U.S. Stocks Post Biggest Two-Day Rally Since 1987 on Citigroup

By Elizabeth Stanton

Nov. 24 (Bloomberg) -- U.S. stocks posted the biggest two- day rally since 1987 after the government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package.

Citigroup, which lost 60 percent of its market value last week, rebounded 58 percent after the Treasury also agreed to inject $20 billion into the company. JPMorgan Chase & Co. and Bank of America Corp. jumped more than 21 percent, catapulting the Standard & Poor’s 500 Financials Index to a record gain, as the government rescue boosted confidence in the banking system. Home Depot Inc. and General Electric Co. climbed more than 8 percent on speculation the stimulus will spur economic growth.

The S&P 500 surged 6.5 percent to 851.81, capping a two-day gain of more than 13 percent. The Dow Jones Industrial Average climbed 396.97 points, or 4.9 percent, to 8,443.39. The Nasdaq Composite rose 6.3 percent to 1,472.02. Europe’s Dow Jones Stoxx 600 climbed 8.4 percent, while the MSCI Asia Pacific Index slipped 0.7 percent.

“Job one is to continue to repair the psychology of this market, and the bailout or the help for Citigroup is an important part of that puzzle,” James Dunigan, managing executive for investments at PNC Wealth Management in Philadelphia, said on Bloomberg Television. PNC Wealth Management oversees $63 billion.

Two-Day Rally

All but 35 stocks in the S&P 500 gained. Forty-five companies in the index advanced at least 20 percent as all 10 major industry groups in the main benchmark for American equities gained, led by financials. The 84 banks, brokers and insurers in the index soared almost 19 percent as a group, the steepest advance since the gauge was created in 1989.

Today’s advance followed a 6.3 percent rally in the S&P 500 on Nov. 21 after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. The index has tumbled 42 percent this year and closed at an 11-year low on Nov. 20 after almost $1 trillion of financial-company losses caused corporate profits to decrease for five straight quarters.

Obama today announced Lawrence Summers, a former Treasury Secretary who stepped down as president of Harvard University in June 2006, as White House economic director. He said policy makers had to “act swiftly and act boldly” to avert the loss of millions of jobs next year.

‘Optimism Here’

“There’s an optimism here” that Obama “is going to be thoughtful and is working very hard right now to establish a fundamental foundation by the time he is inaugurated in January,” said Douglas Christopher, a partner at Crowell Weeden & Co. in Los Angeles, a regional brokerage firm with $7 billion under management.

Citigroup climbed $2.18 to $5.95 today, snapping a weeklong losing streak. The cash injection from the Treasury adds to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The Treasury, Fed and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial- market stability and help restore economic growth.

President George W. Bush today said he is prepared to make other financial-rescue moves like the one to help Citigroup. Treasury Secretary Henry Paulson also is considering asking Congress for the remaining $350 billion in the Troubled Asset Relief Program to help revive consumer credit, a shift in position from six days ago.

‘Good Resolution’

“People went into the weekend very fearful about what could happen on the downside to Citigroup,” David Katz, chief investment officer of Matrix Asset Advisors, said on Bloomberg Television. “The fact that the government and Citigroup came up with a very good resolution is very positive for Citigroup in particular, and for the financials overall.”

JPMorgan added $4.86, or 21 percent, to $27.58 and Bank of America increased $3.12 to $14.59.

Concern that Citigroup may need a government rescue sent bank stocks down 24 percent last week, the worst slide in at least 19 years.

Congress will send Obama an economic stimulus package the day he takes office Jan. 20, Democratic lawmakers said. Senator Charles Schumer of New York said on ABC’s “This Week” program that the package will be between $500 billion and $700 billion.

Home Depot, the world’s largest home-improvement retailer, gained $2.13 to $21.42. General Electric, the world’s biggest maker of power-generation equipment, added $1.23 to $15.26.

Energy Rally

Energy companies in the S&P 500 climbed 6.1 percent collectively as oil rallied 9.2 percent to $54.50 a barrel in New York as the rescue of Citigroup boosted confidence and a weaker dollar enhanced the appeal of commodities.

Exxon Mobil Corp., the country’s largest oil company, advanced 3.9 percent to $78.80. Chevron Corp., the second- biggest, rose 5.4 percent to $74.30.

General Motors Corp., the automaker in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said. The shares gained 17 percent to $3.59.

Apple Gains

Apple Inc. increased 13 percent to $92.95. The maker of Macintosh computers and iPod music players had its fiscal 2009 profit estimate boosted 7.3 percent at JPMorgan, which said sales growth for notebook computers is accelerating.

Manitowoc Co. rose 28 percent to $6.18. Rutherford Investment Management President William Rutherford told Business Week magazine that the maker of construction cranes should benefit from an increase in infrastructure spending under Obama.

Campbell Soup Co. fell 7.6 percent to $33.52 for the biggest drop in the S&P 500. The world’s largest soupmaker reported first-quarter sales that trailed analysts’ average estimate by 2.6 percent, according to Bloomberg data. Full-year revenue and profit may be hurt by 5 percentage points because of the dollar’s gain against other currencies, the company said.

Daily swings of 3 percent or more in the S&P 500 have became the norm as the benchmark gauge of U.S. equities extended losses in its worst year since 1931. During the first nine months of 2008, the index moved at least 3 percent on 14, or 7.4 percent, of the 189 trading days, and there were only two days when it gained or lost more than 5 percent.

Autumn Swings

In October, the index rose or fell at least 3 percent 13 times, more than half of the 23 trading days during the month, including six moves of at least 5 percent. This month, the S&P 500 moved at least 3 percent on 10 of the 16 trading days, including eight moves of at least 5 percent.

Only November 1929 overshadowed October 2008 as the most volatile month for the index, according to S&P analyst Howard Silverblatt, citing moves of at least 1 percent on 86 percent of last month’s trading days.

Investors are paying $9.24 per dollar of operating profit forecast in 2009 for S&P 500 companies, half the two-decade median of $18.10, data compiled by Bloomberg show. Stock valuations suggest S&P 500 profits may decrease as much as 42 percent next year amid forecasts for the worst recession in more than two decades.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net