Wall Street Keeps Rally Going

Updated from 4:05 p.m. EDT

Stocks in New York coasted to a higher finish again Monday as buyers continued riding the wave of last week's rally amid an upswing in the financial sector.

The Dow Jones Industrial Average was off its peak for the day but still closed up 187.32 points, or 1.5%, at 12,548.64. The S&P 500 gained 20.37 points, or 1.5%, to 1349.88, and the Nasdaq Composite soared 68.64 points, or 3%, to 2326.75.

"I think the market is empowered first and foremost by the fact that the bearishness became so strong," said Chip Hanlon, president of Delta Global Advisors and a contributor to Realmoney.com, a sister site to TheStreet.com. "Not that the economic backdrop is sterling by any stretch, but the market was pricing in the end of the world as we know it."

Hanlon believes that stocks may now have hit at least an intermediate bottom. "The market is incredibly prescient and will often price in future outcomes," he said.

Art Hogan, chief market analyst with Jefferies, agrees. He argues that, assuming we are in a shallow and short recession, we should be about halfway through it. "And what happens at the halfway point? People start trading higher, and see a light at the end of the tunnel." Hogan also noted that Wall Street stories have finally worked their way into the pages of mainstream publications; he said that is "typically a sign that you've bottomed out."

Many traders were encouraged by the technical aspects of the gains over the past few trading sessions. Hanlon pointed to last week's retesting of the Jan. 22 lows and said, "I think having that in the rearview mirror is going to cause people to get long and stay long in this market."

Alan Gayle, senior investment strategist with Trusco Capital Management, concurred, although somewhat hesitantly. "Technically, the picture looks good for now, and the double bounce in January and March suggests that the market will at least tread water for the time being," he said. "But I'm still cautious as to whether or not this is the bottom, because I still think that the underlying economic fundamentals remain soft."

Breadth was positive. Around 4.44 billion shares changed hands on the New York Stock Exchange as advancers outran decliners by a 4-to-1 margin. Volume on the Nasdaq reached 2.26 billion shares, with winners beating losers 7 to 3.

Contributing to the buying sentiment was word that JPMorgan Chase (JPM) has struck a deal to bolster its all-stock buyout offer for Bear Stearns (BSC) to around $10 a share. JPMorgan originally said it would pay stock valued at $2 for each share of Bear.

The new offer is still a severe discount from what Bear was worth a mere two weeks ago, but the stock shot up some 90% to finish at $11.86. JPMorgan, a Dow component, added 1.3%.

At the same time, investors were pulling their money out of the Treasury amid rising confidence in stocks. The 10-year note slid 1-23/32 in price to yield 3.54%, and the 30-year bond plunged 2-30/32 in price, yielding 4.34%.

Commodities were continuing on their new downward track. Crude oil lost 98 cents to close at $100.86 a barrel, and gold futures sank $1.30 to $918.70 an ounce, both following a day of erratic trading. Hogan believes that the broken commodities rally could be yet another sign that the market may have hit bottom and is turning a corner.

On the economic docket, the National Association of Realtors said that February existing-home sales rose 2.9% from the prior month to a better-than-expected annualized rate of 5.03 million. The consensus had called for a decline to 4.86 million.

"That's not what I would call a compelling turnaround, and overall [home] prices remain weak," said Gayle. He added that winter data tend to be volatile because of inclement weather and should be treated with skepticism.

Nonetheless, most homebuilder stocks climbed on the report, with D.R. Horton(DHI), KB Home(KBH) and Lennar (LEN) each adding 6% or more.

Among other corporate news, the Justice Department approved the proposed merger between XM (XMSR) and Sirius Satellite Radio (SIRI), more than a year after the companies signed the deal. Shares of XM and Sirius leaped 15.5% and 8.6%, respectively.

The NYSE Financial Sector Index, meanwhile, spiked 1.5% as the Bear buyout news helped offset a number of negative analyst calls on other companies in the group. Among those actions, Oppenheimer cut Lehman Brothers (LEH) to perform from outperform, saying its stock price doesn't accurately reflect what should be a protracted challenging capital-markets environment.

On Friday, Standard & Poor's lowered its outlook on Lehman and Goldman Sachs (GS) to negative from stable, meaning that both firms have a higher likelihood of getting a downgrade. The firm revised the whole brokerage industry to negative as well, saying it's predicting a 20% to 30% drop in revenue for the sector. Lehman shares lost 4.1%, and Goldman ended down fractionally at $178.88 after spending the bulk of the day in the green.

In addition, Baird downgraded Wells Fargo (WFC) to underperform, and Punk Ziegel pared its full-year earnings estimates for Bank of America (BAC) from 2008 through 2010, while forecasting that its loan-loss provision may reach $6.5 billion in the current quarter. Wells' shares slipped 1.4%, while BofA climbed by that same amount.

Away from the financial space, Tiffany (TIF) jumped 10.5% after beating analyst estimates by 6 cents a share for the fourth quarter. The jewelry retailer also set its fiscal 2008 guidance well above the consensus.

Also, Walgreen (WAG) said fiscal second-quarter earnings climbed 5% year over year to a better-than-expected $685.9 million. Shares of the drugstore chain added 5%.

Most major overseas markets were closed for the Easter holiday. Among active bourses, Tokyo's Nikkei 225 dipped fractionally overnight to 12,480.

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