Stocks held gains heading into the close of the first trading session of the fourth quarter despite a volatile start as investors digested a spate of economic reports giving conflicting accounts of the U.S. economy's health.
The Dow Jones Industrial Average rose about 45 points. JPMorgan , Bank of America and IBM rose, while Hewlett-Packard and Merck fell.
The S&P 500 and the tech-heavy Nasdaq rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell 5 percent to below 23.
Most key S&P sectors were higher, led by energy, materials and financials.
Stocks closedlower in the previous session, but ended higher for the month as the Dow and the S&P 500 recorded their best September in 71 years. With September breaking records, what's on tap for October? Historically the month of October has been the seventh best month for the Dow, with stocks rising 57 percent of the time since the index was founded 113 years ago.
While higher now, the market struggled with direction earlier in the session. Much of the economic news was upbeat, with the exception of a report on sluggish manufacturing activity nationwide. But trading activity was largely quiet Friday as a new quarter got underway, said Tom Schrader, managing director for U.S. Equity trading at Stifel Nicolaus Capital Markets.
Looking ahead, strategists at UBS Wealth Management said the economy will experience a "square root" recovery, versus a "V" or double-dip, in that the economy is likely to improve modestly, and stocks are likely to test the upper end of recent trading ranges, but "would be hard pressed to break decisively higher in the absence of some new catalyst emerging to alter the risk/reward landscape," according to the report.
That "does mean investors should be fully invested in equities in line with long-term portfolio allocations," said Stephen Freedman, global investment strategist at UBS Wealth Management, and they should expect returns in the "mid to high-single digits" over the next 12 months.
Among equities, the investment manager favors defensive stocks in consumer staples, utilities and technology sectors.
One headwind for the markets will be third quarter earnings, which will be "decent" but not "spectacular," according to the report. "That, we think, creates an environment where the cycle offsets our positive assessment (of stocks) based on valuation, and leads us to a more neutral view," Freedman said.
Auto sales were in the spotlight Friday as GM, Ford and posted results that beat estimates. Ford shares gained after the automaker posted sales that jumped 46 percent in September, beating the estimate of 37.9 percent, on strong sales of redesigned cars and trucks.
Nissan shares also rose after the Japanese car maker said its sales rose 34 percent. Rival Toyota is also expected to report this afternoon.
Energy stocks were faring well as oil prices rose above $81 a barrel. Shares of Freeport McMoRan and Occidental Petroleum both gained more than 3 percent. Oil giants Exxon , Chevron and ConocoPhillips were all higher.
Tech stocks lagged, led by Hewlett-Packard , after the PC maker's new CEO Leo Apotheker failed to gain investor confidenceduring its analyst call. Apotheker was formerly SAP's chief executive. In addition, brokerage BMO cut its price target on HP to $55 from $57.
S&P reiterated a "strong buy" for the company, citing Apotheker's 20 years of experience in the software business. According to S&P, it would be logical for HP to become more proactive in the software business.
Microsoft slipped following news the tech giant will formally offer a series of smartphones using the revamped version of its mobile operating system, according to the Wall Street Journal, citing people familiar with the launch plans.
Meanwhile, Microsoft CEO Steve Ballmer didn't get his full bonus for the fiscal year for apparent failures to keep up with competitors such as Apple .
Motorola was slightly higher as Microsoft sued the mobile-phone maker for patent infringement over the company's Android phones. Motorola said in a statement that it "has not received a copy of the complaint," and therefore can't comment, but added: "The company will vigorously defend itself in this matter."
Amazon.com shares declined after two brokers expressed concern about the stocks' high valuation following a recent run-up that added more than 25 percent to the Internet retailer's market value over the last month.
Ebay shares rose slightly after Raymond James initiated the Internet auction site with a "market perform" rating.
Netflix dropped almost 4 percent after the online video rental company was downgraded to "negative" from "neutral" at Susquehanna.
Shares of Gymboree skyrocked after a report the children's clothing retailer is pulling a sale to a private equity firm. Susquehanna also raised Gymboree's price target to $60 from $84.
Shares of large financials rose even after recieving another round of ratings downgrades.
Morgan Stanley shares were higher even after at least two brokerages cut their price targets and Wells Fargo lowered its third-quarter EPS view on the firm. Goldman Sachs were up after at least two brokerages cut their third-quarter EPS views and Credit Suisse lowered its price target on the bank.
And Bank of America also rose after Wells Fargo widened its third-quarter loss per share view to 67 from 63.
Banks and other firms with stakes in futures operators may come under new regulation Friday. The U.S. futures regulator, the Commodity Futures Trading Commission, is expected to propose new rules on the holdings later in the session.
Meanwhile, materials rallied across the board as metal and oil prices returned to recent new highs.
Gold prices rallied to record highs near $1,320 an ounceas the dollar weakened further, fueling interest in the precious metal as an alternative asset.
Caterpillar slipped after Bank of America downgraded the heavy equipment maker to "neutral" from "buy," saying it doesn't expect the shares to rise much more after it's strong recent performance. The stock rose more than 20 percent in September.
Rival Deere , meanwhile, was also lower after Wells Fargo cut the agricultural-equipment maker to "market perform" from "outperform," and JPMorgan cut the company to "neutral" from "overweight." JP Morgan said Deere's share, too, are getting pricey, after rising 29 percent so far this year.
UAL and Continental Airlinesclosed their merger deal to form the world's largest carrier, called United Continental Holdings. The firm began trading on the NYSE under the symbol "UAL."
Priceline.com was among the worst performers of the S&P 500 Friday after rising 97 percent in September, besting all other stocks in the index.
Meanwhile, a top Federal Reserve official said the Fed will likely have to actto boost the economy unless the outlook improves. Today's high unemployment and low inflation are "wholly unacceptable," William Dudley, president of the NY Fed, told a conference of business journalists in New York.
In the day's economic news, the Institute for Supply Management said its index of manufacturing activity slipped to 54.4 percent in September, down from 56.3 in August, in line with expectations.
Construction spending, meanwhile, strengthened, rising 0.4 percent to an annual rate of $811.8 billion, on a rebound in public construction, according to the Commerce Department.
Earlier, the Thomson Reuters/University of Michigan reported its index of consumer sentiment rose more than expectedin September to 68.2, better than the forecasted level of 67.
Personal spending rose 0.4 percent in August, the same level as July, and more than the 0.3 percent rise forecast by economists surveyed by Reuters, the Commerce Department reported Friday. Meanwhile, the personal consumption expenditures price index — excluding food and energy—rose only 0.1 percent for a fourth month.
On Tap For Next Week:
MONDAY: Pending home sales; Factory orders; Ford dealers meeting; Earnings from Mosaic
TUESDAY: ISM non-manufacturing index; Intel CEO Otellini speaks; Earnings from Yum Brands
WEDNESDAY: Weekly mortgage applications; Challenger job-cut report; ADP employment report; weekly oil inventories; CTIA Wireless; Earnings from Costco and Monsanto
THURSDAY: Monthly chain store sales; BoE announcement; ECB announcement; Kansas City Fed Pres Hoenig speaks; Consumer credit; Mosaic shareholder meeting; Earnings from PepsiCo and Alcoa
FRIDAY: Monthly non-farm payroll; Wholesale trade; NY Comic Con; IMF, World Bank annual meetings
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