US stocks rallied, sending the Standard & Poor's 500 Index to its best gain in six weeks, as analyst Meredith Whitney recommended buying shares of Goldman Sachs Group and said banks may advance 15 per cent.
Goldman Sachs climbed 5.3 per cent as Whitney gave the firm the only ''buy'' rating among the eight companies she covers. Bank of America Corp. jumped 9.3 per cent, the most in almost two months, after the analyst told CNBC the shares were the ''cheapest'' among US banks. SanDisk Corp., the largest maker of flash-memory cards, led technology shares higher after Thomas Weisel Partners Group Inc. advised buying the shares.
The S&P 500 advanced 2.5 per cent to 901.05. The Dow Jones Industrial Average added 185.16 points, or 2.3 per cent, to 8,331.68.The Nasdaq Composite Index gained 37.18 points, or 2.12 per cent, to close unofficially at 1,793.21. Almost nine stocks gained for each that fell on the New York Stock Exchange.
''We need to have a healthy banking sector for this economy to work properly,'' said Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati. ''Any positive commentary or news will be good for the banking stocks, will be good for the psychology of the market.''
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of US stock options, slid the most since February. The so-called VIX, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 12 per cent to 25.61.
US stocks capped a fourth straight week of declines on July 10, matching the longest losing streak in a year, as consumer sentiment dropped more than estimated and oil's steepest retreat since January dragged down energy shares. Investors this week will be looking at reports on retail sales and factory production to gauge the strength of the economy after a $US787 billion ($1 trillion) stimulus bill passed in February.
Goldman Sachs, JPMorgan Chase & Co., International Business Machines Corp. and Google Inc. are among more than 30 companies in the S&P 500 Index scheduled to report results this week. Analysts estimate the group's profits fell an average 35 per cent in the second quarter and will decrease 21 per cent from July through September, according to data compiled by Bloomberg.
''It's going to be a while before we're confident we're going to have a strong, sustainable recovery in place,'' Treasury Secretary Timothy Geithner said, according to the transcript of an interview with ''CNN's Fareed Zakaria GPS'' show broadcast yesterday.
Goldman Sachs climbed 5.3 per cent to $US149.44, helping lift a gauge of financial shares up 6.4 per cent, the most among 10 industries in the S&P 500 and the group's steepest advance since May 18. Whitney, founder of Meredith Whitney Advisory Group, upgraded the shares to ''buy,'' her first such rating on a US bank since she started her own firm. Whitney created the firm earlier this year after correctly predicting in 2007 that Citigroup Inc. would cut its dividend, a call that triggered the steepest drop in the shares since September 2002.
Goldman Sachs will post ''enormous'' revenue from its fixed-income, currencies and commodities business, she told CNBC. ''Goldman is going to surprise big on the upside,'' she said. Whitney also told CNBC that she could see a 15 per cent rise in the banks she covers.
Goldman Sachs may post the largest profit since it set earnings records in 2007 when it reports second-quarter results tomorrow. The company will probably say it earned $US2.2 billion, or $US3.65 a share, excluding some items in the three months through June, according to the average estimate of analysts surveyed by Bloomberg. The stock may reach $US186 from $US141.87 on July 10, Whitney said in a note to clients.
''People are questioning the strength of the recovery and whether there is need for a second stimulus package,'' said Alberto Espelosin, who helps manage the equivalent of $US10.5 billion at Zaragoza, Spain-based Ibercaja Gestion. ''All eyes will be on Goldman's earning's tomorrow.''
Bank of America, the largest US bank by assets, jumped 9.3 per cent to $US12.99 after Whitney told CNBC it was the ''cheapest'' US bank. The shares are trading at about 23 times profit over the past 12 months, compared with price-to-earnings valuation of 35 for JPMorgan Chase & Co. and 33 for Goldman Sachs.
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