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Stocks Rally but End Week Down 4%

Friday, 7 Nov 2008 | 6:14 PM ET

Stocks bounced back after a two-day selloff as traders shrugged off a bigger job loss than expected.

Stocks rallied for much of the day, shaving off gains after General Motors delivered a dismal quarterly report and during an afternoon press conference by President-elect Obama. But major indexes gained it all back, rallying to their highs for the day in the final half hour.

The Dow Jones Industrial Average rose 248.10, or 2.9 percent, to close at 8943.89. The Standard & Poor's 500 index also gained 2.9 percent, while the Nasdaqadded 2.4 percent.

It was a welcome reprieve after the bloodbath of the last two days, when the Dow lost 10 percent and logged its worst point drop on record.

Today's rally was "more a reaction that we had a 10-percent selloff in the past two days than anything," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill., adding that today's dismal jobs number was largely baked into that selloff.

"That 10-percent decline encompassed a lot of bad news," Nolte said. "But, as bad as it was, it wasn't 10-percent bad."

Still, today's rally wasn't enough to dig out stocks completely and the Dow ended down 4 percent on the week. That marked the worst presidential-election week for the Dow since Harry Truman upset Thomas Dewey in 1948. For the S&P and Nasdaq, it was the worst presidential week since 2000, when there was no immediate winner in the nail-biting race between George W. Bush and Al Gore.

Small caps continued to lag, with the Russell 2000 index down nearly 6 percent for the week. Nine of the 10 key S&P sector indexes finished lower for the week, with financials the worst hit, down more than 8 percent. Telecoms were the only advancing sector, up about 1.5 percent.

With the presidential election, a major source of uncertainty for the market, behind, the CBOE volatility index ended the week down 6 percent at 56.10.

In his first news conference since being elected president, Obama sought to calm jittery markets, calling for an extension of unemployment insurance, asking that a stimulus plan be passed before his inauguration on Jan. 20 and urging the Bush administration to do everything it could to accelerate aid to the auto industry.

The press conference followed Obama's meeting with his transition economic-advisory team, a high-powered collection of business, academic and government leaders. Participants included Lawrence Summers, whose name has been tossed around for Treasury Secretary, as well as Google CEO Eric Schmidt and former Federal Reserve Chairman Paul Volcker. Billionaire investor Warren Buffett phoned it in.

The market got a much-needed data point out of the way today: The October jobs report.

U.S. employers cut 240,000 jobs from nonfarm payrollsin October, much more than the 200,000 expected. The unemployment rate jumped to 6.5 percent, the highest in more than 14 years. Economists had expected 6.3 percent.

September and August were also revised staggeringly higher: September was revised to a 284,000 decline from the initial estimate of 159,000, and August was revised to show a 127,000 drop. So far this year, a staggering 1.2 million jobs have disappeared — and half of that was in the past three months.

The report was a dismal indication of the economic situation but a lot of that was priced in during the selloff of the past two days. And, some market pros said the selloff was probably overdone. One predicted a six-day rally for the S&P 500.

"Treasuries were priced for Armageddon and we didn't get Armageddon," Kevin Flanagan, a fixed income strategist at Morgan Stanley, told Reuters. "There is no doubt we are seeing deteriorating labor market conditions, but for those expecting down 300,000 the report didn't quite measure up today."

Meanwhile, U.S. wholesale inventories dropped for the first time in 11 months, falling 0.1 percent in September, and pending-home sales fell 4.6 percentin September, worse than expected.

Alcoa was the biggest gainer on the Dow after NASA named the company's Davenport, Iowa, facility as the sole provider of an aluminum-lithium alloy used for a launch vehicle.

"Basically, the way back to the moon is paved right here through Alcoa Davenport," Steve Cook, director of NASA's Exploration Launch office, said in a press release.

Exxon Mobil surged 6.3 percent, helping to boost the Dow, amid bargain hunting and oil's ability to stay above the $60-a-barrel mark.

Crude oilsettled at $61.04 a barrel, after falling below $60 in overseas trading for the first time in 19 months. Oil ended the week down nearly 10 percent.

General Motors shares declined 9.2 percent, making it the biggest drag on the Dow, after the stock resumed trading. Shares had been halted pending the auto maker's earnings report.

(Track all 30 Dow stocks.)

GM reported a net loss of $2.5 billion or $4.45 a share for the third quarter. Excluding items, GM lost $4.2 billion, or $7.35 a share, double of what analysts had expected. The quarter included hefty charges related to the elimination of retiree health-care coverage and Delphi bankruptcy proceedings, as well as its investment in GMAC. Revenue fell 13 percent to $37.9 billion. The auto maker's cash burn rate was a whopping $6.9 billion, more than double of what it spent in the second quarter.

"The third quarter was especially challenging for the auto industry. Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales," GM CEO Rick Wagoner said in a press release. "The U.S. government's actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy's and the auto industry's recovery, but further strong action is required."

Ford Motor shares rose 2 percent after the auto maker reported a wider-than-expected loss of $1.31 a share and said it would reduce salary expenses by another 10 percent in addition to other cost cuts.

Shares in Toyota Motor rebounded 2.1 percent after Thursday's 16-percent decline after the Japanese auto maker shocked investors with a warning that profit this year would hit a 13-year low.

Qualcomm was one of the day's biggest advancers, rising 7.9 percent, after the company, which makes cell-phone chips, gave a weaker-than-expected outlook Thursday after the bell, underscoring a slowdown in mobile-phone sales.

Sprint Nextel , the No. 3 U.S. mobile service, posted a quarterly loss and weaker revenue as customers fled to rival services. Its shares dropped 8.4 percent.

Yahoo tumbled 13 percent after Microsoft dismissed speculation it might still be interested in a takeover of the Internet firm. Microsoft shares rose 3 percent.

Next week is light data-wise, with the big event on Friday, the government's read on October retail sales. That comes on the heels of reports from retailers this week, which showed some of the weakest sales in more than a decade.

Retail earnings will be sprinkled throughout the week, including reports from Wal-Mart and Macy's .

On Tap for Next Week:

MONDAY: Bond market closes early ahead of Veterans Day; Earnings from AIG, Starbucks
TUESDAY: Government offices, bond market closed for Veterans Day; Earnings from TJX
WEDNESDAY: Weekly crude inventories; Fed's Stern speaks; Earnings from Macy's, Applied Materials
THURSDAY: Weekly mortgage applications; weekly jobless claims; international trade; Fed's Plosser, Stern speak; Treasury Budget; Earnings from Wal-Mart, Nordstrom, Kohl's
FRIDAY: Import/export prices; retail sales; business inventories; consumer sentiment; natural-gas inventories; Earnings from Abercrombie & Fitch, JCPenney

Send comments to cindy.perman@nbcuni.com.

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