Citigroup Lifts Wall St. To Best Day In 09

Sam Farhood, left, of LaBranche & Co. directs trading in shares of Schering-Plough on the floor of the New York Stock Exchange, March 9, 2009 in New York. (AP Photo/Henny Ray Abrams) AP Photo/Henny Ray Abrams

Wall Street has had its best day of the year, storming higher after some good news from Citigroup.

Citigroup Inc. says it operated at a profit during the first two months of the year. That energized financial stocks and in turn, the entire stock market. Surprised investors drove the major indexes up more than 5.5 percent to their biggest one-day rally of the year. The Dow Jones industrials shot up nearly 380 points.

However, many analysts are still cautious - noting that Wall Street has seen many blips higher since the credit crisis and recession began. Word of Citi's performance broke a months-long torrent of bad news from the banking industry but analysts weren't ready to say the stock market was at a turning point and about to barrel higher after a slide that's lasted more than 16 months.

"I don't think that's rally is in any way an all clear signal for the market," Michael Farr, president of Farr, Miller and Washington, told CBS News. "The economy is in very tough shape. We are really struggling with out financial and banking system. And it may go lower."

Still, the Citigroup news offered investors some hope that the first quarter will show signs of improvement.

The Dow jumped 379.44, or 5.8 percent, to 6,926.49. Dow stocks with the biggest gains included General Electric Co., which jumped $1.46, or 19.7 percent, to $8.87. GE has a big financial services division, so it tends to move with banking stocks.

The S&P 500 index rose 43.07, or 6.4 percent, to 719.60, while the Nasdaq composite rose 89.64, or 7.1 percent, to 1,358.28.

The Russell 2000 index of smaller companies rose 24.49, or 7.1 percent, to 367.75.

In a letter to employees Monday, Citi Chief Executive Vikram Pandit said the performance this year has been the bank's best since the third quarter of 2007 - the last time it booked a profit for a full quarter. Based on historical revenue and expense rates, Citi's projected earnings before taxes and one-time charges would be about $8.3 billion for the full quarter.

Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit.

Citi surged 38 percent while Bank of America Corp. jumped 27.7 percent. The stocks are among the 30 that make up the Dow. All the components of the index climbed Tuesday.

Financial stocks have been at the center of the market collapse that has left the major indexes at their lowest point in more than a decade. Reports of losses on bad loans and write-offs on shrinking assets have pounded banking stocks; Citi fell below $1 a share last week. Analysts have been worrying that hundreds of billions of dollars in government bailouts wouldn't be enough to save the big banks.

Investors welcomed Tuesday's rally as overdue after weeks of selling but analysts were quick to warn that it could be little more than a one-day pop. Ben Halliburton, chief investment officer of Tradition Capital Management in Summit, N.J., dismissed the surge as likely little more than a bear market rally that quickly evaporates.

A bear market is defined as a drop of 20 percent from a market peak - and stocks passed that point last year and continued to plunge, leaving the Dow and Standard & Poor's 500 at less than half the record highs they reached in October 2007. A bear market rally lifts stocks off their lows, but it quickly evaporates.

Wall Street has already seen a few false starts. From late November until the start of this year, the Dow and the S&P 500 jumped about 20 percent before plumbing fresh lows this month. The slide has been punishing but it is still well short of the plunge seen in stocks from 1929-32.

"I would be surprised to see us trade back over 800 in the near term," Halliburton said, referring to the S&P 500. "The news coming out on the economic front will continue to be rather gloomy."

Analysts suggested that the market's gains, especially among financial stocks, could be attributed in part to short covering, an investment strategy that tends to drive rallies in volatile markets. Short-sellers are traders who sell borrowed stock and then buy it back later on the hopes that the price will have fallen. If they believe a stock will be going up, they have to "cover" their positions, or buy shares to repay the loan and limit their losses.

Reports surfaced Tuesday that federal regulators are considering a proposal to reinstate the uptick rule, which backers say helps protect companies from excessive shorting. It was allowed to expire in 2007.
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