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Financial stocks lead major market rally

The Dow soars 274.66 points and closes back above 10,000. The market's two-day advance erases more than half of their losses in the preceding two weeks.

July 08, 2010|By Nathaniel Popper and Tom Petruno, Los Angeles Times

Reporting from New York and Los Angeles — — A few bits of good news were enough to drive a major stock rally Wednesday, vaulting the Dow Jones industrials back above 10,000 and raising hopes that the market had put its recent slump behind it.

Share prices rose steadily all day. The Dow finished up 274.66 points, or 2.8%, at 10,018.28. The broader Standard & Poor's 500 index surged 3.1%.

It was the second straight advance for blue-chip indexes after they tumbled for most of the previous two weeks.

Financial stocks led the overall market up Wednesday after money manager State Street Corp. said it would post higher second-quarter earnings than Wall Street expected. Shares of the company, which also provides services to banks and brokerages, soared 9.9%, while an index of bank shares jumped more than 5%.

"That got the ball rolling," said Ryan Detrick, a market analyst at Schaeffer's Investment Research in Cincinnati.

The market also got a lift after a trade group for big retailers reported that sales last week rose 1% from the week before and were up 3.9% from a year earlier.

The news wasn't much but, on a day with no major economic data emerging, seemed to validate the view that stock prices might have fallen too low.

"In a market that was so used to bad news — to get anything positive was at least a short-term catalyst," said Sean Kraus, chief investment officer at CitizensTrust in Pasadena.

In the two weeks that ended Friday, the Dow fell in nine of the 10 trading sessions, losing more than 700 points to its lowest level since November. The S&P 500 lost 8.5% in those two weeks to close Friday down 16% from its late-April high.

By Wall Street's classic yardstick, a decline of 10% to 20% constitutes a market "correction" — a definition that the major indexes satisfied more than a month ago. By the same yardstick, a drop of more than 20% would mark the start of a new bear market.

The market's slide in recent weeks was driven by fresh concerns about global fallout from Europe's debt crisis and worries that the U.S. could fall back into recession.

But many economists have downplayed prospects for a "double dip," saying recent indicators that have been weaker than expected pointed to slower growth but not another contraction.

Wells Fargo & Co. economists on Wednesday called predictions of such a downturn "overblown." But they projected U.S. growth would slow to a 1.6% annualized rate in the third quarter and 2% in the fourth quarter, down from 2.7% in the first quarter.

As stocks sank in the last two weeks, many Wall Street bulls predicted the market would stabilize once companies began to report their second-quarter results next week.

Analyst estimates of individual companies' quarterly earnings suggest that operating profits of the S&P 500 companies rose 27% from a year earlier, continuing the strong rebound of the last two quarters as the economy recovered.

But the profit outlook is far from clear. And even before Alcoa kicks off earnings season Monday, the Labor Department's weekly report on unemployment claims Thursday could send investors into retreat again.

"If those numbers are on the high side, we'll reverse everything we saw today," said Steven Ricchiuto, the chief economist at Mizuho Securities in New York.

In other trading, Treasury bond yields inched up after plummeting in recent weeks as fearful investors sought a haven. The 10-year T-note yield rose to 2.98% from 2.93% on Tuesday.

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