Stocks showed a strong upward move over the course of the trading day on Tuesday, partly offsetting the steep losses posted in the previous session. While stocks saw initial weakness on disappointing earnings news, a positive reaction to comments from Treasury Secretary Geithner drove the markets higher.
The initial weakness came after Dow component Merck (MRK) reported first quarter earnings that fell short of analyst estimates and lowered its full year revenue guidance. Caterpillar (CAT) also slashed its full-year guidance, although it reported much better than expected adjusted first quarter earnings.
In other earnings news, chemical giant DuPont (DD) reported first quarter earnings that fell year-over-year and lowered its full-year guidance. The company's downwardly revised earnings guidance brought it in line with analyst estimates.
The turnaround by the markets was partly due to comments from Geithner, who assured the Congressional Oversight Panel that there is enough money left in the government's $700 billion financial rescue program to stabilize the financial system. Geithner said there is at least $134.4 billion in funds left.
The Treasury Secretary also said that the vast majority of U.S. banks have enough capital and hinted that the credit markets may be thawing following their deep freeze.
Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets, Geithner said.
In an interview with RTT News, Paul Mendelsohn, chief investment strategist at Windham Financial Services attributed today's earlier weakness to profit taking and said that while stocks could give back some ground over the next couple of days, he believes there is more upside.
Longer term, however, Mendelsohn predicted that the market is going to trade in a trading range with very volatile swings... for at least the next three to five years. We do not see any potential to go into a new bull market, he added.
The major averages moved to the upside going into the close, ending the session at or near their best levels of the day. The Dow closed up 127.83 points or 1.6 percent at 7,969.56, the Nasdaq closed up 35.64 points or 2.2 percent at 1,643.85 and the S&P 500 closed up 17.69 points or 2.1 percent at 850.08.
After turning in a mixed performance earlier in the session, most of the major sector indices ended the day firmly positive.
Airline stocks helped to lead the way higher, resulting in a 10 percent gain by the Amex Airline Index. With the advance, the index ended the session at its best closing level in over two months.
Within the airline sector, Delta Air Lines (DAL) turned in one of the best performances of the day, rising 19.1 percent to a nearly to a nearly three-month closing high after reporting a narrower than expected first quarter loss.
The upward move by the broader markets also came as a result of a turnaround by the banking sector, with the S&P Banks Index finishing out Tuesday's session 11 percent higher. Synovus Financial (SNV) and US Bancorp (USB) posted standout gains, with both closing up more than 20 percent.
Real estate, healthcare provider, and networking stocks also showed strong upward moves over the course of the trading day.
At the other end of the spectrum, gold stocks showed some of the only notable losses of the day after bucking the downtrend that was seen in the previous session. After ending Monday's trading up 4 percent, the Amex Gold Bugs Index closed down 2 percent.
The advance by the Dow came as the majority of the components of the blue chip index closed higher on the day.
As was the case with the broader markets, financial stocks helped to lead the Dow higher, with Citigroup (C), Bank of America (BAC) and JP Morgan (JPM) posting standout gains. Citigroup rose 10.2 percent, while Bank of America and JP Morgan both rose more than 9 percent.
DuPont also showed a strong upward move following the release of its quarterly results, ending the session up 4.9 percent. United Technologies (UTX), Alcoa (AA), American Express (AXP), and General Electric (GE) also posted notable gains.
Meanwhile, shares of Merck saw considerable weakness throughout the trading session, ending the day down 6.7 percent. With the loss, Merck ended the session at its worst closing level in over a month.
Coca-Cola (KO) also showed a notable decline after the beverage giant reported first quarter earnings that fell year-over-year but came in line with analyst estimates. Shares of Coca-Cola ended the trading day down 2.8 percent.
In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Tuesday following the sell-off seen on Wall Street overnight. Japan's benchmark Nikkei 225 Index showed a notable decline, closing down 2.4 percent.
Meanwhile, the major European markets ultimately closed mixed after seeing earlier weakness. While the French CAC 40 and the German DAX Index finished the day up 0.2 percent and 0.3 percent, respectively, the U.K.'s FTSE 100 Index closed down 0.1 percent.
In the bond market, treasuries turned lower over the course of the trading day after seeing some strength early on in the session Subsequently, the yield on the benchmark 10-year note closed up 5.9 basis points at 2.902 percent after hitting a low of $2.781 percent.
Corporate news will remain in focus on Wednesday, with several more big companies releasing earnings reports.
Online media giant, Yahoo (YHOO) headlines the earnings calendar after today's closing bell, while AT&T (T), McDonald's (MCD), and Morgan Stanley (MS) are among the companies to report their results before the start of trading on Wednesday.
On the economic front, the Mortgage Bankers Association will release its weekly mortgage applications data at 7 a.m. ET on Wednesday, while the Energy Information Administration will unveil its weekly oil inventory report at 10:30 a.m. ET.
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