Stock Rally Earns Respect
ALL ABOARD! Investors piled onto stocks' bandwagon Tuesday as decent earnings reports from several market leaders built bullish momentum.
Optimists betting on the bear market's end rubbed shoulders with cynics chasing a short-term rally. All came out way ahead as the Dow rose 378 points to 8255, for a gain of 13% and nearly 1,000 points in the four days since last week's multiyear low. The Nasdaq swelled 61 to 1282, while the S&P 500 shot up almost 40 to 881. Those two indexes closed above their 50-day moving averages, a key technical level.
Techs, financials, airlines and auto makers paced the pack. Traditional safe harbors in medical devices, gold, soap and cola sprang leaks. Twenty-eight of the 30 Dow Industrials advanced, as did 90% of the Nasdaq-100 stocks.
Citigroup (C) shares banked a 13% gain after the financial-industry leader beat the consensus estimate by a penny with quarterly operating earnings of 74 cents a share. That represented a 19% increase in a year's time. Revenues rose 10% as the company's lucrative consumer arm cushioned it against a rise in dud loans and the depressed state of investment banking.
Individual investors mauled in this bear market can take heart: Citigroup took a $446 million bath on its investments in three months' time, including write-downs of depreciated Latin American assets. That deficit was partially offset by $323 million in after-tax proceeds from the sale of the bank's New York City headquarters, which got lumped with core earnings.
Detroit driver General Motors (GM) reported third-quarter operating profits of $1.20 a share, more than predicted by the most optimistic analyst and 21 cents above Wall Street's consensus. The auto maker credited "a steady stream of successful products and a rigorous cost focus." But a $2.2 billion write-down of GM's depreciated minority stake in the struggling Italian car maker Fiat turned that operating profit into a net loss.
The company's underfunded pension plan, which is expected to eat up a big chunk of its forthcoming profits, is down 10% so far this year and has unfunded liabilities approaching $20 billion, by some estimates. To that end, GM emphasized its improving cash flow and liquidity. The stock gained 10%. Rival Ford (F) added 12% a day ahead of its earnings report.
Johnson & Johnson (JNJ) did nothing to ruin the market's upbeat mood. The big drug maker beat analysts' consensus by a penny and the year-ago mark by 11 cents with third-quarter earnings of 60 cents a share. Sales rose 19%, boosted by the success of the firm's anemia and arthritis medicines as well as the gains made by its drug-coated stents, tiny tubes used to clear clogged arteries. The stock tacked on 3%.
The stock stampede carried along Nasdaq leaders still suffering the slings of a historic downturn in technology spending. Top chip maker Intel (INTC) rose 9% ahead of its own report after the closing bell, despite a cautious note from Merrill Lynch. The fourth-quarter gross margin is at risk, the brokerage warned.
Merrill also cautioned investors not to be blinded by Sun Microsystems (SUNW), arguing that the server maker's proprietary technology could leave it on the margins of the corporate market. Stagnant sales could doom another 8,000 jobs. Traders couldn't have cared less, bidding the shares 10% higher.
Shares of networking leader Cisco Systems (CSCO) burst back into the double digits after a similar gain.
Bank of America (BAC) shares rose 8% after the third-largest U.S. bank posted earnings of $1.45 a share, four cents above Wall Street's expectations. Like Citigroup, it rode the boom in consumer lending, doubling its mortgage banking income in a year's time. Declines in the investment-banking and asset-management divisions got relegated to the bottom of the press release. No. 2 bank J.P. Morgan Chase (JPM) soared 10% ahead of its earnings report.
Another financial giant, the top mortgage lender Fannie Mae (FNM), beat analysts' consensus by a nickel with quarterly pro-forma earnings of $1.62 a share. Net income dropped 18% to 98 cents a share as low interest rates drove down the value of options in the company's portfolio. Fannie Mae backed its 2002 profit forecast, but said the pace of the housing boom makes it too hard to size up next year's prospects. The stock rose 7%.
Even the companies making the gloomiest predictions got a pat on the back, provided their struggles were a result of the broader economic malaise. Delta Air Lines (DAL) lost $330 million, or $2.67 per long-suffering share, and deferred all aircraft deliveries slated for 2003 and 2004. The boss said he expects the deep slump in air travel to persist into next year. But operating losses came in nine cents better than analysts' consensus, and the stock lifted off 21%.
Appliance maker Maytag (MYG) spun a 17% gain despite cutting production in response to an expected slowing in industrywide sales. Its quarterly earnings came it at the upper range the company provided when it lowered its profit forecast last month.
The stock rally took the shine off government bonds. The yield on the 10-year Treasury note rose sharply to 4.03% from Friday's 3.80%. Last Wednesday, it had hit a 44-year-low of 3.56%. The two-year note yielded 1.98%, up from 1.79% at the end of last week. The bond market was closed Monday for the Columbus Day holiday
