Earnings at Goldman and Lehman send U.S. stocks soaring
NEW YORK: Stocks roared back in Europe and the United States on Tuesday after a pair of Wall Streets biggest firms reported better than expected earnings and the Federal Reserve lowered its benchmark interest rate by three-quarters of a point.
In Europe, indexes in London, Paris and Frankfurt were up more than 3 percent - a full recovery from the declines Monday.
In late afternoon trading on Wall Street, the Standard Poors 500-stock index was up 3.2 percent, also vanquishing its losses from Monday. The Dow Jones industrial average recovered, trading up 2.5 percent. It had fallen sharply immediately after the Fed lowered the rate by less than some analysts had expected. The Nasdaq composite index was up 3.2 percent.
The resurgence in shares of financial firms, which took a beating after the collapse of Bear Stearns, was striking. Lehman Brothers, whose shares fell 19 percent on Monday as rumors swirled that the bank was facing liquidity problems, gained after reporting a 57 percent decline in net income for the first quarter. That figure beat expectations and restored some confidence in the company. Its stock was up 34 percent in afternoon trading.
Goldman Sachs reported a 53 percent earnings decline, also better than Wall Street estimates, and its shares rose 12 percent.
MF Global, the commodities brokerage firm whose shares plummeted Monday, gained 24 percent Tuesday. And Bear Stearns, which was valued at $2 a share in the weekend takeover by JPMorgan Chase, was trading at $6.45, a stunning 34 percent bounce, as traders bet that the company might negotiate a better deal in the near future.
UBS rebounded from its steepest drop in nine years Monday to climb 14 percent. It was the biggest gain since the company was created in 1998 by the merger of Swiss Bank and Union Bank of Switzerland. HSBC stock rose 7.2 percent. Crйdit Agricole rose 9.3 percent.
“Its a bit of confidence returning today after Goldman and Lehman,” said Peter Lucas, global investment strategist at Ashburton in Jersey, Channel Islands. “Anyone betting against financials is basically betting that they can break the Fed. At the end of the day, they have deeper pockets than anyone.”
Still, Wall Streets focus remained squarely on the Fed meeting Tuesday. The federal funds rate affects mortgage rates, car loans and other consumer transactions, and while a lower interest rate can stimulate growth in the economy, it can also lead to higher prices and a devalued dollar.
Confidence appeared to be returning to the credit markets, the center of the turmoil that has played havoc with investors for months. Spreads on lending between banks and Fannie Mae mortgage bonds narrowed, a sign that investors were more certain that loans would be repaid.
The yields on Treasury notes, some of which reached 50-year lows Monday, climbed back on short-term bonds. And commodities like oil and corn recovered from a sell-off a day earlier. Crude oils price gained 2 percent to $106 a barrel, and gold rose to $1,008 a troy ounce.
The euro gained ground in anticipation of a deep interest rate cut, which weakens the dollar. The European currency was trading at $1.5780 in the early afternoon trading Tuesday.
