After a two-week slide, stocks made a comeback this week as a series of events revitalized hopes for the recovery and the earnings season got off to a solid start.
In Friday's action, the Dow Jones Industrial Average gained 78.07, or 0.8 percent, to close at 9,864.94 — a new high for the year. The S&P 500 rose 0.5 percent and the Nasdaq advanced 0.7 percent.
For the week, the Dow jumped 4 percent, while the S&P and Nasdaq gained 4.5 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped 20 percent, ending the week at 23.09.
Monday is the Columbus Day holiday in the U.S. but all financial markets will be open.
In Friday's trading, stocks recovered after a quick dip at the open, though gains were modest. Chevron advanced after saying it expects profits to improve in the third quarter. And techs got a boost from some upbeat analyst comments.
The opening dip was a result of the dollar's strength after comments from Fed Chairman Ben Bernanke.
Bernanke said the Fed will eventually have to start tightening its monetary policyas the economy heals.
"Accommodative policies will likely be warranted for an extended period," Bernanke said in remarks prepared for delivery at a monetary policy conference at the Fed. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."
The dollar retreated against major curriences. Both gold and oil also pulled back. Oil finished the week at $71.77 a barrel. Gold finished at $1,048.60 an ounce, after setting an intraday high earlier in the week above $1,062.
Earlier this week, Australia raised its interest rates, the first major economy to do so since the financial crisis began.
That, coupled with a report from the ISM that the manufacturing sector expanded for the first time in a year, got stocks off on the right foot this week.
Fueling the rally, retailers reported a better-than-expected September and Alcoa kicked off earnings season with a better-than-expected report.
Pros say the market's direction is all going to hinge on earnings season and this quarter, it comes down to one word: Revenue.
That's exactly what Alcoa delivered: It beat on both earnings and revenue.
Chevron added to the earnings optimism: The oil giant said it expects third-quarter earnings to be significantly higherthan the second quarter, helped by higher crude prices and gains from asset sales.
Earnings season will kick into high gear next week, with results from JPMorgan, Citigroup, Bank of America, Goldman Sachs and CNBC's parent, GE.
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In the day's only economic data point: The trade balance unexpectedly dropped to $30.71 billion in August; economists had expected it to widen to $33 billion.
Chip stocks rallied after Deutsche Bank raised its forecast on the semiconductor industry for the rest of the year, saying it likes Intel and Sandisk in particular. Sandisk makes chips for cellphones, portable-music players and other gadgets.
UBS also weighed in on Intel, saying it thinks the chip giant could surpass its Q3 sales forecast, based on recent checks.
The Philadelphia Stock Exchange semiconductor index gained 3.3 percent.
And shares of BlackBerry maker Research In Motion ended slightly lower, despite an upgrade from RW Baird to "outperform" from "neutral."
The IT hardware sector was upgraded to "positive" from "neutral" by Barclays Capital, which said server and storage demand is picking up.
"The tech area is leading us as opposed to the financials that had done so well a month ago or so," Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company, told Reuters. "Maybe we're getting some new leadership — we need it."
IBM shares rose 3 percent on the news.
Both IBM and Intel report earnings next week.
Banks ended mostly higher, including Bank of America and JPMorgan .
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But Citigroup shed 0.4 percent after a Wall Street Journal report said the Federal Deposit Insurance Corp is questioning a positive government review of the company's management in the aftermath of the financial crisis.
In deal news, Occidental Petroleum has agreed to buy Citi's commodities-trading unit— you know, the one with the $100 million trader — for about $250 million.
And Kimberly-Clark , maker of Kleenex tissues and Huggies diapers, has agreed to buy I-Flow, a maker of drug-delivery systems, for $324 million. This is KC's second deal to expand its medical-device business in a week. Earlier this week, Kimberly-Clark said it acquired Baylis Medical's pain-management business.
Friday marks a notable anniversary on Wall Street: It was two years ago — on October 9, 2007 — that both the Dow and the S&P 500 finished at their all-time closing highs. The Dow finished that day at 14,164.53, while the S&P 500 closed at 1565.15.
While those averages are still currently about 30 percent below that level, they're also about 50 percent ABOVE their lows reached back in March, and they're also about to complete their best week in some time, depending on Friday's results.
Volume was light, with 989.9 million shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 3 to 2.
Nine out of ten key S&P sectors finished higher this week, led by energy, which was up over 7.5 percent. Only telecoms were lower, down 2.5 percent.
IBM had the most positive impact on the Dow this week, up nearly 6 percent. For the year, American Express continued to hold the top spot, up more than 88 percent.
AT&T had the worst impact on the Dow this week, down more than 3 percent; Verizon is the worst performer for the year, down nearly 14 percent.
Over on the Nasdaq 100, Google had the most postive impact this week, up more than 6.5 percent. For the year, the best performer of the 100 is Liberty Media, which has nearly quadrupled in value.
On Tap for Next Week:
MONDAY: NABE annual meeting; Columbus Day holiday in US—financial markets are open
TUESDAY: NABE annual meeting; Bear Stearns execs on trial; Enron's Skilling resentenced; Fed's Kohn and Dudley speak; Treasury budget; Earnings from Johnson & Johnson, Intel
WEDNESDAY: Allen Stanford court appearance; Weekly mortgage applications; government's report on retail sales; import/export prices; business inventories; Fed minutes; Earnings from Abbott Labs and JPMorgan
THURSDAY: IRS amnesty for offshore accounts ends; CPI; Empire State manufacturing; weekly jobless claims; Philly Fed; weekly crude inventories; Earnings from Citigroup, Goldman Sachs, Nokia, IBM and AMD
FRIDAY: Industrial production; consumer sentiment; Fed's Fisher speaks; Earnings from Bank of America, GE, Halliburton and Mattel
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