April 9 (Bloomberg) -- Global stocks rallied, driving the benchmark index of investor anxiety to a six-month low, as better-than-estimated earnings at Wells Fargo & Co. and speculation American banks will pass government stress tests boosted confidence in the financial system. Oil gained and Treasuries fell.
Wells Fargo, the second-largest U.S. lender, jumped 32 percent. Bank of America Corp. climbed 35 percent and JPMorgan Chase & Co. added 19 percent on a New York Times report that all 19 banks examined by the government will pass a review to determine their viability should the recession deepen. Barclays Plc surged 12 percent in London after agreeing to sell its iShares unit. The VIX, as Wall Street’s stock market “fear gauge” is known, fell to its lowest level since September.
The Standard & Poor’s 500 Index added 3.8 percent to a two- month high of 856.56 and capped a fifth straight weekly gain, the longest stretch since the bear market started in October 2007. The Dow Jones Industrial Average rose 246.27, or 3.1 percent, to 8,083.38. Eleven stocks gained for each that fell on the New York Stock Exchange.
“The worst is behind us,” said Alan Gayle, a Richmond, Virginia-based senior investment strategist at RidgeWorth Capital Management, which oversees $60 billion. “We’re working our way through the credit crisis and that’s why the market is cheering.”
VIX Under 40
Stocks also rallied after the government reported that initial jobless claims in the U.S. decreased more than economists estimated last week and the trade deficit unexpectedly shrank 28 percent, the most since 1996, as imports decreased. The S&P 500 climbed 1.7 percent in the holiday- shortened week, while the Dow added 0.8 percent.
Financial markets will be closed tomorrow to mark the Good Friday holiday.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell to its lowest closing level since Sept. 26, dropping 5.1 percent to 36.87. The index measures the cost of using options as insurance against declines in the S&P 500.
Before Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history in September, the VIX surpassed 40 during four prior periods in its 19-year history and never stayed above that level for more than 10 days. It’s closed below 40 only eight times since Sept. 29.
Benchmark stock gauges in Germany and Hong Kong added 3 percent as the MSCI World Index of 23 developed nations increased 3 percent, the most in a week.
The S&P 500 has rallied 27 percent since reaching the lowest level in a dozen years on March 9 as banks from Citigroup to JPMorgan said they made money in the first two months of the year and Treasury Secretary Timothy Geithner announced plans to finance purchases of toxic assets from financial firms. The index is still down 5.2 percent in 2009 after tumbling 38 percent last year, its worst annual return since the Great Depression.
Wells Fargo Beats
Wells Fargo jumped $4.72, or 32 percent, to $19.61 for its best rally in almost nine months. The second-biggest U.S. home lender reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking speculation that the industry’s slump has ended.
Net income rose about 50 percent from $2 billion a year earlier. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the statement said.
“Earnings expectations are so low, there’s wide open potential for pleasant surprises,” said Bruce Bittles, the Nashville-based chief investment strategist at Robert W. Baird & Co., which oversees $16 billion. “We see stocks moving higher into late summer.”
Banking Rally
Bank of America, the largest bank by assets, gained 35 percent to $9.55 and Citigroup climbed 13 percent to $3.04. JPMorgan, the biggest by market value, added 19 percent to $32.75. Fifth Third Bancorp surged 36 percent to $3.58.
The S&P 500 Financials Index, a gauge of 80 banks, insurers and investment firms, jumped 16 percent to its highest level in three months. The group has rallied 75 percent since its March 6 low.
Some of the largest lenders may still need additional capital infusions from investors or taxpayers, the New York Times said, citing unidentified officials involved in the research. Regulators may use the findings of the examinations, likely to be completed this month, to push some companies to sell distressed assets, according to the report.
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