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Market Insider: Friday Look Ahead

The market's strongest three-day advance since November is inspiring confidence that stocks still have room to run.

But despite their optimism, traders are wary the rally will lose steam and prove to be just another bear market rally. But they are also hopeful that the next move to the downside won't carve away as much value as the last violent move lower. Stocks got a lift off the open Thursday from better-than-expected retail sales for February, the second month in a row of positive surprise in that important consumer number.

The Dow rose 239 or 3.5 percent to 7170, while the Nasdaq gained 3.97 percent to 1426 and the S&P 500 jumped 4 percent to 750. At the same time, oil jumped 11 percent to $47.03 per barrel ahead of Sunday's OPEC meeting, and Treasurys also rallied.

"This is real follow through," said one trader, who has been skeptical of the stock market's ability to hold onto its gains this week.

"You're seeing a lot of short covering here, especially in our group," said Pete McCorry, who trades bank stocks at Keefe Bruyette. "While we were waiting for the stars to align, we had a sneaky, quick rally."

Friday's economic data includes international trade and import and export prices at 8:30 a.m., and University of Michigan consumer sentiment is released at 9:55 a.m. Larry Summers, director of the White House National Economic Advisors, hosts a discussion of the Obama Administration's economic program at 10:30 a.m. Late Friday, finance ministers from the G-20 nations gather in Horsham, England ahead of the larger summit with heads of state in April.

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On the economic front, it was the retail sales report Thursday that got the buzz this week. February retail sales fell 0.1 percent compared to an expected decline of 0.5 percent, plus January's number was revised higher.

"The retail sales number, I have to say I was impressed by," said Deutsche Bank Chief U.S. economist Joseph LaVorgna. "Maybe the retail sales are the last gasp of the consumer.. it seems to me that if you look at the amount of wealth loss that we had and compare that to income, the wealth to income ratio suggests the savings rate should be over 7 percent...And income isn't going to improve much, as we know the labor market is bad."

"Unless you really believe things are turning, I believe what happened is consumers are spending after being in hiding and shell shocked for several months," he said.

GE was another factor driving stocks Thursday. Standard and Poor's took General Electric's triple A rating down a notch, and investors were relieved it was not a more dramatic cut. GE rose 13 percent. Traders said the fact that S&P said the outlook was stable was also a positive. GE owns CNBC.

The financial sector was the outperformer Thursday. The S&P financials jumped 10 percent, giving the group a 33 percent gain for the week, which would be a record weekly gain for the group.

Financials started the week higher, but got lift off Tuesday from Citigroup CEO Vikram Pandit's comments that the bank was profitable in the first two months of the year. On Wednesday, J.P. Morgan CEO Jamie Dimon made a similar comment about his bank's performance, and by Thursday Bank of America's Ken Lewis said the same of his firm. He also said Bank of America expects to earn $50 billion pre tax this year. While Lewis' comments were not new, it added to positive sentiment.

After the bell, Citigroup chairman Richard Parsons told Reuters Citigroup does not need any more capital injections from the government, and it expects to remain in private hands.

McCorry said the market has been encouraged by comments from banks that they want to pay back the TARP, or Treasury's Troubled Asset Relief Program. Whether the financials (and the market) continues to run, depends on a number of things. "It's going to depend on what happens with credit. It's going to depend on how loan losses go forward. It's going to depend on whether we continue to see delinquencies on cards and the master trust data that comes out. There's a lot that depends," he said.

Fed Chairman Ben Bernanke earlier in the week said if banks are stabilized, the economy will come out of recession this year. "We continue to see the headlines. We're seeing people who want to pay back TARP and bankers saying 'we're profitable.' Maybe that's the stability phase Bernanke's looking for ... Having said that, we're one or two headlines away from giving it all back," McCorry said.

Speaking of Bernanke, the Fed chairman will appear in a taped interview on "60 Minutes" Sunday night, very unusual for a Fed Chairman.

"In light of the upcoming FOMC meeting (Tuesday), it would be very unlikely he would tip his hand ahead of time. "60 Minutes" is unusual for him, but I don't have a problem with it," said LaVorgna. "He's is going to tell you where policy is going. He's going to try to use it as a way to tell people what the Fed has been doing and instill confidence."

"If he believes he can address the situation in a way that gets the word out that the Fed is doing its part, and at the same time do some cheerleading for some kind of rescue plan, it's a good thing in my mind," he said.

Getting Technical

Scott Redler, chief strategic officer at T3Live.com, said the strength of the stock market's move this week indicates it can still head higher. "We do see some big caps acting well," he said in a note. He pointed to Goldman Sachs and Morgan Stanley. Semiconductors are also acting well, as are select tech names like Apple , Baidu, Google and Amazon.

Some stress has been taken off the lower tier big cap names, like GE, Wells Fargo and Bank of America. "So there will be stocks that support an up move. This will be bigger than your 10 percent bear market bounce. We do think S&P will ultimately get to 790 to 810," he said.

The Dow, he said, could go to 7700 to 7800. "But we have a lot of trading between now and then, and a lot of hurdles to go through," he said.

Always a Bullish Sign

Traders aren't expecting a big rush of merger news, but the amount of substantial deal activity this past week after a drought of activity has to be encouraging. When companies are ready to move ahead with a merger, it usually indicates they are fairly comfortable with what they expect of the business environment and the prospects for themselves and their chosen target. Genentech Thursday finally agreed to a $47 billion bid from Roche Holding'sto buy the Genentech shares it did not already own.

Also Thursday, Gilead Sciences said it would buy CV Therapeutics for $1.4 billion. In the past week, Dow Chemical and Rohm and Haas put aside their differences and agreed to merge, and Merck and Schering-Plough announced a marriage that was anticipated for years.

In other company news Thursday, News Corp announced a reshuffling of managementfollowing the departure of its president Peter Chernin. Peter Rice, who heads Fox Searchlight, was elevated to chairman of entertainment for Fox Broadcasting, replacing Peter Liguori who is stepping down immediately. Rice reports to Tony Vinciquerra, chairman of Fox Networks, whose role expands to also include oversight of Fox Broadcasting programming.

Bye, Bye Bernie

Bernie Madoff spent his first night in jail Thursday, after pleading guilty to creating the world's biggest known ponzi scheme. Madoff stands to spend 150 years in jail when he is sentenced.

Scam of the Century

  • Madoff In Jail, Could Face Additional Charges
  • Madoff's Victims Speak Out
  • Read Madoff's 11 Criminal Counts
  • Resources for Madoff Victims
  • What Should His Sentence Be? CNBC.com Readers Offer Their Suggestions
  • In court action Friday, Bank of American and New York Attorney General Andrew Cuomo face off in lower Manhattan. Bank of America wants to expand a confidentiality order on testimony by former Merrill Lynch CEO John Thain to cover all witnesses who testify under subpoena in the bonus probe.

    Questions? Comments? marketinsider@cnbc.com

    • Patti Domm

      Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

    • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

    • CNBC's Senior Personal Finance Correspondent

    • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

    • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

    • Senior Producer at CNBC's Breaking News Desk.