NEW YORK: The beleaguered banking sector surged Wednesday, pushing the Dow Jones Industrial Average to its highest level since November.
The blue-chip index advanced 1.1% to 17908.28, tantalizingly close to the 18000 level it last hit in July. That is a sharp turnaround from February, when the Dow closed at a two-year low.
The Dow is now roughly 2% away from its record-high close of 18312.39 set in May. The index charged higher late last year following a sharp drawdown in August but ultimately fell short of the record.
“If we fail here, it tends to suggest there’s significant resistance at the old high,” said Art Hogan, chief market strategist at Wunderlich Securities.
Better-than-expected earnings from J.P. Morgan Chase & Co., the largest U.S. bank by assets, ignited gains in financial shares. J.P. Morgan was the biggest gainer in the Dow, jumping $2.51, or 4.2%, to $61.79. The KBW Nasdaq Bank Index of large U.S. commercial lenders advanced 3.9%, paring the index’s 2016 decline to 9.2%.
Regulators on Wednesday ordered five major U.S. banks to revise their plans for a possible bankruptcy under the 2010 Dodd-Frank law or face potential regulatory sanctions, though the move did little to dent shares.
The bank-fueled gains reflect one issue the broader market faces as it climbs. Projections for first-quarter earnings are bleak, so results that beat expectations could propel stocks. But even if earnings clear a lowered bar, the results are expected to be far from rosy, which could create headwinds for a rally that is stretching into its third month.
“Expectations are lowered, and then they are met. That’s a short-term game in my mind,” said Anwiti Bahuguna, senior portfolio manager at Columbia Threadneedle Investments, which oversees $472 billion. For stocks to rally over the longer run, it would take more optimistic corporate guidance, including a sense of when companies expect their earnings to rise, as well as better economic data, Ms. Bahuguna said.
Alcoa kicked off first-quarter results in the U.S. on Monday with gloomy results, saying earnings fell 92% and it could cut as many as 2,000 jobs as it struggles with weak aluminum prices.
Heading into earnings season, analysts cut their expectations for almost three-quarters of the companies in the S&P 500’s financial sector, according to FactSet. Low interest rates, regulation and exposure to the troubled energy sector have cast a shadow over bank shares this year, making the financial sector the worst performer in the S&P 500 in 2016.
“Maybe we’ve lowered the bar too much” for some of the banks, said Justin Wiggs, managing director in equity trading at Stifel Nicolaus.
While J.P. Morgan’s per-share profit topped projections, the bank said its revenue fell 3.4% in the first quarter and it set aside more money to cover loans that could sour in the future, primarily in the oil and other commodity-related industries.
“You don’t need financials to lead a bull market, but for the market to go up a bit, they have to be at least OK,” said John Manley, chief equity strategist at Wells Fargo Funds Management. The financial sector is the second-largest in the S&P 500, behind the technology sector, according to data from S&P Dow Jones Indices.
The S&P 500 advanced 20.70 points, or 1%, to 2082.42 Wednesday, and the Nasdaq Composite rose 75.33, or 1.5%, to 4947.42. The Stoxx Europe 600 jumped 2.5%, following a rally in Asia. Bank stocks in the pan-European index surged 6.3%.
In commodity markets, U.S. crude oil slipped 1% to $41.76 a barrel, a day after settling at its highest level since November amid speculation about a potential agreement on a production freeze at a meeting of producers in Doha on Sunday.
Chinese exports expanded in March for the first time in nine months, data from the General Administration of Customs showed, helping soothe concerns about the world’s second-largest economy. But global growth concerns linger. The International Monetary Fund cut its outlook for the world economy on Tuesday.
“Oil and China have stabilized markets at the moment…but I still expect quite a bit of volatility,” said Philippe Gijsels, chief strategist at BNP Paribas Fortis. “It only takes a couple pieces of bad news from China to make people worry again.”
The Wall Street Journal Dollar Index, which measures the buck against a basket of 16 currencies, was up 0.7%, snapping a three-day losing streak.
Stocks in the eurozone got a lift as the euro fell. The common currency was recently down 1% against the dollar at $1.1269.
Japan’s Nikkei Stock Average ended 2.8% higher as the dollar rose against the yen. The dollar was recently up 0.7% against the yen at ¥109.35.
Hong Kong’s Hang Seng Index gained 3.2%, while the Shanghai Composite Index added 1.4% and Australia’s S&P ASX 200 added 1.6%.
Treasury prices rose, with the 10-year yield falling to 1.760% from 1.781% on Tuesday. Gold for April delivery fell 1% to $1,246.80 an ounce.
