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Rally's fate turns on bank results

IF Wells Fargo's upbeat first-quarter performance is any sign, Wall Street could rally further next week on any reassuring news from three other big banks due to post quarterly results.

The latest earnings season gets under way in earnest in the coming week, with four components of the Dow Jones industrial average, including JPMorgan, among companies set to report their latest scorecards.

General Electric, a conglomerate whose results and outlook may shed light on the state of the broader economy, is scheduled to report earnings next Friday.

Goldman Sachs Group Inc which converted from an investment bank to bank holding company status last September after Lehman Brothers collapsed, will release quarterly earnings on Tuesday.

Yesterday, Goldman Sachs was said to be considering a multibillion-dollar stock offering as part of its efforts to repay US$10 billion borrowed from the US government's Troubled Asset Relief Program, or TARP, according to the Wall Street Journal, citing people familiar with the situation.

Hopes that the economic slump may be abating and some stability may be returning in the banking sector have helped underpin a month-long recovery in stocks from 12-year closing lows hit early last month.

"The market is looking like it wants to continue the rally," said Andre Weisbrod, president and chief executive officer of STAAR Financial Advisors Inc in Pittsburg, Pennsylvania.

"But again, so much of this depends on the news of the day. It looks like we're going to see the banks showing some improved cash flows, and that's certainly better than the opposite situation."

US President Barack Obama said yesterday that despite the recession's heavy toll, the US economy is showing "glimmers of hope." He didn't mention the "stress tests" being performed at 19 big US banks. The financial markets anxiously await those results, due at the end of April.

But the president expressed confidence that his administration was addressing the problems of both troubled banks and non-bank financial institutions.

The benchmark Standard & Poor's 500 Index achieved its fifth straight weekly gain at Thursday's close after Wells Fargo, the fourth-largest US bank, gave a surprisingly upbeat preliminary view on its quarterly performance.

Wells Fargo said it expected to post a record US$3 billion profit for the January-March period, and investors became hopeful that more banks would keep to the same positive tune when their results roll in.

For the short holiday week, the S&P 500 rose 1.7 percent, the Dow Jones industrial average gained 0.8 percent and the Nasdaq composite index climbed 1.9 percent.

US financial markets were closed for Good Friday.

Looking ahead, JPMorgan is due to report results on Thursday and Citigroup yesterday. For a full results diary, click

The banking sector's health has been a major worry after fallout from the financial crisis led the US government to pump billions of dollars into such troubled institutions as Citigroup, which gave Wall Street a pleasant surprise last month when it said it was profitable in January and February.

With the economy mired in a protracted recession, investors are eager to see if banks have again begun lending to consumers and businesses, whose spending would serve as a crucial underpinning to an economic recovery.

"The banking sector has been in focus for Wall Street for the last six months so next week sharpens that a little bit more," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.

The market is "still going to be very focused on earnings and the health of banks, as well as what Corporate America has to say," he added.

Yesterday, the Federal Deposit Insurance Corporation said US regulators closed Cape Fear Bank of Wilmington, North Carolina, and New Frontier Bank of Greeley, Colorado, which became the 22nd and 23rd US banks, respectively, to fail this year.

In addition to bank earnings, investors will sift through quarterly reports of other major bellwethers, particularly in the technology sector, which was mostly spared the brunt of the pain in the market's recent plunge to 12-year lows.

Chip maker Intel Corp is due to report first-quarter earnings on Tuesday, while Google Inc, the Web search leader, will release results on Thursday. Both report after the bell.

The earnings spotlight will also be on Dow component and health-care company Johnson & Johnson, which will report results on Tuesday, as well as on transportation companies CSX Corp and AMR Corp, which will both release their numbers on Wednesday.

Also on tap are motorcycle maker Harley-Davidson Inc on Thursday and toymaker Mattel Inc yesterday. Both are important barometers of consumer spending.

"The short-term momentum is still bullish. This move off the March lows probably has more legs to it," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston.

"But what we're telling our clients is that once you start to get above the 860 area in the S&P 500, and 8,200-8,300 in the Dow, we want to start getting out of speculative long positions and paring back our equity exposure."

Mindful of the fragility of previously attempted rallies, including one subsequent to the November lows, strategists still advocate some caution.

The backdrop for some of the wariness is the recent slide in the CBOE Volatility Index, or VIX, commonly known as Wall Street's fear gauge. On Thursday, the VIX marked its lowest close since September 2008, the month that forever changed the face of Wall Street when Lehman Brothers failed.

The S&P 500 is up 26.6 percent from its March 9 bear market closing low, but it is still down 45.7 percent from its record high of October 2007.

"In our opinion, this is still a bear market move," Strazzullo said. "So you've got to be careful. It's been a great run over a short period of time, but we don't see it as a bigger picture change in trends, so I don't want to get careless -- not at these levels."

Besides the earnings frenzy, next week's economic calendar is packed. Highlights include March retail sales on Tuesday, along with the March Producer Price Index, followed by the March Consumer Price Index on Wednesday, along with the Federal Reserve's Beige Book, a snapshot of regional economic conditions.

Weekly jobless claims, March housing starts and the Philadelphia Federal Reserve's report on April Mid-Atlantic factory activity are all due on Thursday.


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