Led by financial stocks, the market made its first big move upward in weeks Tuesday after Citigroup Inc. said it had operated at a profit during the first two months of the year. All the major indexes soared more than 3.5 percent.
NEW YORK — 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 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.
"To have a sustained rally, we have to have a shift in sentiment," said Kurt Karl, chief U.S. economist at Swiss Re. "One day isn't going to make a trend."
Still, the Citigroup news offered investors some hope that the first quarter will show signs of improvement.
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.
"A little bit of good news went a long way because there was so much pessimism," said Harry Rady, chief executive of Rady Asset Management. "Could there be follow through tomorrow? Maybe. In the next few weeks or months I've got to imagine we'll give this back. The economy is in an absolute free fall," he said. "I'd be very surprised if this was a bottom."
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.
Stocks added to their gains Tuesday as word emerged that federal regulators are considering reinstating a rule that supporters say helps protect companies from excessive shorting. The Securities and Exchange Commission eliminated the Depression-era rule in 2007. The agency said it is considering holding a public hearing on the matter as soon as next month.
According to preliminary calculations, the Dow jumped 379.44, or 5.8 percent, to 6,926.49. It was the Dow's biggest point and percentage gain since late November.
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 Dow Jones Wilshire 5000 index, which reflects nearly all stocks traded in America, jumped 6.8 percent. That gave stocks a gain on paper of $500 billion.
The Russell 2000 index of smaller companies rose 24.49, or 7.1 percent, to 367.75.
About 13 stocks rose for every one that fell on the New York Stock Exchange, where volume came to a heavy 2.19 billion shares. Heavy volume is a good sign for bullish investors who are looking for conviction behind the market's moves.
The day's rally illustrates how concerns about banks have weighed on the overall market, analysts said.
Jon Merriman, chief executive of brokerage Merriman Curhan Ford in San Francisco, said the comments from Citi's Pandit are an indication that the bank is lending.
"Maybe Citibank is not going to zero, that means it's going to lend again and then the economy will turn," he said. "People today in the stock market are connecting those dots. And the market is up broadly, it's not just the banks."
Investors were further encouraged by Federal Reserve Chairman Ben Bernanke who called for a revamp of the country's financial regulatory system. Speaking before the Council of Foreign Relations, Bernanke said "too big to fail" companies must be subject to more rigorous supervision to prevent them from taking on excessive risk. Bernanke's remarks come as the Obama administration and Congress begin to devise their overhaul strategies.
Citigroup's announcement proved to be the dose of good news Wall Street had been waiting for to spark a rally, but there was still plenty of pessimism.
"There's nothing that anybody can do to turn the market around," said Rady. "This is just a little bear-market blip."
Halliburton was hesitant to put much stock in Citigroup's announcement for fear of rising loan losses that could eat away at the operating profit. As long as housing prices are declining and loan defaults are increasing, "they are going to have to take asset write-downs," he said. "I don't think this is a game-changer."
Citi surged 40 cents, or 38.1 percent, to $1.45, while Bank of America jumped $1.04, or 27.7 percent, to $4.79. JPMorgan Chase & Co. rose $3.60, or 22.6 percent, to $19.50.
General Electric Co. rose $1.46, or 19.7 percent, to $8.87. The company has a big financial services division, so it tends to move with banking stocks.
Big gainers included tech and industrial stocks. Caterpillar Inc. rose $2.59, or 10.8 percent, to $26.51. Among tech stocks, Intel Corp. rose $1.37, or 10.9 percent, to $13.92. Cisco Systems Inc. rose $1.02, or 7.5 percent, to $14.64.
Bond prices fell as stocks rallied. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3 percent from 2.88 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.24 percent from 0.23 percent Monday.
The dollar was mixed against other major currencies, while gold prices sank.
Light, sweet crude for April delivery fell $1.36 to settle at $45.71 a barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 rose 4.9 percent, Germany's DAX index jumped 5.3 percent, and France's CAC-40 gained 5.7 percent. Earlier, Hong Kong's Hang Seng index jumped 3.1 percent, while Japan's Nikkei stock average slipped 0.4 percent.