Stocks rallied to the finish line Monday after a wobbly morning as a CIT deal to avert bankruptcy and strong earnings gave investors cause for optimism.
The Dow Jones Industrial Averagegained 104.21, or 1.2 percent, to close at 8,848.15. The S&P 500rose 1.1 percent to 951.13, an eight-month high. The Nasdaq advanced 1.2 percent to close at 1,909.29, its highest close this year, which capped a nine-day winning streak, its longest since July 1998.
CIT Group has cut a deal with key bondholders for $3 billion in rescue financing, helping it to avoid a bankruptcy filing. A formal announcement is expected shortly.
The deal is at a high interest rate — 10 percent — and doesn't completely solve CIT's problems but it buys the company some time. And, it was encouraging for investors because it shows lending is loosening up — and it's from the private sector, not the government.
CIT shares soared nearly 80 percent, adding to their 70-percent gain from Friday. The stock touched an all-time low of 31 cents a share on Thursday, before the two-day rebound, which pushed the stock to $1.25.
Giving stocks a little extra juice a half-hour into trading: Leading indicators rose for a third straight month, suggesting the recession may be winding down. Leading indicators rose 0.7 percentin June, following a upwardly revised 1.3-percent gain in May, the Conference Board reported. Economists had expected a more modest gain of 0.5 percent.
"The recession has been losing steam since the spring, although very large job losses continue," Conference Board Economist Ken Goldstein said in a statement. "If these trends continue, expect a slow recovery this autumn," he said.
A separate NABE survey of economists showed the recession appears to be easing but isn't over yet.
"Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half" of the year, Sara Johnson, managing director of global macroeconomics for IHS Global Insight, told Reuters.
And Goldman Sachs raised its year-end target for the S&P 500 to 1,060 from 940, as the index is currently hovering around 940.
This comes after Wall Street logged its best week since early Marchlast week, with stocks up more than 7 percent, as earnings season got off to a better start than expected. IBM, GE, Bank of America and Intel all beat expectations when they reported last week. Plus, an analyst issued an optimistic forecast for Goldman Sachs and the Fed said it expects the economy to shrink 1 to 1.5 percent this year, a smaller contraction than its previous forecast of a 1.3 percent to 2 percent decline.
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Earnings were light today, but will pick up as the week goes on, with reports from Caterpillar , Coca-Cola, Merck, Apple , Boeing, Ford, American Express and Microsoft, among others.
Caterpillar was actually the biggest gainer on the Dow, up 7.8 percent today, followed by Alcoa and Disney.
In all, about a third of the S&P — and half the Dow — report this week.
Among this morning's earnings reports: Oilfield-services leader Halliburton said second-quarter profit fell 48 percent on weakness in exploration and production activity. But the 30 cents per share earnings appeared to narrowly beat analyst estimates. Shares rose 4.4 percent.
And toymaker Hasbro said its profit rose 5 percenton the strength from G.I. Joe and Transformers sales that were tied to summer movie releases. Its shares gained 4.2 percent.
After the bell, we'll get results from Texas Instruments , as well as Boston Scientific , Legg Mason , and Zions Bancorp .
The Texas Instruments report will be closely watched after Intel last week blew past expectationsand delivered a better-than-expected outlook for both revenue and margins.
Several encouraging analyst moves on the tech sector: RBC raised its price target on Apple; Baird raised its price targets on Broadcom, Sandisk and Texas Instruments; Jefferies raised its price target on Yahoo and Credit Suisse raised its rating on Cisco to "outperform" from "neutral."
It was more a mixed bag in the banking sector: Analysts were split between raising and lowering their outlook for Bank of America's full-year earnings, though one, RBC, raised its price target on the stock to $13. At least two analysts lowered their outlook for Citigroup earnings and UBS removed Citi from its "short-term buy" list.
Both stocks were dragging: Bank of America was down more than 4 percent; Citi was down over 8 percent.
GlaxoSmithKline was up 4 percent as the drug maker and Human Genome reported positive results for a late stage study of a new lupus drug — the first new treatment for that disease in decades.
Shares of Linux provider Red Hat shot up more than 8 percent following news that the stock will replace CIT Group in the S&P 500 after the close of trading Friday July 24.
— Peter Schacknow, CNBC Senior Producer, contributed to this report
MONDAY: Earnings from Boston Scientific, Legg Mason and Texas Instruments After the Bell
TUESDAY: Fed Chief Bernanke speaks; Earnings from Caterpillar, Coca-Cola, DuPont, Merck, Schering-Plough, United Tech, Lockheed Martin, Regions Financial, State Street, TD Ameritrade, United Health, Apple, Yahoo, AMD and Starbucks
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; Earnings from Boeing, Glaxo, Morgan Stanley, Pepsi, Pfizer, Wells Fargo, Bank of NY Mellon; Delta; KeyCorp; SunTrust, US Bancorp, Qualcomm, eBay and Sandisk
THURSDAY: Weekly jobless claims; existing-home sales; Earnings from AT&T, Bristol-Myers Squibb, Ford, MMM, CIT Group, Fifth Third, PNC Financial, UPS, Xerox, Amazon, AmEx, Microsoft, Broadcom and Capital One
FRIDAY: Earnings from Ericsson, Ingersoll-Rand, Schlumberger; Red Hat replaces CIT in S&P 500 after the closing bell
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