Global Stocks Gain, Led by Record U.S. Bank Rally
By Rita Nazareth
April 9 (Bloomberg) -- Global stocks rallied, led by a record gain in U.S. bank shares, as better-than-estimated earnings at Wells Fargo & Co. and speculation American lenders will pass government stress tests boosted confidence in the financial system. Oil gained and Treasuries fell.
Wells Fargo, the second-largest U.S. lender, jumped 32 percent. Bank of America Corp. climbed 35 percent and JPMorgan Chase & Co. added 19 percent on a New York Times report that all 19 banks examined by the government will pass a review to determine their viability should the recession deepen. Barclays Plc surged 12 percent in London after agreeing to sell its iShares unit. The Standard & Poor’s 500 Banks Index surged 25 percent, the steepest advance since it was created in 1989.
“The worst is behind us,” said Alan Gayle, Richmond-based senior investment strategist at RidgeWorth Capital Management, which oversees $60 billion. “We’re working our way through the credit crisis and that’s why the market is cheering.”
The S&P 500 added 3.8 percent to a two-month high of 856.56 and capped a fifth straight weekly gain, the longest stretch since the bear market started in October 2007. The Dow Jones Industrial Average rose 246.27, or 3.1 percent, to 8,083.38. Eleven stocks gained for each that fell on the New York Stock Exchange.
VIX Under 40
Stocks also rallied after the government said initial jobless claims in the U.S. decreased more than economists estimated last week and the trade deficit unexpectedly shrank 28 percent, the most since 1996, as imports decreased. The S&P 500 climbed 1.7 percent in the holiday-shortened week, while the Dow added 0.8 percent.
Financial markets will be closed tomorrow to mark the Good Friday holiday.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell to its lowest closing level since Sept. 26, dropping 6 percent to 36.53. The index measures the cost of using options as insurance against declines in the S&P 500.
Before Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history in September, the VIX surpassed 40 during four prior periods in its 19-year history and never stayed above that level for more than 10 days. It’s closed below 40 only eight times since Sept. 29.
Benchmark stock gauges in Germany and Hong Kong added 3 percent as the MSCI World Index of 23 developed nations increased 3.1 percent, the most in a week.
27 Percent Rebound
The S&P 500 has rallied 27 percent since reaching the lowest level in a dozen years on March 9 as banks from Citigroup to JPMorgan said they made money in the first two months of the year and Treasury Secretary Timothy Geithner announced plans to finance purchases of toxic assets from financial firms. The index is still down 5.2 percent in 2009 after tumbling 38 percent last year, its worst return since the Great Depression.
Wells Fargo jumped $4.72, or 32 percent, to $19.61 for its best rally in almost nine months. The second-biggest U.S. home lender reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking speculation that the industry’s slump has ended.
Net income rose about 50 percent from $2 billion a year earlier. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the statement said.
“Earnings expectations are so low, there’s wide open potential for pleasant surprises,” said Bruce Bittles, the Nashville-based chief investment strategist at Robert W. Baird & Co., which oversees $16 billion. “We see stocks moving higher into late summer.”
Banking Rally
Bank of America, the largest bank by assets, gained 35 percent to $9.55 and Citigroup climbed 13 percent to $3.04. JPMorgan, the biggest by market value, added 19 percent to $32.75. Fifth Third Bancorp surged 36 percent to $3.58.
The S&P 500 Financials Index, a gauge of 80 banks, insurers and investment firms, rose 16 percent to its highest level in three months. The group has rallied 75 percent since its March 6 low.
Some of the largest lenders may still need additional capital infusions from investors or taxpayers, the New York Times said, citing unidentified officials involved in the research. Regulators may use the findings of the examinations, likely to be completed this month, to push some companies to sell distressed assets, according to the report.
Government stress tests of U.S. banks’ ability to withstand a deeper recession are likely to indicate that most don’t need more taxpayer money, Federal Reserve Bank of Kansas City President Thomas Hoenig said.
Government Intervention
“I would point out, first, that although the United States has several thousand banks, only 19 have more than $100 billion of assets, and that after supervisory authorities evaluate their condition, it is likely that few would require further government intervention,” Hoenig said in the text of a speech in Tulsa, Oklahoma.
White House chief economic adviser Lawrence Summers voiced confidence that what he called the “free-fall” in the economy would end soon. Federal Reserve Bank of Minneapolis President Gary Stern said that while “appreciable strains” remain in credit markets, the resumption of U.S. economic growth “should not be too far off.”
Bonds Fall
Treasury 10-year notes fell for the first time in three days as the economy showed signs of stabilizing, diminishing the safety appeal of government debt. The yield on the 10-year note rose seven basis points, or 0.07 percentage point, to 2.93 percent.
Barclays shares jumped 12 percent to 177.5 pence after agreeing to sell iShares, its exchange-traded funds unit, to CVC Capital Partners Ltd. for 3 billion pounds ($4.4 billion).
Textron Inc. soared the most in at least 28 years on takeover speculation, jumping 49 percent to $13.56. Kuwait’s Al- Watan newspaper reported a United Arab Emirates consortium is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share.
General Motors Corp. rose 5.7 percent to $2.04 after CNBC reported that the automaker is close to a deal with its labor unions, without providing more details. GM, the biggest foreign automaker in China, said earlier today it expects to double annual sales in the country to over 2 million vehicles over the next five years.
Macs, iPhones
Apple Inc. rose 2.8 percent to $119.57 after Credit Suisse Group AG raised its fiscal second-quarter earnings estimate, citing higher-than-projected demand for both Macintosh computers and iPhones.
Profits at S&P 500 companies probably fell 38 percent on average in the first quarter, according to analysts’ estimates compiled by Bloomberg. The stretch of seven straight declines in quarterly earnings is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.
Exxon Mobil Corp. added 1.3 percent to $69.84, while ConocoPhillips increased 2.2 percent to $40.40. Crude oil rose for a second day after a government report showed a smaller gain in U.S. inventories than the industry indicated a day earlier.
Crude rallied 5.8 percent to $52.24 a barrel as copper and aluminum also gained. Gold fell in New York, capping a third straight weekly loss, dropping 0.3 percent to $883.30 an ounce.
Retail Concern
Wal-Mart Stores Inc. fell 3.7 percent and Costco Wholesale Corp. lost 1.7 percent, leading consumer staples stocks to one of only two declines among 10 industries in the S&P 500.
Wal-Mart, the world’s largest retailer, reported comparable-store sales in March that rose less than some analysts estimated. Costco, the largest U.S. warehouse club, reported its weakest monthly sales performance since November.
The highest U.S. unemployment since 1983 has forced consumers to restrain spending. The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week, although the tally of 654,000 was 6,000 less than economists’ average estimate, and the total collecting benefits increased to a record in a sign that the labor market remains weak.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: April 9, 2009 16:48 EDT |
