Recovery Hopes Spark Late Rally

PETER A. MCKAY GEOFFREY ROGOW

Stocks turned higher Thursday afternoon after a news report that a noted economist was predicting an end to the recession this year. Meanwhile, technology stocks followed through on Wednesday's broad gains.

New York University professor Nouriel Roubini, who previously said recovery would have to wait until 2010, said in afternoon remarks at a conference that the economy would emerge from the recession toward the end of 2009, according to Bloomberg. Industrial and materials stocks rallied broadly after the report.

Mr. Roubini has been known as Dr. Doom for predicting the 2006 global economic crisis.

07/16/09: More Strong Earnings News Boost Markets

1:35

JP Morgan's strong earnings report still caused the company stock to drop, on worries about its loan health. Google and IBM were up higher but CIT Group's stock tumbled dramatically after news it would receive a bailout. Dave Kansas reports after the closing bell.

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The Dow Jones Industrial Average gained 95.61 points, or 1.1%, to 8711.82 after swinging between small gains and losses for much of the morning. The S&P 500 tacked on 8.06 points to 940.74.

Further helping stocks was another rally for technology shares, with the Nasdaq Composite up 22.13, or 1.2%, to 1885.03. Technology paced a more than 200-point jump in the Dow on Wednesday, led by a robust third-quarter revenue outlook from Intel. Ahead of its earnings report Thursday evening, International Business Machines climbed 3.1%.

Google, which also is due to report earnings after the closing bell, was up 1.4%. David Bellantonio, head of trading at Instinet, a New York brokerage, said the market also benefited from a round of buy orders from chart-based traders after the S&P 500 broke above 930 on Thursday afternoon.

"We often see this when you have a session where the market is trading flat early on," said Mr. Bellantonio. "The more it just hangs in there, people eventually take that as a sign of strength."

Financial stocks pared their morning declines. J.P. Morgan Chase was recently down 0.2%. The company reported much better-than-expected second-quarter earnings, but had already traded higher for much of the week.

Among other financials, Bank of America, which posts quarterly results Friday, slid 1.6%. Former Dow component Citigroup slid 2.8% ahead of its report Friday as well.

Shares of commercial lender CIT fell 75% on Thursday after the company said talks with the government over a possible rescue had stopped and that it no longer saw much chance that Washington would step in to help.

"Don't expect anything good from Citi and Bank of America," said Thomas Nyheim, a portfolio manager with Christiana Bank & Trust. "We are still underweight banks."

Mr. Nyheim is more optimistic on the consumer-staple and industrial sectors, both of which are prevalent in next week's earnings reports.

Investors had begun bidding up shares of big Wall Street banks earlier in the week after Goldman Sachs Group announced strong profits, leading to the sharpest three-day gain in the broader market in more than three months.

In Thursday's session, participants focused instead on developments at CIT Group. The ailing lender said "there is no appreciable likelihood" it will receive government support in the near future, marking the first time since Lehman Brothers' collapse in mid-September that the U.S. has declined to aid a struggling financial firm of significant scope and size. CIT shares plunged 76% in recent action.

CIT's announcement underscored how politically unpopular aid to Wall Street has become, though the good news for the financial industry is that since the autumn's full-blown crisis many firms have regained the ability to fend for themselves, said portfolio manager Russ Koesterich, of Barclays Global Investors.

"For the financials that are more dependent on the consumer, we're still likely to see a lot of problems," said Mr. Koesterich. "But for the ones that are relying on interest income [from business loans] credit spreads are so wide that the bankers can certainly make money."

Further helping recovery-sensitive categories including basic materials and industrials was the release of new data showing a drop in jobless claims. The Labor Department said initial filings for jobless benefits dropped by 47,000 to 522,000 in the week ended July 11. The four-week average of new claims, which aims to smooth volatility in the data, fell by 22,500 to 584,500, the lowest level since Jan. 31 of this year.

The tally of continuing claims -- those drawn by workers for more than one week -- fell by a record 642,000 during the week ended July 4 to 6,273,000, the lowest figure since April 11. The weekly decline almost doubled the previous record in 1983.

The report added fuel to current expectations on Wall Street that the U.S. economy will enjoy a second-half recovery, though job growth will remain weak.

Weighing against the broader market and consumer companies, hotel stocks were getting hit Thursday after Marriott International gave a dismal outlook for the second half. Marriott recently fell 5.6% to $20.59.

Among stocks to watch, Nokia shares slumped 14% after it posted a 66% drop in second-quarter net profit. Nokia changed its mobile device operating margin forecast for the second half, saying it no longer expects to gain market share in that period. Instead, the company expects it to remain flat.

Mosaic rose 12% after a Brazilian news agency reported that mining group Vale is considering a bid for the fertilizer producer.

After trading in the red for much of the day, crude-oil futures closed up 52 cents at $62.06 a barrel.