By Rita Nazareth
April 9 (Bloomberg) -- Stocks rallied around the world as better-than-estimated earnings at Wells Fargo & Co. and speculation American banks will pass government stress tests boosted confidence in the financial system. Oil gained, Treasuries fell and the dollar rose against the euro and yen.
Wells Fargo, the second-largest U.S. lender, jumped 24 percent. Bank of America Corp. and JPMorgan Chase & Co. climbed at least 13 percent on a report that all 19 banks examined by the government will pass the review meant to determine their viability should the recession deepen. Barclays Plc surged in London after agreeing to sell its iShares unit. Textron Inc. soared 53 percent on takeover speculation.
The Standard & Poor’s 500 Index added 2.6 percent to 846.89 at 11:04 a.m. in New York, poised to advance for a fifth straight week. The Dow Jones Industrial Average rose 175.22, or 2.2 percent, to 8,012.33. Benchmark stock gauges in Germany and Hong Kong added 3 percent as the MSCI World Index of 23 developed nations increased the most in a week.
“The worst is behind us,” said Alan Gayle, a Richmond, Virginia-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.”
Stocks also rallied after the government reported that initial jobless claims dropped 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 has climbed 25 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 unveiled plans to rid financial firms of toxic assets. The index is still down more than 6 percent in 2009 after tumbling 38 percent last year, its worst annual return since the Great Depression.
The measure will likely fall to about 780 from last week’s 842.50 close, said JPMorgan’s New York-based strategist Thomas Lee, who cited historical market “corrections” since 1900.
Europe’s Dow Jones Stoxx 600 Index increased 2.1 percent as the Bank of England left its key interest rate at a record low of 0.5 percent. The MSCI Asia Pacific Index rallied 3.1 percent.
Treasury 10-year notes declined for the first time in three days, sending yields up seven basis points, or 0.07 percentage point, to 2.92. Crude oil rallied 4.7 percent to $51.70 as copper and aluminum also gained.
Wells Fargo jumped $3.61 to $24.24. First-quarter net income was about $3 billion as results at Wachovia Corp., acquired about three months ago, exceeded expectations. The profit, of about 55 cents a share,
compares with net income of $2 billion, or 60 cents, a year earlier, the San Francisco-based lender 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.”
Bank of America gained 20 percent to $8.48 and Citigroup climbed 8.9 percent to $2.94. JP Morgan added 13 percent to $30.94. Fifth Third Bancorp surged 22 percent to $3.23.
The S&P 500 Financials Index, a gauge of 80 banks, insurers and investment firms, climbed 8.2 percent to its highest level in two months.
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.
Federal Reserve officials are conducting an internal review of bank supervision aimed at improving regulators’ response to stress in the financial system, according to people familiar with the process. The evaluation focuses on speeding information flows and clearing up lines of communication for bank examiners who now report to both regional Fed bank officers and the Board of Governors in Washington.
Barclays jumped 12 percent to 176.5 pence after agreeing to sell iShares, its exchange-traded funds unit, to CVC Capital Partners Ltd. for 3 billion pounds ($4.4 billion).
General Motors Corp. rose 3.6 percent to $2. The biggest foreign automaker in China said it expects to double annual sales in the country to over 2 million vehicles over the next five years. China’s passenger car sales rose 10 percent in March from a year earlier after tax cuts and government subsidies boosted demand, according to the China Association of Automobile Manufacturers.
Textron surged $4.85 to $13.96 after 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.
Apple Inc. rose 2.7 percent to $119.41 after Credit Suisse Group AG raised its fiscal second-quarter earnings estimate, citing higher-than-projected demand for both Macintosh computers and iPhones.
Robert Doll, global chief investment officer at BlackRock Inc., told financial news network CNBC he is advising investors to shift money from safer assets such as U.S. Treasuries into equities.
“The worst of the recession is in the rear-view mirror,” Doll said on CNBC.
He recommended investors buy energy companies to benefit from a cyclical recovery, technology companies for growth and health-care companies for a defensive investment.
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 $69.86, while ConocoPhillips increased 0.8 percent to $39.86. 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.
Wal-Mart Stores Inc. fell 4.3 percent and Costco Wholesale Corp. lost 1.6 percent, leading consumer staples stocks to the only decline in the S&P 500 among 10 industry groups.
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.
Abercrombie & Fitch Co. fell 7.8 percent to $23.65, the biggest decline in the S&P 500. The U.S. teen-apparel retailer reported a 34 percent drop in March same store sales.
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 less 6,000 than economists’ average estimate, and the total collecting benefits increased to a record in a sign that the labor market remains weak.
U.S. stocks gained yesterday, snapping a two-day losing streak, as life insurers jumped on prospects of a government bailout and Pulte Homes Inc. agreed to buy Centex Corp. to create the nation’s largest homebuilder.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: April 9, 2009 11:05 EDT
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