Market Summary ~ Dow up 279 on big gains in IBM, financials
Stocks shoot higher after Big Blue says 2009 earnings will be better than expected. Bank stocks rebound as the new administration works on a new rescue package. Toyota overtakes GM as the world's top automaker by sales.
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By Charley Blaine and Elizabeth Strott
Stocks rallied strongly today, thanks to a big gain for IBM (IBM, news, msgs) and a bigger rebound by beaten-down bank stocks.
Energy and technology stocks were also among the day's top performers. Apple (AAPL, news, msgs) and eBay (EBAY, news, msgs) were to report after the close.
The Dow Jones Industrial Average jumped 279 points, or 3.5%, to 8,228, a day after suffering its worst loss on the first day of a presidential administration ever.
The Standard & Poor's 500 Index was up 35 points, or 4.4%, to 840, and the Nasdaq Composite Index was up 66 points, or 4.6%, to 1,507.
Today's rally was a huge relief to many who feared the market might collapse past its lows on Nov. 20 and 21. But it looked as if it was fueled by short-covering by short-sellers booking profits.
It also may reflect increasing confidence that Tim Geithner, President Barack Obama's nominee for Treasury secretary, will win Senate confirmation despite an embarrassing tax problem.
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IBM was the star of the day, rising 11.2% to $91.16, after Big Blue said it expected to earn at least $9.20 per share -- ahead of the consensus estimate of $8.75 per share. The gain was responsible for 66 points, or 39%, of the Dow's gain.
IBM earned $4.4 billion, or $3.28 per share, in its fiscal fourth quarter -- a 12% increase from the $2.8 billion, or $2.80 per share, it earned a year ago. Analysts had estimated the company would earn $3.03 a share.
Revenue fell 6% to $27 billion in the quarter, but revenue in the company's software division rose 2.6% to $6.42 billion.
Financial stocks were rising on expectations that the Obama administration can twin a bank-rescue plan with the $825 billion stimulus package being negotiated with Congress to alleviate the deepening financial crisis.
Bank of America (BAC, news, msgs), which had fallen 29% on Tuesday, was up 30% to $6.64, the top performer among the 30 stocks, on news that CEO Ken Lewis and other top executives had bought shares of the company on the open market.
Citigroup (C, news, msgs) was up 25% to $3.50, and Wells Fargo (WFC, news, msgs) added 12.4% to $15.99.
Northern Trust (NTRS, news, msgs) jumped 28.2% to $54.07 after reporting a higher-than-expected fourth-quarter profit. Revenue increased due to higher foreign exchange trading income and total fee income.
Crude oil rose $2.71, or 6.6%, to $43.55 a barrel this afternoon. Exxon Mobil (XOM, news, msgs) was up 3% to $78.61. Offshore driller Transocean (RIG, news, msgs) was up 6.9% to $49.59.
Toyota takes sales crown from GM
Toyota Motor (TM, news, msgs) has topped General Motors (GM, news, msgs) as the No. 1 automaker by sales, ending GM's 77-year reign.
GM this morning said it had sold 8.35 million vehicles in all of 2008 -- about 616,000 vehicles shy of Toyota's 8.97 million in sales last year.
GM shares slid 6.3% to $3.28 in midday trading; Toyota was up 1.4% to $66.78.
GM reported an 11% decline in overall sales in 2008 from 2007, when it sold 9.37 million vehicles. Toyota's sales declined 4% in 2008.In the fourth quarter of 2008, when GM and privately held Chrysler pleaded for -- and received -- billions in aid from the federal government, sales at GM tanked 26% to 1.7 million from the same quarter in 2007.
Geithner testifies on Capitol Hill
President Barack Obama's nominee for Treasury secretary was pushing for a "forceful" stimulus plan to help revive the slumping economy.
Tim Geithner, current head of the Federal Reserve Bank of New York, got peppered with questions during his Senate confirmation hearing this morning.
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"Senators, the ultimate costs of this crisis will be greater if we do not act with sufficient strength now," Geithner said in prepared testimony. "In a crisis of this magnitude, the most prudent course is the most forceful course."
Geithner's nomination hit a speed bump over his failure to pay certain taxes, but he said he had corrected the error.
Obama's first task: Fixing financials
Financials were the dogs of the market Tuesday, as Bank of America, State Street (STT, news, msgs) and Wells Fargo plunged amid continued worries about their future health.
Speculation grew that the British government might effectively have to nationalize the Royal Bank of Scotland (RBS, news, msgs); the British government already owns 70% of the bank.
The Obama team is already at work on a package to tackle the problems with U.S. financials, according to Bloomberg News.
The package, which could be sold in tandem with the new president's $825 billion economic stimulus package, would include a program of at least $50 billion designed to help stem foreclosures, inject fresh capital into the banks and deal with a heavy burden of toxic assets weighing on banks' balance sheets.
One proposal is to create a sort of national "bad bank," which would pick up a large portion of the toxic assets. Then the government would guarantee those troubled assets that remain on the banks' books.
Obama and his team are sorting through their options, The Wall Street Journal reported this morning. While nationalization is likely the government's last resort, the mere mention of the possibility is enough to cause analysts to worry. Nationalization would wipe out stockholders.
"You don't want to wipe out the very guys who are going to fund this industry getting back to health," said Anton Schutz, president of Mendon Capital Advisors, a firm that invests in financial stocks.The Obama administration didn't wait long before making a move to try to tackle the struggling sector, asking all federal agencies to pause on the execution of any pending regulatory changes until it conducts a review, Reuters reported late Tuesday.
"The state of the economy calls for action, bold and swift. And we will act, not only to create new jobs but to lay a new foundation for growth," President Obama said in his inaugural address Tuesday.
SEC looks into Apple's disclosures on Jobs' health
Concerns about the health of Apple (AAPL, news, msgs) CEO Steve Jobs have been weighing on the price of Apple stock, so investors may be especially edgy when they tune in this afternoon to hear how the company fared with its fiscal first quarter results.
Jobs announced recently that his health issues were more complex than he originally thought. He took a leave of absence until the end of June. The Securities and Exchange Commission is now examining Apple's disclosures about Jobs' health for possible irregularities, Bloomberg News reported today.
Analysts forecast earnings of $1.39 per share on $9.74 billion in revenue. Shares were up 3.7% to $81.08 this afternoon.
The high prices of Apple computers have hurt sales, analysts say, and Apple didn't come out with a lower-priced notebook, as many were expecting. Improved iPhone sales, particularly in Europe, may compensate somewhat for the drop in demand for Apple computers. Analysts have punished the stock with a series of downgrades recently, and they will take a close look at the outlook for the next quarter
Online auction site eBay (EBAY, news, msgs) is also slated to post its most recent quarterly results after the closing bell.
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The company is expected to earn 39 cents per share for the fourth quarter, but some analysts are concerned that the big pullback in consumer spending will bring disappointment.
Shares were up 3.6% to $13.
More trouble for the housing market
The financial sector isn't the only struggling sector of the economy.
This afternoon, the National Association of Home Builders said that its January forecast of builder sentiment hit another record low.
The index came in at a reading of 8, lower than the previous record low of 9 seen in November and December. The reading signals that about 1 out of every 12 builders believes the market is doing well.
The index, which stood at 72.5 as recently as December 2005, is based on surveys of housing industry professionals.
David Crowe, chief economist for the NAHB, told MarketWatch that housing starts are expected to fall about 30% in 2009, and that new-home sales could drop 14%. Crowe hopes for an upswing in 2010.
Homebuilding shares were lower. Ryland (RYL, news, msgs) was off 2.9% to $15.18. D.R. Horton (DHI, news, msgs) was down 2% to $5.95.
Warner Bros. to cut jobs
Time Warner's (TWX, news, msgs) Warner Bros. Entertainment business will cut 800 jobs in coming months, or about 10% of its work force, the media company announced late Tuesday.
The film and television studio will start by laying off 300 people in the next few weeks.
"Jeff Bewkes is coming in and really trying to streamline things," Miller Tabak analyst David Joyce told Bloomberg News. Bewkes, the chief executive officer of Time Warner, took over the reins a year ago. "DVD sales have been weak and that's been a traditional profit center for the studios," Joyce added.
Warner Bros. movie studio released 20 films in 2008. Its "The Dark Knight" was the highest-grossing movie of the year, with $531 million in box office revenue, according to Box Office Mojo.
The company said that "shifting consumer demand and the overall state of the economy" are affecting companies across the globe. Time Warner was up 4.6% to $9.35.
Last month, General Electric's (GE, news, msgs) NBC Universal said it will cut 500 jobs. Viacom (VIA, news, msgs) recently announced plans to eliminate 850 jobs at its MTV Networks and Paramount Studios.
Andrew Rosenbaum contributed to this report.
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