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Dow Soars Above 7000

by Matt Egan and Ken Sweet

The Dow surged 240 points and ended above the pivotal 7000 level Thursday as another big rally for banks and new optimism about consumer spending sent Wall Street to its longest winning streak since late January.

Today’s Markets

The Dow Jones Industrial Average gained 239.66 points, or 3.46%, to 7170.06, the S&P 500 added 29.38 points, or 4.07%, to 750.74 and the Nasdaq Composite Index rose 54.46 points, or 3.97%, to 1426.10. The consumer-friendly FOX 50 picked up 20.26 points, or 3.72%, to 564.71.

The markets were boosted by a number of positive storylines on Thursday, including relief that General Electric’s (GE: 9.53, 1.03, 12.12%) credit ratings were cut only one notch, enthusiasm for a better-than-expected retail sales report and new signs of stabilization in commodities as crude soared almost $5. Also, health care stocks rallied around a positive report on a Pfizer (PFE: 14.001, 1.211, 9.47%) drug and a mega biotech merger between Roche (RHHBY: undefined, undefined, undefined%) and Genentech (DNA: 93.925, 1.885, 2.05%).

The badly-needed good news sent Wall Street to its first three-day win streak since Jan. 28 and the Dow to its first above-7000 close since Feb. 27. While the markets are still deeply in the red on the year, traders cheered the fact the Dow not only held onto its 379-point jump from Tuesday but has now added to it in a big way. The action has left some wondering if the markets have seen their worst levels, at least for the short term.

“I’m not sure we put in the bottom but we certainly put in a bottom,” said Anthony Conroy, head trader at BNY ConvergEx. Still, Conroy said Wall Street is waiting for the housing market to stabilize and banks to get their balance sheets in order. “I think the real catalyst will be something coming out of Washington,” he said.

Michael James, equity trader at Wedbush Morgan Securities, was more cynical, saying: “I am still skeptical that this [rally] continues. I am still of the opinion this is a bear market rally. They are violent when they happen.” However, he added the fact the market hasn’t given back Tuesday’s gains is “a pretty encouraging sign.”

Almost all 30 components of the Dow closed up by at least 1%, led by double-digit gains for GE, Bank of America (BAC: 5.94, 1.05, 21.47%) and JPMorgan Chase (JPM: 23.1, 2.751, 13.52%). Non-financials like General Motors (GM: 2.14, 0.3, 16.3%) and Merck (MRK: 24.04, 2.1, 9.57%) also rose sharply. Microsoft (MSFT: 17.01, -0.1, -0.58%) was the lone blue-chip stock failing to join in the rally.

Banks Rally Around GE

The markets responded favorably after Standard & Poor’s slashed GE’s coveted “AAA” credit rating by one notch, apparently relieved the cut wasn’t deeper. The ratings company also said GE’s credit rating is “stable,” giving hope that another cut isn’t in the near-future. GE said it doesn’t believe it will suffer from operational or funding challenges due to the cut, which S&P said was due to increased earnings pressure on GE Capital.

Financial stocks, which jumped 10% Thursday, were also helped after the Financial Accounting Standards Board pledged to issue a clarification to mark-to-market accounting rules by April 1. The financial industry has asked for the rules to be relaxed as the standards have forced banks to write down the value of billions of dollars of illiquid assets since the credit crisis began.

Also, following in the footsteps of Citigroup (C: 1.66, 0.12, 7.79%) and JPMorgan, Bank of America CEO Ken Lewis said Thursday his bank was profitable in the first two months of 2009 and that he expects it to remain so for the full year.

Retail Data, Oil Lift Markets

Wall Street also received a rare boost from economic data, which of late has been almost exclusively gloomy. The Commerce Department said retail sales fell just 0.1% in February despite an onslaught of layoffs and negative consumer sentiment. Economists expected sales to have fallen by 0.4%. Excluding autos, retail sales unexpectedly jumped by 0.7% last month.

Shares of retailers like Home Depot (HD: 20.3, 0.63, 3.2%) and Macy’s (M: 8.31, 0.46, 5.86%) rallied on the report, which gives Wall Street hope consumer spending will stabilize. The resiliency shown in February comes even as the government said household net worth plunged by a record 9% in the fourth quarter.

Energy stocks provided the markets with a boost as stocks like ExxonMobil (XOM: 67.17, 1.39, 2.11%) and Hess (HES: 59.1175, 1.8975, 3.32%) rose amid oil’s strongest rally since Feb. 19. Ahead of a widely-anticipated OPEC meeting, the price of a barrel of crude jumped $4.70 per barrel, or 11.1%, to settle at $47.03. While typically a negative for cash-strapped consumers, market analysts have said a rise in commodities is badly needed.

Corporate Movers

General Motors (GM: 2.14, 0.3, 16.3%) saw its shares soar after the auto maker said it can make it through March without additional bailout money thanks to a slew of cost-cutting moves. GM previously requested $2 billion in immediate aid, which is still needed just not as quickly as the auto maker originally thought.

Pfizer (PFE: 14.001, 1.211, 9.47%) said it stopped a late-stage study on its pancreatic cancer drug Sutent after the drug showed “significant benefit” in patients. Sutent reportedly had worldwide sales of $847 million last year.

Roche (RHHBY: undefined, undefined, undefined%) inked a $46.8 billion deal to acquire the 44% of biotech giant Genentech (DNA: 93.925, 1.885, 2.05%) it doesn’t already own. The deal, which values the world’s largest biotech company at $95 per share, ends months of negotiations.

Freddie Mac (FRE: 0.395, -0.005, -1.25%) reported a $23.9 billion fourth-quarter loss and said it will need an additional $30.8 billion from the Treasury Department.

Data Dump

New data suggest the labor market continued to deteriorate in the beginning of March. The government said initial jobless claims rose by 9,000 last week to 654,000, which is higher than economists predicted. The Labor Department also said claims filed by those on benefits for more than one week surged by 193,000 to 5.3 million — the highest level since records began in 1967.

Global Markets

European markets ended solidly higher Thursday. London’s FTSE 100 rose 0.65% to 3717.71, Germany’s DAX jumped 1.17% to 3959.74 and Paris’s CAC 40 gained 0.71% to 2693.10.

Asian markets ended mixed as Japan’s Nikkei 225 tumbled 2.41% to 7198.25 but Hong Kong’s Hang Seng gained 0.59% to 12001.53.

WSJ:

Winning Streak Rolls On

Dow Surges Above 7100 as Banks, GE, GM Rally

Stocks rallied Thursday despite mixed economic data, building on the gains of the last two sessions.

At 3:45 p.m., the Dow Jones Industrial Average climbed by about 246 points, reclaiming the 7100 mark. General Electric shares jumped 13% after Standard & Poor’s made a long-expected downgrade to the conglomerate’s credit rating. Pfizer gained more than 9% following news on a promising drug for pancreatic tumors. General Motors shares rose 16% after the auto maker said that it can make it through March without $2 billion in emergency loans it earlier sought.

Bank of America jumped 20% after its CEO said he doesn’t think the bank will need more government funds. Kenneth Lewis said in a speech in Boston that he expects the company will earn “close to $50 billion in pre-tax, pre-provision earnings” in 2009. He said some banks may yet need public support, but Bank of America isn’t likely to be one of them. J.P. Morgan Chase shares rose 13%.

Despite bank executives’ optimism, some remain skeptical on the sector.

“The fact they may be operating on a profitable basis for two months is a reassuring fact to be aware of but — and the but is in capital letters — we won’t know until the end of the quarter what writeoffs will be involved,” said Bob Johnson, equities analyst at Satuit Capital Management. “The fat lady hasn’t sung yet in terms of the banking industry.”

Volume has been relatively light. “This has been a quiet rally,” said Doreen M. Mogavero, president and chief executive of the floor brokerage Mogavero, Lee & Co. “I’m not sure whether the lack of volume is a good thing or a bad thing, really.”

She added that the mood among the professional traders on the NYSE floor seems to be improving along with that of the general public. She said the floor crowd seems more optimistic about the government’s policy moves to stem the economic and financial crisis — matters that had been of great concern on the days when the market hit 12-year lows recently.

“Now, I’m hearing more people saying things like, ‘Well, it’s going to take some time. Let’s give them a chance and see what happens,’” she said.

The Nasdaq Composite Index rose 3.8%. The S&P 500 rose 4.2%, bolstered by an 11% gain in its financial sector and a 5.1% advance in health care. Industrial and consumer-discretionary stocks were also seeing strong gains.

Stock markets also drew strength from hopes for a change in mark-to-market accounting rules. The chairman of the Financial Accounting Standards Board pledged at a Congressional hearing to offer more guidance on the rule in three weeks. Treasury Secretary Timothy Geithner said suspending mark-to-market rules could lead to an erosion of the market’s ability to assess risks at banks.

Many traders remained on guard. Floor trader Ted Weisberg, of Seaport Securities in New York, welcomed Thursday’s gains but said his trading strategy will remain fairly conservative for now, with all his bets unwound at the end of each trading day at the New York Stock Exchange.

“Right now, I have no conviction,” that the market is due for a sustained run higher, he said. “We have ripe conditions for a technical bounce. But to read any market strength as something other than that is a real stretch.”

Strategist Steve Charest, of Divine Capital Markets in New York, estimates that the S&P could reach a bear-market low around 600. But his firm unwound many of its bearish bets on the index on Monday, taking profits in case of a short-term rally.

“We’ve seen some good news in the financial sector the last few days, but the problems aren’t close to being resolved, which is the core of the market’s problems,” Mr. Charest said. “Those credit assets the banks have are radioactive, and they have a half-life that we haven’t reached yet.”

Ken Safian, president of Safian Investment Research in White Plains, N.Y., was among the relatively few investors talking openly on Thursday about a possible long-term market rally. He said he’s particularly encouraged by recent merger and acquisition deals involving cash-rich technology and health-care companies. A series of combinations involving six bellwether pharmaceutical companies valued around $156 billion have been announced in recent days.

If that trend continues, it could provide a boost to the market as investors look to snatch up the companies they view as the next likely takeover candidates. The merged firms could also be well-positioned to expand aggressively, hire workers, and stabilize the broader economy, Mr. Safian said.

“It’s good that we’re beginning to see some real differentiation in the market among some of these industries that aren’t so highly leveraged,” he said. “We’re building a real base here, I think.”

Economic reports out Thursday painted a mixed picture of the consumer. Retail-sales data were better than expected, dipping just 0.1% last month after a revised 1.8% jump in January. But new U.S. claims for unemployment benefits rebounded last week and total claims hit a record high. The four-week moving average of claims rose for a seventh straight week, by 6,750 to 650,000. That’s the highest since October 1982.

“The steady increase suggests that the rate of decline of payrolls is likely to accelerate further, putting yet more downward pressure on aggregate incomes,” wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note to clients. “It’s impossible for people to deleverage when incomes are falling, without reducing their spending significantly; the recent gains in core retail sales cannot last.”

Oil producers and mineral extractors led European indexes lower. Asia markets also stumbled as global economic concerns lingered.

The dollar was stronger against the euro and the yen. Nymex crude for April delivery rose $4.70, or 11.10%, to settle at $47.03 a barrel.