U.S. Stocks Rebound From Lows; Bank of America Leads Rally
May 12 (Bloomberg) -- U.S. stocks rebounded from losses, lifting the Dow Jones Industrial Average by almost 200 points in the last two hours of trading. Bank of America Corp. and other financial stocks gained.
``We were totally oversold in the last three or four days,'' said Kevin Connellan, head of trading at Northern Trust Corp., which oversees $430 billion in Chicago. ``That's why we saw the rally.''
The rally began after the Standard & Poor's 500 Index held above its average price for the past 200 days, Connellan and other traders said. Traders track such levels on stock charts to gauge the market's momentum, and the S&P 500's ability to stay above 1078.19 showed that the decline was running out of steam.
The Dow average rose 25.69, or 0.3 percent, to 10,045.16. The benchmark earlier fell as low as 9852.19, a loss of 1.7 percent. The S&P 500 added 1.81, or 0.2 percent, to 1097.26. The Nasdaq Composite Index lost 5.76, or 0.3 percent, to 1925.59, its fourth loss in five days, after Cisco Systems Inc.'s earnings failed to impress investors.
Advancing and declining stocks were about even on the New York Stock Exchange. Some 1.7 billion shares changed hands on the Big Board, 14 percent more than the three-month daily average.
Since reaching a 23-month high on Feb. 11, the S&P 500 has shed 5.2 percent, while the Dow has lost 6.5 percent from its 31- month high the same day. The Nasdaq has retreated 11 percent since its two-and-a-half year high set on Jan. 26.
Benchmark indexes reached their lows for the day just before 2 p.m. New York time, when the S&P 500 dipped as low as 1076.32 and then recovered. ``The S&P held at its 200-day moving average,'' said Connellan. ``It held and bounced off of that. That's big -- it could be we're at a bit of a bottom here.''
Banks Rally
An index of financial shares rose 1 percent, the biggest gain among the S&P 500's 10 industry groups.
Bank of America, the second-biggest U.S. bank, gained $1.91 to $80.34. ``We remain very confident and comfortable with our 2004 outlook that we discussed in January,'' Chief Executive Officer Kenneth Lewis said at an investor conference in New York. Analyst Michael Mayo of Prudential Equity Group Inc. raised his rating on Bank of America to ``overweight'' from ``neutral weight.''
Citigroup Inc. rose 62 cents to $46.31. The world's biggest financial services company agreed to buy Principal Financial Group Inc.'s residential-mortgage business for $1.26 billion. Principal Financial jumped $2.40, or 7.4 percent, to $34.73, for the biggest gain in the S&P 500.
Cisco fell 29 cents to $21.96. Excluding certain items, it earned 19 cents a share, missing the highest analyst forecast of 20 cents, according to Thomson Financial. Sales jumped 22 percent, the biggest increase in three years, to $5.62 billion. The highest revenue forecast was $5.65 billion, said Thomson.
The stock has returned 32 percent in the last 12 months, compared with a 16 percent gain in the S&P 500.
Cisco Suppliers
Shares of companies that supply Cisco or its rivals fell after Cisco said net inventory rose 20 percent in the quarter from the previous three months, raising concern that the company will opt to work off stockpiles of chips and other parts before it orders more.
PMC-Sierra Inc. lost 76 cents to $13.39. Altera Corp. dropped 48 cents to $21.55. Conexant Systems Inc. slid 14 cents to $4.23. Applied Micro Circuits Corp. shed 15 cents to $4.69. The S&P 500 index of technology companies fell 0.6 percent, giving it the biggest drop among the benchmark's 10 industry groups.
Qualcomm Inc., the No. 2 maker of microchips that power mobile telephones, retreated 82 cents to $63.90 even as the company boosted its third-quarter profit and revenue forecast. Excluding one segment, earnings will be as much as 53 cents a share from 33 cents a year earlier and revenue will rise as much as 46 percent, Qualcomm said. The stock has doubled in the past year.
Watching the Fed
The Dow, the S&P 500 and the Nasdaq composite have erased their gains for the year as investors anticipate the Federal Reserve may raise its benchmark overnight lending rate next month from a 45-year low of 1 percent. Market interest rates have already risen. Since the end of March, the yield on the 10-year Treasury note has increased by more than one percentage point to 4.8 percent.
Crude oil for June delivery reached $40.80 a barrel, the highest intraday price since Oct. 10, 1990, when Iraqi troops occupied Kuwait. The increase in oil prices, up 49 percent from a year earlier, helped contribute to a widening in the U.S. trade deficit to a record $46 billion in March, the Commerce Department said.
First-quarter earnings for S&P 500 companies increased 27.1 percent, based on results for the 454 members that have reported and estimates for the rest, according to Thomson. That's double the 13.4 percent forecast on Jan. 1. Analysts expect profit growth to slow to 17.7 percent in the second quarter and 12.5 percent in the third, said Thomson.
Altria Group Inc. and R.J. Reynolds Tobacco Holdings Inc. shares slumped. The Florida Supreme Court said it would review the dismissal of a $145 billion class-action verdict against the cigarette makers. Altria, which owns Philip Morris USA, dropped $3.60 to $49.80, while R.J. Reynolds fell $3.47 to $58.08.
Weight Watchers Drops
Weight Watchers International Inc. retreated $4.61 to $33.13. The world's largest chain of diet centers cut its 2004 profit forecast by 10 percent after ``weakness in U.S. attendance'' was worse than it expected.
Northrop Grumman Corp., the world's largest builder of warships, added $1.52 to $98.97. The company said it expects sales to climb 7.1 percent to $30 billion next year, as U.S. defense spending rises. Northrop also raised its dividend and will split its stock for the first time since 1984.
Sycamore Networks Inc., a maker of fiber-optic networking equipment, rose 14 cents to $4.05. Excluding certain expenses, the company's net loss would have been 3 cents a share. On that basis, analysts surveyed by Thomson expected a loss of 4 cents, on average.
To contact the reporter on this story:
Chris Graja in New York [email protected].
To contact the editor responsible for this story:
Phil Serafino at [email protected].
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