Stocks rose sharply Thursday after an upbeat forecast from Wells Fargo, capping their fifth straight up week.
The Dow Jones Industrial Average gained 246.27, or 3.1 percent, to close at 8,083.38, after hitting a new intraday high for the rally started in early March. The S&P 500 rose 3.8 percent and the Nasdaq advanced 3.9 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped to 36.53, closing at its lowest level since September 2008.
All U.S. financial markets are closed Friday for the Good Friday holiday.
Wells Fargo shot up 32 percent after the bank said it now expects earnings of 55 cents a share, including items, which is far higher than previous estimates of 26 cents a share.
Art Cashin, director of floor operations for UBS, said the market's response to the Wells Fargo forecast could be a good sign.
"[M]aybe we're beginning to turn the corner in the financials. Maybe things are getting better. Maybe some of the various government programs added some stability," Cashin told CNBC.
Still, Cashin remained cautious about the market outlook.
"I tend to think we might have a little bit of a false spring here," he said. "I'm going to remain a little bit skeptical on this particular leg of the move."
Investors were encouraged after jobless claims dropped by 20,000 to 654,000 last week, though continuing claims hit another record.
"It does appear ever so slightly that we have hit a peak. The numbers are stabilizing around 650,000, but things are still really bad," T.J. Marta, chief market strategist of Marta on the Markets, told Reuters. "I'm still very pessimistic about the prospects of any enduring recovery," he said.
Meanwhile, the trade deficit shrank 28 percent to $25.97 billion in February, the smallest deficit since 1999, and import prices rose 0.5 percent in March, the first increase in eight months. Export prices fell 0.6 percent.
In the U.K, the Bank of England held its key lending rate steady as it contemplates more quantitative easing.
Adding another notch in the optimism column, most chain stores reported a drop in March sales as consumers focused on necessities, but 50 percent beat expectations.
Wal-Mart delivered mixed results: Same-store sales rose 1.4 percent, excluding fuel costs, missing the 3.2-percent increase expected. But the discount giant surprised with its outlook, saying it expects sales for the quarter ending May 1 will be "around the high end" of its forecast of a 1 percent to 3 percent rise.
It also predicted earnings will be "toward the high end" of its February guidance of 72 cents a share to 77 cents a share.
Rival Target , which hasn't fared as well during this recession, posted a smaller drop in sales than expected and said it was seeing "encouraging signs" in its business.
Wal-Mart shares fell 3.7 percent, while Target jumped 6.1 percent.
Warehouse chain Costco missed expectations. Investors are hoping to see signs of improvement from the beleaguered retail market that has been hit hard as consumers retreat from spending. Its shares fell 1.7 percent.
Macy's shot up 15 percent after the department-store operator reported its same-store sales fell 9.2 percent, but came in slightly better than expected.
Banking shares were mostly higher Thursday following a New York Times report that the nation's largest financial institutions will probably pass their government stress tests, but could still need bailout money.
Citigroup and Bank of America gained 13 and 35 percent, respectively.
Meanwhile, the earnings outlook for Morgan Stanley came under question by a report from the Wall Street Journal. The investment bank is expected to suffer a writedown of between $1.2 billion and $1.7 billion on the value of its bonds, the paper said citing people familiar with the matter. Still, Morgan shares jumped 12 percent.
Warren Buffett's Berkshire Hathaway also received a potential blow, but in the form of a ratings downgrade from Moody's. Buffett’s company no longer has the top level of investment grade rating. Its shares climbed 3.9 percent.
For the week, financials were the big winner, jumping 9.5 percent. Telecoms were the worst-performing of 10 key S&P sectors, sliding more than 2 percent.
American Express had the most positive impact on the Dow this week, soaring 23 percent, amid buzz that the Treasury may consider extending TARP funds to some insurers.
Alcoa kicked off earnings season with a thud earlier this week, reporting earnings that just missed expectations. Still, its shares are up nearly 9 percent for the week.
Earnings season gets into full swing next week with reports from Johnson & Johnson , Intel , JPMorgan , Citigroup and General Electric .
Next Week:
MONDAY: Hearing on Madoff fund freeze
TUESDAY: Retail sales; PPI; business inventories; Earnings from J&J, Goldman Sachs, Philips Electronics, Intel and CSX
WEDNESDAY: Weekly mortgage applications; NY Fed Empire State survey; CPI; industrial production; weekly crude inventories; NAHB housing index; Fed's beige book; Earnings from Abbott Labs
THURSDAY: Housing starts; weekly jobless claims: Philly Fed survey; Fed's Lockhart, Yellen speak; Earnings from JPMorgan, Harley-Davidson, Nokia, Southwest Air and Google
FRIDAY: CNBC's 20th Anniversary; consumer sentiment; Bernanke speaks; Earnings from Citigroup, GE and Mattel
Send comments to cindy.perman@nbcuni.com.
