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Stocks Ride Banks' Rise

Mike Taylor

Stocks on Wall Street charged uphill to a glorious finish Wednesday as a reassuring earnings statement by Wells Fargo (WFC Quote) helped quell investors' skittishness about the financial sector and crude oil prices fell substantially for the second day in a row.

The Dow Jones Industrial Average soared 276.74 points, or 2.5%, to 11,239.28, while the S&P 500 was up 30.45 points, or 2.5%, to 1245.36. The Nasdaq jumped 69.14 points, or 3.1%, to 2284.85.

Wells Fargo delivered second-quarter earnings that were lower than the year-ago results but ahead of analyst expectations. The bank also announced it would raise its dividend 10%. Shares barreled up 33% to $27.23, taking much of the banking sector along for the ride.

State Street (STT Quote) and USBancorp (USB Quote), which delivered solid earnings yesterday, were rising today, as were larger banks Citigroup (C Quote), Bank of America (BAC Quote) and JPMorgan (JPM Quote). Bank of America rose 22% to $22.63 even as Fitch Ratings cut its issuer default rating for the company, citing worsening credit and lending markets. Citigroup tacked on 13% to $16.47, and JPMorgan added 15% to $35.70.

State Street climbed 11% to $66.45, and USBancorp added 18% to $26.74.

Wells Fargo's earnings are important because the bank was based on the West Coast, where many of the most overpriced homes were built, said Marc Pado, U.S. market strategist at Cantor Fitzgerald. After numerous analyst warnings that this quarter would be grim for the financials, it was significant that Wells Fargo emerged with solid earnings.

"It's actually got coattails here," said Pado of the broad rise in the financials. He said that the problems are not over and that there are banks that were swept up in the Wells Fargo exuberance that didn't really deserve the positive attention. He said that once the larger banks such as Citigroup report, investors will be able to turn to other sectors of the market that are actually performing well, such as technology stocks and multinationals.

Following yesterday's announcement by the Securities and Exchange Commission that it was cracking down on naked short-selling of pummeled mortgage companies Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), shares of both were soaring. Fannie finished 31% higher at $9.25, and Freddie jumped 30% to $6.83. The two had been the focal point of the market's recent declines as the government developed a plan this weekend to offer support to their capital levels.

Federal Reserve Chairman Ben Bernanke made his second appearance before Congress in two days. He reaffirmed the Fed's commitment to increasing stability in the financial markets as he defended the plan to intervene on behalf of Fannie and Freddie. He said the government-sponsored entities are well-capitalized and are not in danger of failing.

CNBC reported shortly before the close that Merrill Lynch (MER Quote) would sell its stake in Bloomberg for $4.5 billion. Merrill ended the day up 13% at $28.

A rise in oil inventories contributed to today's decline in oil prices. After falling more than $6 in Tuesday's session, the largest daily decline since 1991, crude ended the day down $4.14 at $134.60. Oil inventories for the week ended July 12 increased by 3 million barrels. Distillate inventories rose 3.2 million barrels, and gasoline inventories rose by 2.4 million barrels.

The inventory numbers alone didn't tell the whole story, said Pado. After crack spreads had narrowed so dramatically, investors were surprised that the refineries didn't cut back on production, he said. He said that a drop in the demand for gasoline is showing that at $4 a gallon, people stop driving, and that reveals a key price point.

Gold prices fell $16 to finish at $962.70.

After Tuesday's close, technology bellwether Intel (INTC Quote) reported a second-quarter profit of $1.6 billion, or 28 cents a share, up from 22 cents a share in the year-ago quarter and ahead of analysts' expectations. Intel shares added 1% to $20.91.

Railroad service provider CSX (CSX Quote) also reported following the close, delivering in-line pro forma earnings of $365 million, or 89 cents a share, up from 71 cents a share a year ago. The stock popped 6.1% to $61.41.

The arrival of the new day brought with it more earnings. Delta (DAL Quote) posted a profit, excluding one-time charges, of 35 cents a share, beating the consensus estimate culled by Thomson Financial. American Airlines operator AMR (AMR Quote) also bettered estimates. Delta skyrocketed 29% to $6.02, and AMR added 30% to $5.75.

Drug company Abbott Laboratories (ABT Quote) announced that its profit rose 34% year over year to $1.32 billion, or 85 cents a share, beating expectations of 79 cents a share. Shares slipped 1.5% to close at $56.97.

Among materials companies, iron-ore provider Cleveland-Cliffs (CLF Quote) said it will buy coal miner Alpha Natural Resources (ANR Quote) for $10 billion in cash and stock. Cleveland-Cliffs dropped 6.7% to $104.02, while Alpha Natural jumped 11% to $104.93.

Over in the energy patch, which was broadly hurting on falling oil, Chesapeake Energy (CHK Quote) led the decliners, losing 4.7% to end at $56.67. Sunoco (SUN Quote) beat the trend, rising as it named former Royal Dutch Shell executive Lynn Laverty Elsenhans as its new CEO. Sunoco rose 1.9% to $34.46.

Traders have a hefty batch of economic data to contend with, as well. The Bureau of Labor Statistics' consumer price index rose 5% year over year, its biggest increase since May of 1991. Sequentially, the CPI rose 1.1% for June, up from 0.6% in May and above analysts' predictions of 0.7%. The core CPI figure increased 0.3% for June, up from a 0.2% increase for May.

The Fed reported a 0.5% increase in industrial production for June vs. a 0.2% decline in May. For the second quarter, production declined 3.1% sequentially. June capacity utilization increased to 79.9%, a reading that was ahead of economists' predictions of 79.4%.

Investors also got a look at the minutes from the June 25 Fed meeting, where the central bank had elected to leave its target interest rate unchanged at 2%. The Fed noted strong profits and cash flow outside of the financial sector, and its notes revealed concern about increasing inflation pressures due to the rise in oil, energy and food prices.

As for Treasuries, the 10-year note was losing 1-1/32 in price, yielding 3.95%. The 30-year was dropping 2 points to yield 4.59%. The dollar was holding its own against the euro and the pound, and dropping slightly against the yen.

World markets were mixed. London's FTSE was lower, while Frankfurt's DAX, Japan's Nikkei and Hong Kong's Hang Seng were edging higher.