S&P Gains 4.2% for Week Ahead of Earnings

Stocks hobbled across the finish line Friday as the market shrugged off a weak jobs report.

Major indexes have idled for the past three sessions, but importantly, have held onto gains from Tuesday's blockbuster rally that marked Wall Street's best day in five years. That's an encouraging sign heading into earnings season, which kicks off Monday with Alcoa .

For the week, the Dow Jones Industrial Average gained 3.2 percent, while the S&P 500 index jumped 4.2 percent and the Nasdaq surged 4.9 percent.

The best-performing S&P sectors this week were materials, financials, consumer discretionary and energy, all of which gained more than 5 percent for the week.

Energy stocks posted strong gains on Friday as crude oil settled at $106.23 a barrel on the New York Mercantile Exchange. Crude is now up 11 percent for 2008 and 65 percent from April of last year.

General Motors, the Dow's biggest decliner, shed 4.7 percent after a private-equity firm said it has terminated a $2.55 billion funding agreement with Delphi, a major auto-parts supplier to GM, as the firm tries to stave off bankrupcty.

Investors took the worst decline in payrolls in five years in stride.

Nonfarm payrolls shed 80,000 jobsin March, surpassing the 63,000 drop economists had expected. The Labor Department revised its estimate for job losses for the prior two months to a total of 152,000 from 85,000. Employers pared payrolls across most sectors, with the biggest job cuts in construction and manufacturing. The unemployment rate jumped to 5.1 percent, the highest point since September 2005, from 4.8 percent in February.

“I think the market’s reacting differently to what otherwise would be very negative news," Art Hogan, managing director at Jefferies, told CNBC. "I think that’s a clear sign we’re getting close to the bottom here.”

Art Cashin, floor manager for UBS, cautioned that we shouldn't get a false sense of security that the worst is already priced into the market. "This is an interim bottom," Cashin told CNBC. "The two phases of this thing were: fears about assets and financials," which has been assuaged by Federal Reserve relief, and second, "I think there will be another bottom related to the recession," Cashin said. If conventional wisdom follows -- that this will be short and shallow recession -- then we may just test the January lows, Cashin said, but consider yourself warned: a new low is still possible, according to Cashin.

Recession fears have been mounting, with even the usually tight-lipped Fed officials hinting about a contraction in growth.

"The economy has all but stalled and could contract over the first half of the year," San Francisco Federal Reserve President Janet Yellen, who is not a voter on the policy-setting committee in 2008, said on Thursday, according to Reuters.

Yellen's remarks come just a day after Federal Reserve Chairman Ben Bernanke said that a recession was possible.

Banks Trade Downgrades

For those hoping for a bottom in financial stocks, they're going to have to keep looking.

Financial stocks fell further Friday as banks continued to downgrade and lower estimates for each other.

JPMorgan cut its 2008 earnings forecast for large investment banks, including Citigroup, Bank of America and Wachovia , citing large loan reserves and credit losses. The firm said, however, it expects write-downs to be sequentially lower in the first quarter.

Bank of America slashed its price target on Merrill Lynch stock to $56 from $65 and also lowered its earnings estimate for the firm.

Two of the sector's biggest decliners were Washington Mutual and National City , which fell 12 percent and 8.2 percent, respectively.

In other financial-sector news, John Reed, one of the architects of the $166 billion merger that created Citigroup in 1998, told the Financial Times that the merger "clearly has to be seen as a mistake."

Among the exceptions in the banking industry, American depositary shares of UBS advanced 3.6 percent amid speculation that the bank may take more aggressive steps after taking a pounding from the subprime crisis. Former president Luqman Arnold, who was ousted from the firm in 2001 and is currently going head-to-head with the firm, told CNBC Europe that complete breakup of the firm may not be possible right now but a massive restructuring is necessary.

Arnold's investment group Olivant, which has more than a 0.7 percent stake in UBS, sent a letter to UBS's board on Thursday, suggesting the sale of the asset-management business and the separation of its wealth-management and investment-bank units as possibilities.

Apple said on Thursday its iTunes online music store has surpassed Wal-Mart Stores to become the largest music retailer in the United States.

Also in the technology sector, mobile-phone maker Motorola said that it was cutting jobs and paying severance payments to around 2,600 workers in an attempt to cut costs.

The announcement comes on the heels of news that job cuts are likely at other technology companies, including Google and Dell.

For-profit education companies gained on expectations that Congress will approve proposals to increase funding for student loans. Shares of Corinthian Colleges , Career Education Corp. and ITT Education all had strong gains.

On the earnings front, shares of Mosaic jumped 10 percent after the fertilizer maker reported earnings of $1.17 a share that beat analyst estimates.

Family Dollar shares skidded 3.5 percent after the dollar store beat estimates with earnings of 45 cents a share but lowered its outlook.

Mark Travis, chief investment officer at Intrepid Capital Funds, told CNBC Friday that he sees some good values in the retail sector, including Family Dollar, shoe retailer DSW and Tiffany's .

Shares of high-end leather-handbag maker Coach rose 2.1 percent after Buckingham Research upgraded its rating on the stock to "strong buy" from "neutral," saying business has stabilized -- even as the overall economic environment for retailers weakens.

-- Reuters contributed to this article.

On Tap for Next Week:

MONDAY: Consumer credit; Fed's Yellen, Kohn speak; Alcoa earnings
TUESDAY: Existing-home sales; Fed minutes
WEDNESDAY: MBA mortgage survey; wholesale trade; crude inventories; Fed's Fisher speaks; Circuit City earnings
THURSDAY: Weekly jobless claims; international trade; Bernanke speaks; U.S. budget; Earnings from Pier 1, Rite Aid, Genentech
FRIDAY: Import prices; consumer sentiment; GE earnings

Send comments to cindy.perman@nbcuni.com.