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FOX Business:

Citi Lights Up Wall Street; Best Day Of ‘09

by Matt Egan

The Dow surged nearly 400 points Tuesday — its best day in an otherwise dismal 2009 — as Wall Street cheered after embattled Citigroup said it was profitable during the first two months of the year.

Today’s Markets

The Dow Jones Industrial Average jumped 379.44 points, or 5.80%, to 6926.49, the S&P 500 rose 43.07 points, or 6.37%, to 719.60 and the Nasdaq Composite picked up 89.64 points, or 7.07%, to 1358.28. The consumer-friendly FOX 50 added 31.86 points, or 6.24%, to 542.69.

The markets were in the green for the entire trading day in a broad-based rally that ended at session highs. The gains were even stronger for the Nasdaq Composite, which enjoyed its biggest one-day percentage gain since October 2008.

“We were looking for a little bit of good news and we got it from Citigroup,” said Paul Nolte, director of investments at Hinsdale Associates. “As much as we get excited about [this rally], the key will be whether we can rally for more than one day.

Aside from positive comments from Citigroup (C: 1.44, 0.39, 37.14%) CEO Vikram Pandit, the markets were lifted Tuesday by a huge rally in big-name tech stocks like Google (GOOG: 308.17, 17.28, 5.94%), comments about a possible reinstatement of the “uptick” rule and Dow Chemical’s (DOW: 6.84, 0.51, 8.06%) agreement to buy rival Rohm & Haas (ROH: 77.83, 3.83, 5.18%).

“The market was ready for something. It’s been dramatically oversold,” NYSE trader Ted Weisberg told FOX Business. “Until something fundamentally changes, we are still going to be in difficult territory. But we’ll take what we can get.”

Tuesday’s rally represents the Dow’s biggest one-day rally since Nov. 24 when it jumped 396 points. The benchmark index, which hasn’t seen two straight days of gains since Feb. 6 and was trading at its lowest levels since April 1997, is still off by 21% year-to-date.

“We seem to be shocked by an up day, which I guess is natural when you are down 50% from the peak. The fact that it doesn’t take much to bounce an oversold market is pretty well displayed today,” said Art Hogan, chief market strategist at Jefferies & Co.

All 30 components of the Dow closed in the green, led by double-digit gains for financial companies JPMorgan Chase (JPM: 19.42, 4.33, 28.69%), Citi, Bank of America (BAC: 4.7125, 0.9715, 25.97%) and General Electric (GE: 8.85, 1.43, 19.27%). JPMorgan alone accounted for 28 points of the gain on the index. Defensive stocks like McDonald’s (MCD: 52.47, 0.15, 0.29%) and Coca-Cola (KO: 39.08, 0.24, 0.62%) saw more modest gains but still closed in positive territory.

The Nasdaq Composite jumped even further than the broader market Tuesday as big-name tech stocks like Cisco (CSCO: 14.635, 1.015, 7.45%) and Apple (AAPL: 88.6275, 5.5175, 6.64%) recovered from Monday’s slide. Tech stocks were helped by chip maker Texas Instruments, which raised its quarterly outlook slightly even as it said no recovery in the chip market is in sight.

Citi-Sized Rally

Financial stocks and market sentiment received a big shot in the arm Tuesday from Pandit, who wrote a memo to Citi employees saying the embattled bank is having its best quarter-to-date performance since the start of the credit crisis in the third quarter of 2007. The comments were unexpected as Citi has received three rescues from the government and its shares plunged below $1 last week for the first time ever. Also, the bank lost $8.29 billion last quarter, its fifth straight quarterly loss. Citi’s stocks surged almost 40% Tuesday.

The financial sector surged almost 15% in response on Tuesday and some individual banks like State Street (STT: 20.6864, 2.6994, 15.01%) and PNC Financial (PNC: 24.53, 4.84, 24.58%) jumped even further.

The Pandit memo showed Wall Street that “these guys aren’t at the edge of a cliff,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “I never thought they were because they have an unlimited checkbook” through the backing the bank has received from the Federal Reserve, he said.

The Citi news comes as The Wall Street Journal reported U.S. officials are considering further steps to stabilize the bank if its problems mount. Officials described the talks, which are wide-ranging and preliminary, as “contingency planning” and said no new rescue was imminent, the paper reported.

The markets were also boosted by U.S. Rep. Barney Frank, who told reporters he expects the “uptick” rule to be restored in about a month. The rule would be aimed at slowing the pace of short selling. Frank also said the mark-to-market accounting rule, which has forced billions of writedowns for banks, must be improved and made more flexible.

Meanwhile, Federal Reserve Chairman Ben Bernanke made the case for an overhaul of financial regulations in a speech on Tuesday and said officials are ready “to ensure that systemically important financial institutions continue to be able to meet their commitments.”

In the commodity markets, crude oil’s hot streak was torpedoed by a late-day slide. The price of a barrel of crude closed at $45.71, down $1.36 on the day. Gold ended in the red for the 10th time out of the last 12 days, settling at $859.90 per ounce, down $22.10.

Corporate Movers

Dow Chemical (DOW: 6.84, 0.51, 8.06%) relented by agreeing to acquire rival Rohm & Haas (ROH: 77.83, 3.83, 5.18%) for the original $78-a-share price plus penalties, settling a legal battle that nearly went to trial. However, the new deal aims to bolster Dow’s financial security by including up to $3 billion in new investments from two top Rohm & Haas shareholders.

United Technologies (UTX: 40.6416, 3.0516, 8.12%) unveiled plans to slash 11,600 jobs this year. The world’s largest elevator and air condition maker also cut its 2009 earnings and revenue guidance, saying the “economic recovery previously anticipated in the second half of 2009 appears unlikely.”

Tiffany (TIF: 18.22, 1.25, 7.37%) is planning to shut its underperforming Iridesse pearl jewelry retail chain that was opened in 2004 due to the recession, the Journal reported, citing an internal memo.

Genentech (DNA: 91.75, -0.9, -0.97%) is close to selling itself to majority owner Roche (RHHBY: undefined, undefined, undefined%) in a deal that would value the biotech giant at $46.7 billion, or $95 per share, the Journal reported. The two sides nearly announced the deal Monday and have been haggling over timing and closing conditions, the paper reported.

Bank of America (BAC: 4.7125, 0.9715, 25.97%) CEO Ken Lewis is mounting a full-court press to argue his struggling bank is not in the same condition as Citigroup (C: 1.44, 0.39, 37.14%), the Journal reported. Instead, in internal memos Lewis has argued BofA will not need more money and plans to “earn” its way out of the recession, the newspaper reported.

Office Depot (ODP: 0.9, 0.27, 42.86%) surged by more than 50% after the office supplies retailer said it believes its first-quarter results will be “significantly better” than the fourth quarter.

Merrill Lynch, which is now a unit of Bank of America (BAC: 4.7125, 0.9715, 25.97%), made a huge bet in Brazil last year by luring 10 investment bankers from rival banks, the Journal reported. However, the company’s investment bankers in Latin America brought in only $50 million through late December, while piling up more than $100 million in mostly compensation-related expenses.

Boeing (BA: 32.97, 1.959, 6.32%) reaffirmed it expects the first delivery of its widely-anticipated 787 Dreamliner in the first quarter of 2010.

Global Markets

European markets closed sharply higher across the board but Asian stocks ended mixed overnight.

The Dow Jones Euro Stoxx 50, which tracks the 50 largest companies in Europe, soared 6.05% to 1919.53, London’s FTSE 100 rose 4.88% 3715.23 and Germany’s DAX gained 5.28% to 3886.98.

In Asia, Japan’s Nikkei 225 fell 0.44% to 7054.98 while Hong Kong’s Hang Seng gained 3.08% to 11694.05. Australia’s ASX 200 rose 0.95% to 3184.50.

WSJ:

Powerful Rally Shakes Stocks Out of Slump Citigroup, GM, GE Power DJIA; Nasdaq Leaps 7.1%

By KEJAL VYAS and ROB CURRAN

Hope that fortunes may be turning for troubled banks and that regulators are moving aggressively to address disruptions in the markets helped drive a broad stock rally on Tuesday.

The Dow Jones Industrial Average rose 379.44 points, or 5.8%, to 6926.49, closing at its high for the day and recording its biggest point and percentage gains since late November.

The S&P 500-stock index surged 43.07 points, or 6.4%, to end at 719.60 as its financial sector gained 15%. The Nasdaq Composite Index gained 89.64 points, or 7.1%, to 1358.28. Tech stocks snapped back from a sharp selloff on Monday that pushed stock indexes to fresh bear-market lows.

Gains were paced by shares of Citigroup, which jumped 38% after it said it was profitable during the first two months of the year. Citi is generally seen as one of the more troubled lenders, and its upbeat comments sent other banks soaring. J.P. Morgan Chase gained 23% and Bank of America rose 28%. Citi shares still ended at just $1.45 and have fallen 93% over the last six months.

More than nine in every ten stocks on the New York Stock Exchange climbed. All 30 Dow components rose. General Electric climbed 20%, undoing some of the damage from a rout that has pushed its shares down by more than 45% this year. Alcoa and General Motors rose 13% each. Both have declined more than 40% so far in 2009 even after Tuesday’s surge.

“This kind of broad-based move is encouraging, but the question becomes will it be sustained? At this point, it certainly feels that way,” said Gordon Charlop, managing director at Rosenblatt Securities. Similar sharp stock-market rallies in September, October and November turned out to be fleeting. The market has still not had two consecutive sessions of gains since Feb. 5 and Feb. 6. And all three major indexes are still more than 50% below their October 2007 peaks.

Short sellers may have rushed in to the market to cover bets on Tuesday as the rally gathered steam. “On a day like today, when this thing gets some legs, the sellers decide to back off and the shorts start to get nervous, and you find yourself with a big fat move,” Mr. Charlop said.

Rep. Barney Frank was reported to have said that the Securities and Exchange Commission may reinstate the uptick rule, which barred investors from betting against stocks that are already falling. The SEC eliminated the rule in July 2007 and some investors have pushed for its return.

If reintroduced, the rule will serve as a stabilizer of the market “because people can’t pile on a stock all at once,” said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. Still, the rule is not going to prevent failing companies from going under, Mr. Rovelli said.

Stocks rose sharply at the open and never wavered. The rally flushed investors out of safe-haven bets on Treasurys, gold and the dollar. The yield on the 10-year note briefly pushed above 3% while the two-year note’s yield topped 1%. Gold futures slid under $900 an ounce.

Federal Reserve Chairman Ben Bernanke said in a speech it was important to address the valuation of illiquid assets. Banks want leeway in accounting for illiquid holdings, and investors were encouraged by Mr. Bernanke’s statement, though he said that he wouldn’t support the suspension of mark-to-market rules.

“Bernanke said the magic words — that the Fed was considering looking at accounting standards,” said Fred Dickson, market strategist at D.A. Davidson.

The Fed chairman also signaled it isn’t too early to consider longer-term reforms including putting responsibility for addressing possible systemic risks with one authority, such as the Fed.

“I think the market was waiting for some kind of comprehensive policy statement from the Fed, and this is the closest we’ve come,” Mr. Dickson said.

Shares of United Technologies gained 8.6% after it said it would cut 11,600 jobs globally and spend an extra $600 million for restructuring, bringing to $750 million total restructuring costs for the year.

Rohm & Haas rose 5.4% after reaching a tentative deal to be bought by Dow Chemical for the original price of $15.3 billion in cash, or $78 a share. The two top shareholders in Rohm & Haas put up $3 billion to help close the deal, and Dow’s banks agreed looser financing terms. Dow Chemical shares rose 8.5%.

Mr. Charlop noted that seeing a pick up in merger-and-acquisition activity has given some market watchers hope for a recovery but the current bear market is a “new paradigm” and all expectations of a reversion to past patterns have so far been fruitless.

A recovery in financial stocks helped most overseas markets make gains. Hong Kong’s Hang Seng Index climbed 3.1% as shares of HSBC Holdings rose 14%. Australia’s S&P/ASX 200 ended up 1% after briefly touching its lowest level in five and a half years and South Korea’s Kospi Composite Index climbed 1.9%. European markets were aided by gains for Deutsche Bank, Unicredit and Credit Suisse, among other banks. The FTSE 100 rose 5%.