Better-than-expected profits from Citigroup and Bank of America lifted Wall Street today as investors grew more optimistic about a strong economic rebound. A late-day sell-off, however, limited the gains.
The Dow Jones industrials rose as much as 158 points before losing momentum in the final hour of trading. Analysts said it was unclear whether reports of a trading error at the Chicago Mercantile Exchange were behind the drop or if investors opted to turn cautious after the large run-up.
“The rally began March 11 and we’re now entering the fifth month. On top of that, we had a 160 point move – so it was up, up and away. There might have been an aspect of too much, too soon,” said Larry Wachtel, market analyst at Prudential Securities.
The Dow closed up 57.56, or 0.6%, at 9,177.15, having gained 0.5% last week.
The broader market also finished higher. The Nasdaq composite index gained 20.91, or 1.2%, to 1,754.84, following a weekly advance of 4.2%. The Standard & Poor’s 500 index rose 5.72, or 0.6%, to 1,003.86, having gained 1.3 percent.
Dow component Citigroup advanced 97 cents to 47.12 dollars after the nation’s largest financial institution reported second-quarter earnings that beat estimates by 3 cents per share. The bank also raised its quarterly dividend to 35 cents from 20 cents.
Bank of America rose 58 cents to 83.46 dollars after it posted quarterly profits that also topped expectations.
Intel, another Dow component, gained 68 cents to 24.02 dollars after Merrill Lynch raised the technology company’s stock rating to “buy” from “neutral.” The company releases its quarterly earnings report on Tuesday.
“Citigroup and Bank of America tend to be a pretty good litmus test for the financial services sector as a whole. If they feel good, that’s a good sign for the rest of (the) economy,” said Doug Sandler, chief equity strategist at Wachovia Securities.
“We continue to believe the potential for upside (earnings) surprises outweigh the downside surprises,” he added. “Investors’ risk-tolerance is going up, and they’re not penalising equities as much as they’re used to.”
While stocks have surged in recent months, investors have been watching the second-quarter earnings season for evidence the economic recovery is firmly under way. Analysts say companies will largely meet, if not beat, expectations, creating more opportunities for stock gains.
“We’re getting some indications that the rally was actually based on something fundamental” rather than investors’ expectations, said Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston. “With all this news coming together, it’s mostly good.”
He added, “there’s still a little upside to the current rally. But I’m not sure the (earnings) news is going to be so good that the market can start another leg up.”
Two merger announcements Monday also gave the market a boost.
Overture Services climbed 2.54 dollars to 24.05 dollars after Yahoo! agreed to buy the Web-search advertising company in a deal worth about 1.63 billion dollars. Yahoo inched up 1 cent to 32.20 dollars.
OfficeMax surged 1.42 dollars to 8.60 dollars after Boise Cascade agreed to buy the office-supplies retailer for nearly 1.2 billion dollars in cash and stock the deal will double the size of its office products distribution business. Boise Cascade declined 1.56 dollars to 21.87 dollars.
Decliners included Cigna, which fell 3.45 dollars to 41.04 dollars after the health insurer lowered its 2003 earnings estimates, citing a 100 million dollar restructuring that had not gone as well as planned. Cigna HealthCare president Patrick Welch is also leaving the company.
McDonald’s dropped 66 cents to 21.92 dollars even though the fast-food chain said it expects to meet Wall Street’s estimates for second-quarter profit the earnings, however, are still 2 cents per share lower than results at the same time last year.
Advancing issues outnumbered decliners 9 to 5 on the New York Stock Exchange. Volume was moderate.
The Russell 2000 index, a barometer of smaller company stocks, rose 5.26, or 1.1%, to 479.03.