U.S. stocks snapped a three-day losing streak Thursday, led by strong gains in the financial and retail sectors.
The Nasdaq rebounded after finishing the prior session in bear-market territory -- down more than 20% from its October high. The Dow Jones Industrial Average and S&P 500 index also advanced.
The market opened lower after a report showed a higher number of jobless claims were filed last week than economists had expectedand investors grappled with a weak outook from Cisco. But falling share prices and merger buzz inspired buying that snapped the streak.
Financial stocks, which have taken a pounding over the subprime mess and subsequent write-offs, were some of the day's biggest gainers. Notable advancers included J.P. Morgan, the Dow's top gainer, Bank of Americaand Washington Mutual.
Rounding out the top five Dow gainers were Home Depot, General Motors, Wal-Mart and Altria.
Cisco shares rose in volatile trading. The networking-gear maker reported earnings in-line with estimates, but CEO John Chambers said in a conference call that, "It's the most cautious I've seen CEOs in the U.S. and Europe in many years," adding that, "We do think there is a very cautious attitude in the boardroom and that is different from six months ago."
Chambers's remarks echoed those he made in November about a dramatic drop in demand from banks. The stock has fallen about 28 percent since that time. On CNBC Thursday, however, the Cisco chief was more optimistic about business. The most pessimistic thing he said was simply that we're "in for some bumps."
"One of the things we do pretty well, is we catch market transitions," Chambers told CNBC. "We think it will be relatively short-term, whether that's a couple of quarters or up to a year remains to be seen. We think our strategy's in great shape. We think that it will be a relatively minor bump."
Tech stocks Hewlett-Packard and Microsoft were the biggest drags on the Dow.
J.C. Penney, one of the S&P 500's top gainers, jumped 8.5 percent after the retailer reported a smaller-than-expected 1.9 percent drop in January same-store sales and raised its forecast for the fourth quarter.
Overall, retail stocks rallied despite weak January sales reports from major retailers.
"Many investors were sure the department stores would miss sales expectations," said Steve Neimeth, a portfolio manager at AIG SunAmerica. "Today's rally in the group may be a byproduct of short-sellers covering as a result that the news is finally out that sales are bad," he said.
Wal-Mart reported a lower-than-expected 0.5 percent increase in same-store sales. Such sales dropped 1.1 percent at rival Target . Gap sales fell 2 percent.
Post-holiday promotions and gift-card cashing usually give retailers a boost in January. If retailers still posted this bad of sales for the month, "that tells us that the worst is yet to come," Howard Davidowitz of Davidowitz & Associates told CNBC.
Reflecting the tentative nature of consumers amid all this recession talk, Costco , which sells wholesale food and other staples, saw same-store sales jump 7 percent.
Indeed, Neimeth said AIG SunAmerica is buying defensively. They're looking at General Mills and Anheuser-Busch, which are both trading at a discount and have growth rates of around eight to 10 percent, compared with roughly six percent for the market, Neimeth said.
AIG SunAmerica expects a very strong second half of 2008 and sees the potential for much better earnings in 2009 compared with 2008, so they're starting to look at consumer cyclicals, Neimeth said. His picks include American Eagle Outfitters and Phillips-Van Heusen, which may be down over the next couple of months amid weak sales numbers, but "have the potential to be up as much as 50 percent in the second half as consumer sentiment moderates, and possibly improves."
Airline stocks advanced amid speculation that a merger between Delta and Northwest could be announced as early as next week. There's also buzz that talks are heating up between United Airlines and Continental . Among the sector's biggest gainers, Jet Blue soared 10 percent and American advanced 6.1 percent.