Stocks rallied Friday amid hope that the worst is over for financials and after solid earnings from multinationals.
The Dow Jones Industrial Average broke past its February high and rose 4.3% for the week. The Dow is now off about 3.1% for the year.
The S&P 500 also gained 4.3% for the week and is now down 5.3% for the year.
The Nasdaq soared 4.9% for the week, its biggest gain since August 2006. The tech-heavy index is still off 9.4% for the year.
The Chicago Board Options Exchange Volatility Index, which measures market jitters, slipped below 20 for the first time this year.
Even more surprising is that financials are actually outperforming the broader market, with several stocks -- including Citigroup , AIG and JPMorgan -- up about 10 percent for the week.
Citigroup, the largest US bank, reported a loss of $5.1 billion, or $1.02 a share, its second straight quarterly loss. The results included $13 billion in writedowns. Analysts had expected a smaller loss of 96 cents a share but, like Merrill Lynch a day earlier, investors bid up the stock amid hopes that, with big banks throwing in everything including the kitchen sink this quarter, the worst may be over. Citi shares shot up more than 5 percent; Merrill also rose.
"The psychology right here is that the worst is over. That we're seeing the bottom, that we can identify that this is it," Gordon Charlop, managing director at Rosenblatt Securities, told CNBC. "You look at Merrill Lynch, Citigroup -- they're saying, 'yeah, we figured it out, we got it right, we're ready to move on.'"
Expanding volume on good days and contracting volume on down days also suggests that the market mood has turned a corner.
But some advisors cautioned investors not to get ahead of themselves.
"All we've gotten now is a reversal of [last] Friday's gloom and doom that GE was a bellwether for the economy," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill.
"When you take a couple of steps back, the financial sector is still not healthy, the economy is still contracting and earnings are declining year-over-year for S&P 500 companies."
"There are still a lot of issues in the pipeline" for the financial sector, which will take the better part of 3 to 6 months to work out, Nolte said. Plus, a lot of this week's gains were driven by earnings from multinational companies, and the dollar's weakness won't last forever.
Nolte says the market has probably put in a short-term (two-month) bottom, but will likely retest January lows sometime over the summer as more issues work through the system.
Tech stocks got a shot in the arm from Google, which reported earnings that blew past expectations. Net increased 30 percent to $1.31 billion. Excluding expenses for stock-based compensation, the Internet-search giant earned $4.84 a share, well above the $4.52 expected, according to analysts polled by Thomson Financial. Revenue and advertising revenue were strong, analysts noted, adding that "paid per clicks" jumped 20 percent.
Google shares surged Friday, the first time the stock has been above $500 in more than a month.
Among other tech earnings, chip maker Advanced Micro Devicesreported another quarterly loss but results were in line with consensus estimates; and Xeroxswung to a loss, hurt by a litigation charge.
Solid results from a pair of multinational industrials also gave the market a boost, suggesting that perhaps General Electric's spectacular earnings miss a week ago may have reflected isolated problems at GE, not a broader trend.
Shares of Dow component Caterpillar breached $85, a level the stock hasn't seen since last July, after the equipment maker reported its profit rose 13 percentto $922 million, or $1.45 a share, as strong international sales offset what Cat called a "recessionary storm" in the U.S. The results surpassed the $1.33 a share analysts had expected. The world's largest maker of construction and mining equipment, which now gets two-thirds of its sales from outside the U.S., lowered its forecast for the U.S., but raised its outlook for everywhere else in the world. Overall, the company said it expects another "record year," pegging sales growth at 5 to 10 percent.
Honeywell said its profit rose 22 percent, helped by strong demand from the aviation and commercial-construction sectors. Net income rose to $643 million, or 85 cents a share, topping analysts' estimate of 82 cents a share. The company, which is the world's largest maker of cockpit electronics, also said it expects earnings for the current quarter between 92 and 93 cents a share, in line with expectations, and raised its full-year guidance.
Halliburton shares increased after the oilfield-services company confirmed that it's in talks with the U.K.'s Expro International that could lead to an offer by Halliburton to buy its British rival.
Shares of Take-Two Interactive rose after rival Electronic Arts once again extended its tender offerfor the videogame maker; EA's offer is now set to expire on May 16. EA also lowered its per-share bid to $25.74, though the overall deal is still valued at $2 billion.
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