The Stock Surge Continues
Thursday, July 17, 2008SUSIE GHARIB: Stocks on Wall Street rallied again today, as oil prices dropped below $130 a barrel, and financial stocks continued to rebound. The Dow jumped 207 points, lifting its way out of bear market territory, while the NASDAQ rose 27 points. Over at the New York Mercantile Exchange, August crude futures tumbled $5.31 to settle at $129.29. That's down almost $16 in just the past three days. Today's sell-off was sparked by news of a bigger-than-expected build-up in natural gas supplies. In New York trading, natural gas prices fell more than 7 percent. Well, the news was also bullish in the financial sector as strong bank earnings sent stocks soaring for the second straight day. But that euphoria came to a screeching halt after the closing bell, when Merrill Lynch reported a quarterly loss of nearly $5 billion and write-downs of almost $10 billion. Excluding charges, the giant brokerage firm lost $4.95 a share in the second quarter. Analysts were expecting the loss to be just $1.91. Merrill also confirmed the sale of its 20 percent stake in Bloomberg for about $4.5 billion. CEO John Thain described the quarter as, quote, "difficult and disappointing." Investors were also disappointed. Merrill shares tumbled 5 percent in after-hours trading. They had rallied almost 10 percent during the regular session.
PAUL KANGAS: That Merrill news came after J.P. Morgan, the largest U.S. bank, reported earnings of $0.54 a share. That represents a more than 50 percent drop from last year, but it was a dime better than expected. Erika Miller has more on whether the worst is finally over for the financial sector.
ERIKA MILLER, NBR CORRESPONDENT: Stock investors are hoping J.P. Morgan's better-than-expected earnings are a sign of a turnaround for the troubled financial sector. But S&P banking analyst Stuart Plesser warns it's too early to make that call.
STUART PLESSER, S&P BANKING ANALYST: I don't think that you can say just because J.P. Morgan's numbers were good, that that stands across the banking industry. And one can also say that their numbers were better than the low expectation number, yet there are certainly credit hazards out on the horizon still.
MILLER: He isn't the only analyst who is bearish on this sector. According to Thomson Reuters, a third of the S&P 500 financial firms have now reported second quarter earnings. Profits there are running 76 percent below last year. In addition, expectations for the third quarter have been falling sharply. Analysts are forecasting an 11 percent decline in earnings for that period. Some analysts do not expect earnings to improve dramatically until there is stabilization in the real estate market.
PLESSER: We believe that the house prices declines are at the root of all of these write-downs. And so, once that gets taken care of, then you'll see the credit markets starting to behave a lot better.
MILLER: At a media conference in Washington, Deutsche Bank's CEO conceded that the housing market is taking longer than expected to find its footing, but he does see some positive signs.
JOSEF ACKERMANN, CHAIRMAN, DEUTSCHE BANK: For the financial sector as a whole, if you differentiate between the markdowns on legacy positions and the ongoing new business, we are clearly seeing the end -- or the beginning of the end of the crisis.
MILLER: Investors also hope that's the case. They pushed the S&P financial stock index up sharply for the second straight day. But portfolio manager Brian Rauscher isn't among the buyers.
BRIAN RAUSCHER, DIRECTOR, PORTFOLIO STRATEGY, BROWN BROTHERS HARRIMAN: I still think these stocks still have considerable amount of downside risk right now. I don't need to bottom pick the stocks right here. In my opinion, when the financial crisis is over and the stocks start to heal, the stock will run from six months to a year, and I don't think I need to be in and catch the first 2 or 3 percent.
MILLER: Investors are now waiting for earnings from other financial firms to get a better sense of the health of the sector. Tomorrow, look for results from Citigroup (C), one of the banks hardest hit by the credit crisis. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
