Stocks jump at open on Wells Fargo profit surprise
Good times have returned to the stock market with a rush.
Share prices thundered higher again Thursday after a blockbuster report from Wells Fargo & Co. about record quarterly earnings stoked mounting optimism that the economy may be stabilizing and the banking crisis may be ebbing.
The Dow Jones industrial average vaulted almost 250 points to its highest level in two months, punctuating a global rally that drove up share prices across Europe and Asia.
Wells Fargo startled investors by saying it expected to post a 50% jump in first-quarter profit to $3 billion. That topped even the most optimistic forecasts and unleashed a powerful rally among beaten-down financial shares.
The rally strengthened the hand of bulls, who believe the market bottomed out a month ago and could be poised for an extended upturn, albeit one that is likely to be spiked with jarring corrections.
“We’re knocking on the door of a bull market, which could run a year or two and take us perhaps as high as the old highs,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.
Analysts at market research firm Bespoke Investment Group said Thursday’s rally helped cement the view that “the current uptrend is for real.” Still, with the market up for five straight weeks, they advised clients to wait for a pullback before buying in.
The Dow raced ahead 246.27 points, or 3.1%, to 8,083.38, its best close since Feb. 9. The financial markets are closed today in observance of Good Friday.
The Standard & Poor’s 500 index leaped 31.40 points, or 3.8%, to 856.46. The S&P; is up 26.6% since its March 9 low, though it remains down 5.2% for the year and 45.3% from its record high in October 2007.
The Nasdaq composite index advanced 61.88 points, or 3.9%, to 1,652.54.
Overseas, stocks rose 3.1% in Germany, 3.7% in Japan and 3% in Hong Kong.
In the U.S., banking shares led the way, with the S&P; 500’s financial index powering ahead 15.5%. Wells Fargo shares rocketed $4.72, or 31.7%, to close at $19.61. The San Francisco bank expects to release full quarterly financial results April 22.
In a press release about its preliminary results, Wells Fargo went out of its way to point out that it “continued to extend significant amounts of credit to U.S. taxpayers in first quarter 2009.”
That stirred hope among investors that a loosening of bank-credit spigots would help to propel the economy out of recession.
Investor moods also were lifted by a story in the New York Times that the federal government’s “stress tests” of major banks are showing that they generally are in better financial shape than expected.
Retail sales fell again, although less than analysts had expected at some companies, such as Gap Inc. Although the results were spurred by sales and promotions, they nonetheless showed signs of life among U.S. consumers.
There even was a rare glimmer of hope on the unemployment front as initial jobless claims dipped by 20,000 last week. However, they remained at a very high 654,000, and many analysts expect the job market to continue weakening well into next year.
“We’re starting to see what we’ve been asking for,” said Anthony Conroy, head trader at brokerage BNY ConvergEx in New York. That includes “signs that the financials are getting back on their feet and that maybe there’s a bottom in the housing market.”
Treasury prices fell as the stock rally damped demand for safe investments. The yield on the 10-year Treasury note rose to 2.92% from 2.86% late Wednesday. The dollar rose against other major currencies, while gold prices fell $2.60 to $882.20.
Crude oil prices rose $2.86 to $52.24 per barrel on the New York Mercantile Exchange.
Thursday’s rally also was driven, in part, by short sellers -- investors who profit from a drop in share prices by borrowing shares at one price and later replacing them with stock they buy at a lower price. But as the markets rose Thursday, short sellers had to close out their losing bets by buying shares at higher prices, Bollinger said.
Many investors have been expecting a pullback in bank shares after their recent rally, especially because of the widespread belief that major institutions could require another injection of federal bailout money despite the nascent upticks in their operations.
The so-called short covering helps explain why the market has extended its monthlong rally into the second quarter, catching many investors flat-footed.
Bears had expected the rally to be stamped out as firms report what are likely to be dismal first-quarter earnings over the next several weeks.
Chevron Corp., for example, said after the stock market closed that its first-quarter earnings would be “sharply lower” than its fourth-quarter results.
Nevertheless, some investors believe the rally could continue if companies indicate that the worst is over.
Their logic is that firms already have uncorked as much bad news as they could in the form of write-offs and restructurings.
“Any smart corporate manager now is in a position where they will be able to produce several years worth of good news,” Bollinger said. “They’ve run out of bad news because there just won’t be any more to report. They’ll have written down everything.”
--
Times staff writer Tom Petruno contributed to this report.
