Market Insider: The Rally May Have Legs
CNBC Executive News Editor
A wash of earnings news and weekly jobless claims will help decide the market's course Thursday, but there's a good chance there will be follow through to Wednesday's rally.
Stocks head into Thursday riding a tech bounce from Apple's earnings newsand momentum from Wednesday. Plus, it is expected Tim Geithner will be confirmed as Treasury Secretary, a key position in the government's financial rescue operation.
Beaten down financial stocks led the market's rally Wednesday. The S&P financial sector recovered nearly 15 percent after Tuesday's pounding. Both Bank of America CEO Ken Lewis and J.P. Morgan CEO Jamie Dimon reported that they were buyers of their companies' shares. Earlier comments from PNC and good earnings from Northern Trust helped calm jitters around the group.
Art Cashin, director of floor operations at UBS, said Wednesday's rally may not be a one day wonder. "It can last a couple of days," he said. "But it's pretty much a Geithner-dodges-a-torpedo rally."
The Senate Finance Committee Wednesday held a hearing on Geithner's confirmation as Treasury Secretary. Geithner, outgoing New York Fed President, faced questions about his handling of personal tax issues.
The market rallied late last year when Geithner was first tapped for the role because of confidence in his handling of the financial bailout despite criticisms leveled at how the TARP was being administered.
"We were softer in the morning when the hearings were starting," Cashin said, noting stocks moved higher when investors saw the questioning of Geithner, for the most part, was not acrimonious.
A vote on Geithner's appointment is expected Thursday morning, and it is widely expected to pass. "You might have a further sigh of relief, but it looks to me like it's already discounted," said Cashin. "This (rally) could last for three or four days ... then it could sell off and we roll into February."
Geithner apologized for his tax errors during the hearing and revealed that President Barack Obama would unveil a new plan to stabilize the financial system.
IBM's better than expected earnings, released after Tuesday's bell, was also a big catalyst for the Dow Wednesday. The Dow rose 3.5 percent to 8228; the S&P 500 was up 4.4 percent at 840, and the Nasdaq was up 4.6 percent to 1507.
What to Watch
Apple's shares jumped in after hours trading after the company reported better-than-expected earnings. EBay though fell as it reported weaker than expected numbers. Earnings due on Thursday include Nokia, CIT, SunTrust, Lockheed Martin, Comerica, Keycorp and Baxter. After the bell, Google and Microsoft are expected to report, along with AMD.
Data Thursday includes 8:30 a.m. weekly jobless claims, forecast at 540,000. Also anticipated in the morning are housing starts at 8:30 a.m. and the FHFA Home Price Index at 10 a.m.
Foreign exchange markets were rocking Wednesday as the dollar was lower across the board. British sterling rebounded from a 23-year low as speculation spread that G7 could address the currency at its next meeting. The dollar meanwhile fell 1 percent against the euro, which also made a comeback move, and 0.37 percent against the yen.
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Some of the speculation about G7 started with a comment from the French finance minister, who complained of sterling's weakness. "I think most people would agree the G7 are not going to take a side in the debate. Sterling is doing what the G7 wanted it to do which is let the market determine its value," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. Chandler said Trichet also made comments about discussing currency at G7.
"The one who is quiet in this, and perhaps it's a time zone issue, is Japan on the appreciation of the yen. It appreciated 30 percent on a trade-weighted basis since August," said Chandler.
Chandler said there was some focus in the currency markets on Geithner's testimony, but Chandler thinks it is too soon to draw any conclusions. "Geithner looks like he could be the first Treasury Secretary since (Larry) Summers that did not say the words "strong dollar." I don't think that's important. Congress didn't ask him and reporters didn't ask him."
Chandler noted that Geithner did say currencies should be determined by markets. "The biggest challenge for the U.S. is not a weak currency. It is a strong one. If it were to continue.. Say the euro goes below $1.20 and sterling goes below $1.30, the strong currency offsets part of the monetary stimulus," he said.
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