U.S. Stocks Gain, Capping Biggest Jump Since 1933 as Banks Rise

By Eric Martin and Lynn Thomasson

April 10 (Bloomberg) -- U.S. stocks rose for a fifth week, capping the steepest rally since 1933, as Wells Fargo & Co.’s higher-than-estimated earnings and speculation banks will pass government stress tests spurred optimism that the industry’s slump is ending.

Bank of America Corp., American Express Co. and JPMorgan Chase & Co. helped drive a gauge of 80 financial companies in the Standard & Poor’s 500 Index to a 9.4 percent advance. Wells Fargo surged 20 percent after reporting record first-quarter profit. Lincoln National Corp. and Principal Financial Group Inc. jumped at least 37 percent as the Treasury considered bailouts for life insurers.

“This was a really, really positive start to the earnings season,” Hugh Johnson, who oversees $750 million as chairman of Johnson Illington Advisors in Albany, New York, told Bloomberg Television. “Banks are not going to be forced to take the kind of write-offs they had to take in prior quarters.”

The S&P 500 gained 1.7 percent to 856.56. It has soared 27 percent since March 9, the most in 23 days since the Great Depression, according to Howard Silverblatt, an analyst at S&P. The Dow Jones Industrial Average added 0.8 percent to 8,083.38 this week. U.S. exchanges are closed today for Good Friday.

The S&P 500 has rebounded off the 12-year low reached a month ago as Citigroup Inc., Bank of America and JPMorgan said they made money at the start of 2009. Treasury Secretary Timothy Geithner spurred a 7.1 percent rally, the fourth-biggest gain since the 1930s, on March 23 after announcing a plan aimed at financing as much as $1 trillion in purchases of illiquid real- estate assets from banks. The index is now down 5.2 percent year to date after plunging 25 percent as of March 9.

Wal-Mart, Soros

Wal-Mart Stores Inc. retreated 5.8 percent, limiting the market’s advance this week, after the world’s biggest retailer reported March sales that increased less than analysts estimated. Sun Microsystems Inc. plunged 21 percent after takeover talks with International Business Machines Corp. failed. Investors from billionaire hedge-manager George Soros to Marc Faber predicted the rebound in equities will falter.

Wells Fargo jumped 20 percent to $19.61. Net income rose about 50 percent from $2 billion a year earlier. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the company said.

Bank Stress Test

Citigroup gained 6.7 percent to $3.04, JPMorgan climbed 12 percent to $32.75, American Express rose 23 percent to $18.83 and Bank of America advanced 26 percent to $9.55. The New York Times said all 19 banks examined by the government will pass a review to determine their viability should the recession deepen.

The S&P 500 Banks Index jumped 25 percent yesterday, the most since its creation in 1989, following Wells Fargo’s report.

“Investors believe we can’t get anywhere without our financial system leading the way,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $60 billion. “They’re looking for any indication things are on the mend.”

Lincoln National advanced 51 percent to $10.40 and Principal Financial gained 37 percent to $14.47. The U.S. Treasury said life insurers that have bank or thrift holding companies are eligible for capital infusions from Troubled Asset Relief Program funds and applications are under review.

Centex Corp. surged 12 percent to $9.48 as Pulte Homes Inc. said it will buy the company in a $1.3 billion stock deal to create the nation’s largest homebuilder. Pulte dropped 12 percent to $10.11.

Takeover Speculation

Textron Inc. gained the most in the S&P 500, soaring 83 percent to $13.56 on speculation it will be acquired. Kuwait’s Al-Watan newspaper reported a United Arab Emirates group is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share.

Bed Bath & Beyond Inc. rallied 13 percent to $31.09 after the largest U.S. home-furnishings retailer said fourth-quarter profit beat the average analyst projection by 26 percent.

Profits at S&P 500 companies probably fell 38 percent on average in the first quarter, according to analysts’ estimates compiled by Bloomberg. The stretch of quarterly declines is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.

Missing Estimates

Earnings may drop 31 percent in the second quarter and 18 percent in the next before gaining 74 percent in the last three months of the year, analysts predict. Banks are projected to account for all of the rebound in the final quarter. Without financial companies, the gain turns into a 5 percent decline, the data show.

Wal-Mart fell 5.8 percent to $50.66 for the steepest decline in the Dow average. The world’s largest retailer said revenue from U.S. stores open at least a year advanced 1.4 percent in the five weeks ended April 3. That missed the 3.2 percent average estimate compiled by Retail Metrics Inc.

The highest U.S. unemployment since 1983 has forced consumers to restrain spending. The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week. The total collecting benefits rose to a record in a sign that the labor market remains weak.

The U.S. stock rally will sputter because the economic downturn hasn’t been reversed, said Soros, whose Quantum Endowment Fund rose 8 percent last year, compared with the average 19 percent decline of hedge funds tracked by Chicago- based Hedge Fund Research Inc.

Unlike Other Crises

“This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime,” Soros said in an interview with Bloomberg Television.

Faber, who forecast a gain in U.S. stocks on March 9, said this week that the S&P 500 may decline to about 750 before rebounding after July.

Sun dropped 21 percent to $6.68. Chief Executive Officer Jonathan Schwartz and the board, including co-founder Scott McNealy, unanimously rejected a buyout offer from IBM last weekend that valued Sun at about $7 billion, according to a person familiar with the matter. The talks have gone quiet for now, the person said. IBM lost 0.5 percent to $101.70.

Reports next week will probably show sales at retailers rose in March as tax refunds put more money in consumers’ pockets and car dealers boosted incentives to clear unwanted stockpiles, according to economists surveyed by Bloomberg. Data may also show factory output kept slumping last month and inflation cooled.

Citigroup, General Electric Co., Goldman Sachs Group Inc., Google Inc., Intel Corp. and JPMorgan are among 31 companies scheduled to announce quarterly results.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.