Earnings, Analyst Calls Spur Stocks

Continued optimism about earnings and bullish calls from prominent stock analysts combined to push stocks higher Monday.

The gains in major indexes were broad-based. The Dow Jones Industrial Average added 104.21 points, or 1.2%, to 8846.15, notching its sixth consecutive day of gains. Leading the index, Caterpillar rose 7.8%, helped by an upgrade to a "buy" rating from Bank of America analysts, who said construction machinery sales reached a cyclical bottom during the second quarter.

07/20/09: CIT Stock Bounces Back

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Embattled lender CIT Group's stock surged 82% on news that it would obtain some rescue financing. Simon Constable reports after the bell.

The S&P climbed 10.75, or 1.1%, to 951.13, with all its sectors in the green. Traders note 950 will likely serve as the "inflection point" for stocks this week, in terms of whether corporate sentiment is truly better than at any point this year. The S&P's intraday high for the year is about 956.

Helping push the S&P 500 higher, reports that a CIT Group rescue plan from its bondholders could save the lender from a bankruptcy filing. CIT shares surged 82% to $1.27.

A flood of investors have come into stocks broadly recently thanks to some better-than-expected earnings last week. While the news for CIT would seemingly do little to help the broad market, the details were used as a signal by some to put more of the returning cash back into stocks.

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The day's gains started when a Goldman Sachs analyst raised the firm's forecast for the S&P 500, saying an improvement in earnings will drive a sharp second-half rally. Goldman Sachs raised its year-end S&P 500 target to 1060 from 940, reflecting a potential price return of about 13% from current levels.

Through Friday, 71% of the 55 S&P 500 components that have reported results have beaten expectations, according to data compiled by Thomson Reuters. Thanks to upbeat quarterly reports from the likes of Goldman Sachs Group and Intel, the Standard & Poor's 500 surged 7% last week.

"The biggest risk right now is a market that has extrapolated a lot off a small pool of earnings reports," said Craig Peckham, equity trading strategist with Jefferies. "Those are really hard acts to follow. If you think about the reports last week, it was a lot of market leading and best in class institutions."

Embattled lender CIT Group's stock surged 82% on news that it would obtain some rescue financing. Simon Constable reports after the bell.

Further driving Monday's stock gains, the June index of leading economic indicators continued to march higher. The index increased 0.7% last month, after a revised 1.3% gain in May, the Conference Board reported Monday.

Consumer stocks were also big winners in Monday's rally, with the S&P's discretionary sector up nearly 2% in recent action. Among the category's big winners were Wynn Resorts, up 10%, and Goodyear Tire & Rubber, up 4.4%. Harley-Davidson and Macy's rose about 6% each.

Among other indexes, the Nasdaq Composite Index rose 1.2% Monday and the small-stock Russell 2000 gained 1.5%.

The improved economic sentiment also lifted oil prices, with crude settling 42 cents higher at $63.98 a barrel in New York.

Still, not all earnings-related trading was positive. Bank of America led the Dow's decliners as Fox-Pitt said the bank's "normalized" earnings picture got cloudier after last week's quarterly earnings report and downgraded Bank of America to "in-line" from "outperform."

Among Monday's reports, Hasbro said second-quarter profit rose 5%, beating its earnings-per-share estimate by two cents. Eaton reported a 91% decline in second-quarter profit and also lowered its guidance for the year. Meanwhile, Halliburton reported a 48% decline in second-quarter net income, but still beat analysts forecasts on earnings per share.

After the close, Legg Mason and Texas Instruments will report.

Elsewhere, Human Genome Sciences nearly tripled to trade above $10 a share after it issued a statement with GlaxoSmithKline that a new lupus drug they are developing is showing promise in clinical trials, a rare success in the fight against lupus. Shares of GlaxoSmithKline were up 4% recently.

The dollar weakened. One euro cost $1.4236, up from $1.4099 late Friday. One dollar fetched 94.22 yen, off from 94.36 yen.

Treasurys advanced. The two-year note rose 1/32 to yield 0.974%. The 10-year note gained 11/32, yielding 3.612%.