
As stocks rose, the dollar fell 0.9 percent against he euro but gained against the yen. The 10-year Treasury sold off, lifting its yield to 4.041 percent, the month's high.
But oil was the big story of the day. When it began to move lower, stocks soared. Crude on the NYMEX fell below the key $131 per barrel level and continued to decline below $130 per barrel, a level stock strategists had told us in the past was a key level for the stock market.
Crude is trading higher Friday morning, above $130 per barrel.
Michael Steinhardt was on "Squawk Box" Thursday morning, and I spoke to him as he left the studio. Steinhardt, chairman of Wisdomtree Investments, said the biggest single factor holding back stocks is the high price of crude. He said he didn't see why the price is currently so high but that stocks are ready to move higher. "I believe the only way the market can go up in any significant way is if the price of oil goes down consequentially," he said.
And go down it did. Oil was off $5.31 to $129.29 at the close. It had hit a low of $129 during the session after hitting a high of $136.75 per barrel. Oil was down 10.9 percent in three sessions and at its lowest level since June 5.
John Kilduff, senior vice president of M.F. Global, said the negative earnings news Thursday afternoon could reinforce negative sentiment in the oil market. "Interestingly enough, these poor earnings point to a poor economic backdrop, and that could pressure oil further. On a technical trading basis, the chart is a train wreck now," he said.
Kilduff, a CNBC contributor, said oil is now in a major break down and there could be a rapid move to the low $120s per barrel. Economic weakness, declining demand and reduced tensions with Iran have all been cited as factors for the drop by traders.
"We went from a situation where at one point the market believed there were either Israeli planes either in the air or on the ground preparing to make an attack on Iran," he said. Planned U.S. talks with Iran this weekend has changed the sentiment.
"This is a big change from where we were last week in terms of the anxiety over an imminent threat from Iran," he said.
The Dark Knight opens Friday, and from all indications it looks like it will be a huge winner for Time Warner.
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