Stocks were on pace to hit new highs again as financials and technology stocks advanced in the wake of strong earnings reports from JPMorgan and Intel.
The Dow Jones Industrial Average gained more than 45 points, a day after stocks ended slightly lower,
Dow components Bank of America, American Express and Home Depot rose, while Merck and Verizon fell.
The S&P 500 and the Nasdaq also advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 16.
Among key S&P sectors, financials, energy, and technology rose.
BP shares climbed on news the oil giant may announce a share swap with Rosneft, Russia's state-owned oil producer. BP is holding a press conference at its London headquarters at 4 p.m. ET to announce the agreement.
The market continued to move higher Friday even as some analysts cited current levels as unsustainable. In his morning note, Art Cashin, director of NYSE floor operations for UBS Financial Services, noted the S&P 500 has not fallen below its 10-day moving average for thirty straight trading days.
But Jeff Rubin at Birinyi Associates, citing another analyst who called the market overbought because the S&P 500 has traded above its 50-day average for 94 days, noted that when this has happened in the past, the market rose 1.58 percent in the next month, on average and 3.45 percent in the next three months, on average.
Howard Ward, portfolio manager of Gamco Growth Fund, said on CNBC, however, that with the S&P 500 up 22 percent since late August, the market is due for a correction. "And we’re going to have plenty of excuses for that, whether it’s municipal bond funding, European debt crisis, disappointing jobs reports, earnings or earnings guidance," Ward said.
Ward advised investors to “take their foot off the accelerator” and to avoid the big winners from 2010.
“Try to find stocks that haven’t had a big move—buy low and sell high,” he said, naming companies such as Google and GE (CNBC's parent company).
The story of the day was in the financial sector as investors cheered asurprisingly strong earnings reportby JPMorgan . The earnings release showed capital ratios for the leading U.S. bank appear strong enough to allow JPMorgan to increase its dividend once it receives Federal approval.
Once the "weak sellers," who panicked and sold after JPMorgan released earnings got out of the way, investors began buying the bank's shares, as well as the shares of its peers, Dave Rovelli, managing director of equity trading at Canaccord Genuity told CNBC.com.
"People want to be in these financials, because it has the most potential for upside," Rovelli said.
A slew of big banks are slated to post earnings next week including Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley and Bank of America.
Financials have been the biggest market driver in recent weeks. The KBW Bank Index ticked higher. Since the start of December, the index has surged more than 20 percent
The dollar traded flat against a basket of currencies, while gold fell about $8 tosettle just above $1,360 an ounce, after the Chinese central bank took another step toward monetary tightening, a move that got U.S. markets off to a shaky start as well.
Materials fell following the news, with Newmont Mining and AK Steel both trading lower.
AIG skidded more than 5 percent after the recapitalization of bailed-out insurer
And while Intel slumped even after the tech giant reported strong profits and sales, news that the firm plans signficant capital expenditures sent the semiconductor equipment index soaring. Meanwhile, at least 12 brokerages raised their price targets on the firm.
The Philadelphia Exchange Semiconductor Sector Index rose more than 2 percent, to a three-year high, while more than 70 percent of the semiconductor equipment makers in the S&P 500 subsector advanced, including Novellus , Altera and KLA-Tencor . Gleacher, meanwhile, raised its rating on Altera to "buy" from "neutral," and its price target to $4 a share from $32.
Meanwhile, popular online sites Groupon and Pandora are pursuing IPOs valued at $1 billion or more and $100 million, respectively, people familiar with the matter told CNBC. The IPOs could occur as early as spring.
Groupon recently turned down a bid from Google rumored to be between $5 billion and $6 billion, according to multiple news reports citing sources close to the talks. The search-engine giant's shares advanced after Evercore Partners raised its rating on the firm to "equal-weight" from "underweight."
Merck continued to trade lower a day after the pharma giant dragged the sector down after news clinical trials of a key blood-clotting drug ran into troubles. Meanwhile, Citigroup cut the pharmaceutical company's rating to "hold" from "buy," while Bernstein cut Merck's price target to $39 a share from $42. The brokerage still has a rating of "outperform" on the stock.
Coinstar shares plunged more than 25 percent after the parent company of RedBox cut its profit and sales forecast.
And Hasbro was slightly higher after the toy maker posted weaker-than-expected results, although the company said its earnings and sales should grow as expected in 2011.
Shares of Borders soared more than 20 percent following a news report that the troubled bookstore chain is close to securing financing it needs from GE Capital and other lenders to stay afloat, according to sources, the New York Times reported.
Among initial public offerings, Pandora Mediaselected Morgan Stanleyto lead its offering of about $100 million, according to CNBC.
Among the handful of economic news Friday, business inventories grewin November as sales increased, according to the Commerce Department. The figure was less than analysts had expected as business sales gained to their highest levels since September 2008, a positive sign of future economic growth.
December retail sales rose less than expected, while sales for all of 2010 gained almost 7 percent from a year ago, the Commerce Department reported.
And the consumer price index saw its biggest increase since June 2009, largely because of an 8.5 percent gain in the gasoline index, the Labor Department reported. Food prices rose 0.1 percent in December. The core CPI, which excludes food and energy prices, rose 0.1 percent for the second straight month, in line with estimates by economists surveyed by Reuters.
Meanwhile, Thomson Reuters/University of Michigan Consumer Sentiment Index fell to 72.7 in December, as rising gas prices damped the mood of consumers.
Industrial production numbers for December rose more than expected, as utility output soared due to cold weather, according to a Federal Reserve report.
European stocks closedloweras weaker metals prices on concerns over China's monetary policy tightening pressured mining stocks. The FTSEurofirst300 Index fell 0.1 percent.
On the Calendar Next Week:
MONDAY: Martin Luther King Jr. Day—All Markets Closed, Philadelphia Fed Pres speaks.
TUESDAY: Empire state manufacturing survey, Treasury international capital, housing market index, Mattel-Bratz Trial; earnings before-the-bell from Citigroup, TD Ameritrade; earnings after-the-bell from Apple, IBM.
WEDNESDAY: Weekly mortgage applications, housing starts, Obama hosts Chinese President Hu; earnings before-the-bell from Goldman Sachs, Wells Fargo; earnings after-the-bell from eBay.
THURSDAY: Weekly jobless claims, existing home sales, leading indicators, Philadelphia Fed survey, oil inventories; earnings before-the-bell from Morgan Stanley, Fifth Third, Huntington Bank, Southwest Airlines, United Health, Union Pacific; earnings after-the-bell from Advanced Micro, Capital One.
FRIDAY: Dodd-Frank rulemaking deadline; earnings before-the-bell from Bank of America, GE, BB&T, Schlumberger and Sun Trust.
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