Stocks open higher on Citigroupnews
A ray of hope in the troubled banking sector propelled stocks to their best gain in four months Tuesday, offering at least a respite from the grinding decline that has gripped the market this year.
The Dow Jones industrials bolted almost 400 points after the chief executive of Citigroup Inc. said the banking giant was profitable in January and February and was having its best quarter since 2007.
The disclosure relieved fears that big banks might need more government funding and stirred hope that they could lend enough to help spur an economic recovery.
“Just the idea that some of our most important financial institutions might not be amongst the walking dead was enough to boost investor confidence,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.
The broad-based rally raised the prospect that stocks could be poised for a short-term boost after an almost uninterrupted decline this year that had carried the Dow down more than 25%.
But a number of market professionals warned that the advance probably didn’t signal the end of the 17-month-old bear market because the economy faces daunting head winds in the next few months.
Many investors fear stocks could be in for another sharp decline in the spring when companies report what are expected to be atrocious first-quarter earnings.
“It’s a trader’s rally,” said Steven Goldman, market strategist at Weedon & Co. “It’s not an investment rally just yet.”
Still, traders welcomed the sight of green numbers dancing across their computer screens rather than the recent waves of red.
The Dow Jones industrial average soared 379.44 points, or 5.8%, to 6,926.49, returning to where it was about a week-and-a-half ago but still down 21% this year and off 51% from its record high set in October 2007.
The Standard & Poor’s 500 index jumped 43.07 points, or 6.4%, to 719.60. The Nasdaq composite index shot up 89.64 points, or 7.1%, to 1,358.28.
Unlike fleeting rallies this year, in which early gains gave way to profit-taking at midday, the indexes finished at their highs for the day Tuesday, indicating the advance could have staying power, traders said.
All 10 of the S&P;’s broad industry groups registered gains, led by an almost 16% jump in the financial sector. On the New York Stock Exchange, 2,917 issues rose -- the most since Oct. 13 -- while only 228 fell. The rally was the strongest since a surge that followed a sell-off triggered by the bankruptcy of Lehman Bros. Holdings Inc. “What we’re doing now is a mini-version of what we did in December,” said Bill King, chief market strategist at M. Ramsey King Securities in Burr Ridge, Ill.
The news about Citigroup came in a memo to employees from Chief Executive Vikram Pandit. Although much of the memo sought to depict Citigroup’s banking and securities businesses as being on solid ground, said Sandler O’Neill & Partners analyst Jeffery Harte, “The issue for Citigroup is not the performance of the core businesses.” The question, Harte said, is whether the bank can survive the financial crisis and recession with the toxic assets still on Citigroup’s books.
But until housing prices stop falling, Citigroup and other big banks “will log more write-downs” of those assets, University of Maryland economist Peter Morici said.
There were other factors helping stocks Tuesday.
Federal Reserve Chairman Ben S. Bernanke indicated the central bank might look into accounting rules for illiquid assets. Loosening those rules could help banks avoid recording further write-downs.
And the Securities and Exchange Commission signaled it might reinstate a rule limiting bets on declines in stock prices. Some critics of so-called short selling say it exacerbated the market’s recent decline.
The rally also was probably triggered in part by “short covering,” in which investors who wagered on further declines rushed to reverse their bets.
The advance on Wall Street was preceded by strong gains in Europe, with many share indexes there rising 5% or more.
U.S. stocks could face selling pressure today as investors take advantage of the higher prices to unload some stocks. If the market can hold up, the rally might last for a few weeks, some analysts speculated.
“There will almost certainly be selling pressure,” Bollinger said. “It’s just the way the market works. The question is whether we can overcome that selling pressure.”
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Times staff writer E. Scott Reckard contributed to this report.
