U.S. Stocks Advance on Earnings; Citigroup, Google Shares Climb

U.S. stocks rose for a fourth day, poised for the best week since February, after companies from Citigroup Inc. to Google Inc. to Caterpillar Inc. reported results that exceeded analysts' estimates.

The market, battered last week by General Electric Co.'s disappointing results, rallied today after Citigroup's loss was less than the most pessimistic projections and profits at Google and Caterpillar were boosted by overseas growth. Honeywell International Inc. and Xerox Corp. also climbed on better-than- forecast results. All 10 industry groups in the Standard & Poor's 500 Index rose, extending its weekly gain to 4.3 percent.

The panic is overdone, and before you know it things are going to be just fine, said Michael Williams, who helps oversee about $2.8 billion as managing director of Genesis Asset Management in New York. The world's ticking along just fine.

The S&P 500 added 28.85, or 2.1 percent, to 1,394.41 at 12:45 p.m. in New York. The Dow Jones Industrial Average rallied 262.09, or 2.1 percent, to 12,882.58. The Nasdaq Composite Index increased 68.32, or 2.9 percent, to 2,410.15. Six stocks rose for each that fell on the New York Stock Exchange. European shares advanced, while Asia's benchmark index retreated.

Profits exceeded analyst estimates at 58 of the 100 companies in the S&P 500 that have released first-quarter results so far, even as earnings fell an average 37 percent from a year earlier, according to Bloomberg data. Overall, earnings are forecast to decline 12.3 percent in the first quarter, marking the third straight decrease.

S&P 500 Rebound

While the S&P 500 has rebounded 9.5 percent from a 19-month low on March 10, the benchmark for American equities is still down 5 percent in 2008. Companies in the index trade for an average 14.8 times estimated profits, the cheapest in 18 years when prices are compared with historical earnings.

Citigroup increased $1.77, or 7.4 percent, to $25.80. The bank said revenue fell 48 percent to $13.2 billion, topping the average estimate of $11.1 billion from analysts surveyed by Bloomberg. The first-quarter net loss of $1.02 a share compared with the $1.66 loss predicted by Merrill Lynch & Co.'s Guy Moszkowksi, Institutional Investor's top-rated brokerage analyst.

A lot of people were worried that we'd have a big negative surprise, Edgar Peters, chief investment officer at PanAgora Asset Management in Boston, which oversees $25 billion, said in a Bloomberg Television interview. When we didn't have a big negative surprise, that was a positive surprise.

Google, Caterpillar

Google rallied $94.04, or 21 percent, to $543.58, the most since its August 2004 initial public offering and the biggest gain in the S&P 500. The owner of the most popular Internet search engine said sales rose 46 percent as more users clicked on text advertisements. Overseas sales, accounting for 51 percent of revenue, increased 55 percent.

Caterpillar Inc. rose $6.20 to $84.79 for the biggest gain in the Dow average. First-quarter earnings rose 13 percent, topping analysts' estimates, as sales to China and India increased. Caterpillar in 2007 garnered 62 percent of revenue outside the U.S, according to Bloomberg data.

The dollar has fallen 5.8 percent against a basket of six major currencies this year following an 8.3 percent decline last year, making U.S. products cheaper overseas and increasing the dollar value of sales denominated in those currencies. Coca-Cola Co. and International Business Machines Corp. this week reported profits enhanced by the dollar's drop.

Dollar Advantage

Companies in the S&P 500 garnered 44 percent of their sales from outside the U.S. in 2006 and an estimated 47 percent to 48 percent in 2007, according to Standard & Poor's. The U.S. currency weakened to a record low of almost $1.60 per euro yesterday.

Honeywell International Inc. climbed $3.56 to $60.96. The world's largest maker of cockpit displays said first-quarter earnings rose 22 percent, more than analysts estimated, on sales of aircraft and building controls. Record oil prices led to more sales of refining equipment produced by Honeywell's specialty- materials division. The company, whose overseas sales accounted for 39 percent of revenue last year, said annual profit will be at the high end of the range it predicted in December.

Schlumberger Ltd., the world's biggest oilfield contractor, added $6.02 to $101.32. The company said first-quarter profit rose 13 percent as record oil prices prompted increased drilling by customers worldwide.

Xerox Corp. rose 39 cents to $14.89. The world's largest maker of high-speed color printers said first-quarter revenue rose 13 percent, more than analysts estimated. Chief Executive Officer Anne Mulcahy said the company is seeing steady improvement in markets including Russia, East Europe and India. It faces a challenging market in the U.S. where some companies are now delaying decisions on larger equipment purchases, she said.

E*Trade Financial Corp. rose 34 cents to $3.96. The online brokerage that posted a first-quarter loss of $91.2 million said it expects to return to profitability this year.

Newmont Mining Corp., the world's second-largest gold producer by volume, slid $1.27, or 2.7 percent, to $46.25 for the biggest drop in the S&P 500. Gold futures tumbled 2.8 percent to $916.60 an ounce.

Google in the eye of a slowdown

Google is sitting squarely in a troubling three-month slowing trend, and only some deft moves can spare the search giant from an apparent first-quarter shortfall.

ComScore numbers once again confirmed that people are searching less and clicking on advertisements at a much slower rate as the economy tanks and consumer spending pulls back. In March, Google’s paid clicks grew 2.7% over year-ago levels putting first-quarter paid click growth at 1.8%, a big slowdown from the 25% rate in the previous quarter and well below the 48% pace in the third quarter.

When your revenue engine is almost entirely fueled by Internet searches and ads clicks, it’s probably wise to watch your gauges. Analysts’ estimates for Google’s first quarter have been cut sharply ever since this trend was first spotted in January. But Google fans say the company has been honing its search efficiency and raising prices to offset the slump.

Additionally, some analyst point to Google’s ability to increase its U.S. market share to 55% in March from 53% at the beginning of the year.

Google reports earnings after the market closes Thursday. Analysts are looking for adjusted earnings of $4.52 a share on sales of $3.61 billion in the first quarter ended last month. That calls for a top line growth rate of 42% over last year’s revenue level.

If the company made adjustments, the chances of disappointing Wall Street will be limited. But if ComScore’s numbers are any indication, writes Henry Blodget of Silicon Alley Insider, Google “will miss by a mile.”

JPMorgan Net Drops 50%, Matching Analysts' Estimates

JPMorgan Chase & Co., the third- biggest U.S. bank, said the credit-market crisis is almost over after it reported a 50 percent drop in first-quarter profit on $5.1 billion of writedowns and provisions.

JPMorgan rose as much as 5.4 percent in New York trading as the losses from home-equity loans, financing for leveraged buyouts and subprime mortgages were smaller than analysts predicted and revenue exceeded expectations. Net income dropped to $2.37 billion, or 68 cents a share, matching estimates.

In this environment, being able to post earnings as they did is I think all-in good news, Charles Bobrinskoy, vice chairman of Ariel Capital Management LLC in Chicago, which owned more than 611,000 JPMorgan shares as of Dec. 31, said in a Bloomberg Television interview.

JPMorgan, which has posted about $10 billion of writedowns and losses since the beginning of last year, is now grappling with a sagging labor market that has hurt clients' ability to pay credit cards and consumer loans on time. The New York-based company set aside $1.1 billion in the first three months of 2008 for future home-equity loan defaults, after boosting those provisions by $395 million in the fourth quarter.

Chief Executive Officer Jamie Dimon, 52, said on a conference call with reporters that the credit-market crisis is more than halfway finished as financial firms reduce leverage, and may be as much as 80 percent over.

That side is working itself out, Dimon said. That doesn't mean the recession won't get worse or better.

Revenue Declines

Revenue fell 11 percent to $16.9 billion, compared with the average estimate of $16.8 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 8 percent, compared with 17 percent a year earlier.

Profit declined from $4.79 billion, or $1.34 a share, in the same quarter a year earlier. Earnings matched the average estimate of 15 analysts surveyed by Bloomberg, and beat Thomson Financial's survey by 4 cents a share.

Wells Fargo & Co., the biggest bank on the U.S. West Coast, said first-quarter profit dropped 11 percent to $2 billion, a smaller decline than analysts estimated because the company was able to limit losses from home-price declines in California.

JPMorgan rose $2.16, or 5.2 percent, to $44.28 in composite trading at 12:26 p.m. on the New York Stock Exchange. The shares had fallen almost 16 percent in the past 12 months through yesterday, compared with 57 percent at bigger rival Citigroup Inc. Bank of America Corp., the second-largest U.S. bank by assets, has declined 30 percent.

Investment Banking

The investment-banking division lost $87 million in the first quarter, compared with profit of $1.5 billion in the year- earlier period. Revenue from that business fell by half as JPMorgan marked down $1.1 billion of leveraged loans and $1.2 billion of mortgage-related securities.

Profit from asset management dropped 16 percent to $356 million.

Consumer banking had a loss of $227 million after the bank increased its subprime-related provisions by $417 million. Chief Financial Officer Michael Cavanagh said on the call that the bank expects credit-card charge-offs to gradually rise during the rest of this year.

Dimon said home prices could fall another 7 percent to 9 percent this year, putting pressure on all mortgage-related assets including loans made to people with the best credit.

The banks have a lot of credit losses they're going to have to work through, Ryan Lentell, an analyst at Morningstar Inc. in Chicago, said in a Bloomberg Television interview.

Writedown Estimates

CreditSights Inc. analyst David Hendler estimated in an April 7 research note that JPMorgan's first-quarter losses and provisions would be $7.5 billion, including leveraged loans and mortgages.

Credit-default swaps tied to JPMorgan's bonds fell 6 basis points to 90 basis points, according to broker Phoenix Partners Group. The contracts, used to speculate on corporate creditworthiness or to hedge against losses, decline as investor confidence improves.

U.S. employers cut 80,000 jobs in March -- the most workers in five years -- and the unemployment rate rose to 5.1 percent, the highest since September 2005. The economy also lost jobs in January and February, according to Labor Department figures released April 4.

Consumers fell behind on credit-card, home-equity and auto loans at the fastest pace in 15 years during the fourth quarter of last year, according to a survey by the American Bankers Association released April 3.

Bear Stearns

JPMorgan agreed to acquire New York-based Bear Stearns Cos., once the fifth-biggest U.S. securities firm, on March 16 after lenders and clients fled on concern the company faced a cash shortage. JPMorgan, which got financial support from the Federal Reserve, raised the purchase price from $2 a share to $10 a week later to quell concerns that Bear Stearns shareholders would reject the deal.

Cavanagh said on the conference call with reporters that it's too early to say how many jobs will be lost in the takeover.

The acquisition doesn't preclude JPMorgan from pursuing other deals and the bank is looking at everything, Dimon said.

JPMorgan recently made a bid for Washington Mutual Inc., the largest U.S. savings and loan, according to a person familiar with the talks. Washington Mutual sold $7 billion in shares to an investor group led by private-equity firm TPG Inc. instead of accepting a buyout.

Lehman's Fuld Says `Worst Is Behind Us' in Crisis

Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., told shareholders the worst is behind us in the credit-market contraction that has cost the biggest banks and brokerages $245 billion so far.

Fuld, speaking at the annual shareholders meeting of his New York-based firm, said the current environment remains challenging.

The comments echo those of Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., who told shareholders at the firm's annual meeting last week that we're closer to the end than the beginning of the crisis. John Mack, Morgan Stanley's CEO, said last week that the credit-market contraction will probably last a couple of quarters longer.

Lehman's chief financial officer, Erin Callan, said in an interview on April 11 that the firm had faced a very, very tough month, in March. I don't see what the real catalyst for change would be over the next several months, she said. We've got to look out to 2009 for where we're going to change.

Lehman, the fourth-largest U.S. securities firm, said on April 9 it had to bail out five short-term debt funds last quarter that were crippled by frozen credit markets. The firm took $1.8 billion of assets from the funds onto its books at the time, and recorded a $300 million loss. Earlier this month Lehman raised $4 billion from a stock sale, seeking to quell concern the firm was low on capital.

Sending a Message

Fuld said at the meeting that the sale was intended to strengthen capital and send a message to investors. He said the firm will continue to reduce leverage by selling assets, and can counter market rumors with good performance.

March was difficult because the collapse of Bear Stearns Cos. in the middle of the month created a sense of fear and paralysis about the securities industry, Callan said.

Derivatives used to hedge cash securities also diverged widely from their usual levels, she said. Investors were using indexes of credit-default swaps, which typically rise when perceptions of company creditworthiness worsen, to hedge against losses on everything from stocks to collateralized debt obligations. The indexes started to drop in mid-March at a faster rate than underlying securities improved, leaving investors with losses.

The world's biggest banks have recorded $245 billion in asset writedowns and credit losses since the beginning of 2007. Lehman avoided the much bigger losses reported by rivals such as Merrill Lynch & Co., which posted $25.1 billion of writedowns in the second half of last year.

Lehman, down 40 percent this year on the New York Stock Exchange, declined 9 cents to $39.29 at 11:58 a.m.

Oil, Gasoline Climb to Records as Investors Move to Commodities

Crude oil and gasoline rose to records as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.

Oil climbed to $113.93 a barrel in New York, the highest since futures began trading in 1983. Rising global demand for raw materials and a weakening dollar have led to record prices this year for commodities including corn, rice and gold. China said today diesel imports surged 49 percent in March.

Developing countries are still growing, which is boosting demand for metals, grains and energy, said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. It makes sense for investors and hedge funds to invest in these commodities with the weakness of other markets.

Crude oil for May delivery rose $1.80, or 1.6 percent, to $113.56 a barrel at 11:42 a.m. on the New York Mercantile Exchange.

Gasoline for May delivery climbed 3.9 cents, or 1.4 percent, to $2.8608 a gallon in New York. Futures touched $2.8715 today, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.3 cents to a record $3.3386 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.

Oil has risen 39 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates on Sept. 18.

`Attractive' Investment

This is where the funds want to be, said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. Rate cuts and a weak stock market make commodities very attractive.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 0.9 percent to 1503.347 today. It's up 35 percent from a year ago.

Oil in New York surged 79 percent over the past year as the Standard & Poor's 500 Index dropped 9.8 percent and the Dow Jones Industrial Average declined 3.5 percent.

It doesn't look like there's anything to get in the way of the oil market, said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. As long as the dollar goes lower, more money will go into commodities.

Exxon Mobil Corp. and Chevron Corp. led energy shares to the highest level since January because of rising oil and gasoline prices. Exxon, the biggest U.S. oil company, climbed 26 cents to $89.96. Chevron, the country's second biggest, added 24 cents to $89.54.

Demand Growth

The Organization of Petroleum Exporting Countries left its forecast for 2008 oil demand at 86.97 million barrels a day, a 1.2 million barrel-a-day gain over 2007, according to the group's monthly demand report today. OPEC's 13 members produce more than 40 percent of the world's oil.

China, the world's second-largest energy consumer, increased diesel imports as state refiners China Petroleum & Chemical Corp. and PetroChina Co. bought more to ensure supplies for the spring planting season.

Chinese oil demand this year will rise 4.7 percent to 7.9 million barrels a day, the International Energy Agency said in a report on April 11.

Brent crude for May settlement rose $1.73, or 1.6 percent, to $111.57 a barrel on London's ICE Futures Europe exchange. The contract touched a record $112.08 a barrel.

Petroleos Mexicanos, the third-largest supplier of crude oil to the U.S., reopened two of its oil-export terminals on the Gulf of Mexico after closing them April 13 because of heavy winds and rain. The terminals at the ports of Pajaritos and Cayo Arcas opened this morning, said Martha Avelar, a spokeswoman for Mexico City-based Pemex, as the company is known.

The Pacific port of Salina Cruz and the Gulf port of Dos Bocas are still closed, Avelar said.