Stocks Posted a Second Straight Gain on Encouraging Earnings and Home Sales. Dow Leaders: GE, MRK, PFE, JPM, and AA

Published on Tuesday, 02 February 2010 17:21 Written by Christopher Lynn

New York, February 2nd (TradersHuddle.com) – Stocks finished higher, posting their second straight gain, after encouraging earnings reports, pending home sales, and solid auto sales. Crude and Metals rallied, as the Dollar weakened and investors’ optimism that global economic growth will drive demand for commodities grew.

The Dow Jones Industrial Average jumped 111.32 points, or 1.09%. The S&P 500 index rallied 14.13 points or 1.30%, while the NASDAQ climbed 18.86 points or 0.87%. Market breadth was positive. On the NYSE advancers outpaced losers by a rate of 10 to 3, while on the NASDAQ winners topped decliners by a rate of 4 to 3.

The market started to the upside as the bellwether for the U.S. economy, UPS (NYSE:UPS), reported earnings that narrowly beat estimates and projected a jump in profit for 2010. Mid morning, stocks solidified their advanced after the National Association of Realtors reported an increase of 1% in their pending home sales index, an increase which was in line with expectations. The index fell 16.4% in the previous month.

Major automakers, including Ford Motor (NYSE:F), General Motors and Nissan all reported improved January sales, which helped the bullish mood. However, Toyota (NYSE:TM), which earlier this month recalled millions of cars due to a faulty gas pedal, saw a bigger-than-expected decline in January sales.

In Congress, Testifying at a Senate Banking Committee meeting, White House economic adviser Paul Volcker sought to expand on President Obama's plan to limit risk taking at the U.S. biggest financial institutions. The former Federal Reserve Chairman said limiting banks from engaging in some high-risk trades would limit the number of institutions that are deemed to be "too big” to fail.

Among 10 key S&P sectors, health care was the biggest gainer, followed by industrials and consumer discretionary as traders placed some recovery bets. Homebuilders also finished strong after the pending-home sales report and homebuilder D.R. Horton (NYSE:DHI) posted a surprise profit.

28 of the 30 Dow components posted gains, with General Electric (NYSE:GE) leading the gains in the blue chip index. Shares of the maker of aircraft engines and power systems jumped 3.69% to $16.85. The company’s backup engine for the F-35 Joint Strike Fighter won support from Senator Carl Levin, the Armed Services committee chairman, after Defense Secretary Robert Gates excluded it from the Pentagon’s 2011 budget proposal.

The second best advance in the Dow Jones Industrial Average was Merck (NYSE:MRK), as shares of the maker of Singulair and Zocor climbed 3.24% to $39.54. And the third best Dow stock was Pfizer (NYSE:PFE), as shares of the maker of Viagra and Lipitor added 2.39% to $19.24. Shares of pharmaceutical companies moved higher as the healthcare sector received a bid. Pfizer is scheduled to report its quarterly earnings tomorrow. The company is expected to earn $0.5 a share on revenue of $15.97 billion.

The fourth best Dow component was JP Morgan Chase (NYSE:JPM), as shares of the second U.S. lender climbed 2.32% to $40.55. The move higher came after Paul Volcker testified that President Obama’s plan will allow for regulators to exercise more control over the banks and avoid falling into the “too big to fail” category.

The fifth best gain in the Dow Jones Industrial Average was Aloca (NYSE:AA), as shares of the aluminum producer added 2.32% to $13.67. The stock benefited from higher aluminum prices and an upgrade from Citigroup citing valuation