Wall St. keeps rally rolling


Observers suggest the market had one of its wildest weeks yet

By Alexandra Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- U.S. investors clung to a wildly zigzagging rollercoaster this week, managing to hang on and stage a strong stock recovery Friday on gains in consumer and select tech companies, as some of the fear regarding accounting scandals and corporate governance abated.

Fears about corporate governance and accounting scandals have dragged stocks lower for months, particularly in the past few weeks. While few market watchers are predicting an end to the trend, stocks may have found a temporary breakthrough following a mid-week rally.

The Dow Jones industrial average gained 78.08 to 8,264.39 Friday; for the week it gained 245 points or just under 3 percent.

The Dow lost more than 315 points in the first two sessions of the week but managed to come out ahead after gaining 488.95 points, or 6.35 percent, in Wednesday's sharp rally, pushing the average to its first positive weekly close after trading lower for the past nine weeks. However, the average is still down 17.5 percent for the year.

The Nasdaq composite added 22.04 to 1,262.12 Friday. For the week, it lost more than 57 points, or 4.3 percent. It is down 35.3 percent for the year.

The Standard & Poor's 500 index rose 14.16 to 852.84 Friday. For the week, it gained a little more than 5 points, or almost 0.6 percent. It is down 25.7 percent for the year.

"It's the wildest market I've seen in some time," said Brett Gallagher, head of equities at Julius Baer.

"We've gotten to a point where we may get a short-term rally for the next week or two, but beyond that, the market is likely to retest those lows and even go lower. There still isn't much confidence out there.

Consolidation


Investor confidence is still not what it could be

"The market crossed back and forth over the break-even line 18 times today [Friday], which tells you how jittery investors still are."

Friday's strong gains followed a highly tumultuous week in which major indexes fluctuated wildly from session to session as investors waded through quarterly results and forecasts and continued concerns about corporate governance.

"By and large, [stocks] have acted well since Wednesday's run-up. Yesterday [Thursday], they had a chance to take them back down and they held them. It wasn't a bad day, it was a good consolidation day and the same way today [Friday]," Mike Murphy, head of equities at Wachovia Securities, told CNNfn's Street Sweep.

"All of a sudden this afternoon people come in to buy. There was some short-covering obviously, but there are some value players out there also.

"Investor confidence is still not what it should be out there, and there's not a whole lot of real buyers yet," he added. "But I think if we can get five or six days of no bad news ... we'll see this thing march back up."

Rollercoaster

After falling sharply early in the week, Wednesday marked a turning point. After declining in the early part of the session in a continuation of the selling slump, the major indexes began a late-morning rebound that ended up giving the Dow Jones industrial average its second-biggest one-day point gain ever, 488.95 points, and its biggest percentage gain since late October 1987, after Black Monday.

Positive developments in many of the scandals that have dogged markets for months meant relief for investors. The arrest of key executives charged with fraud for basically looting cable operator Adelphia and J.P. Morgan's defense of its business dealings with Enron combined with what many analysts called a sharply oversold environment to rally heartily.

Other good news during the session: news that the House and the Senate agreed on legislation to battle corporate fraud, and further strength in 3M (MMM: up $0.90 to $120.85), the diversified manufacturer that reported strong results and gave an upbeat outlook Monday.

Stocks stalled on Thursday in an anemic follow-up to the big rally as investors responded to news that the SEC had started a fact-finding inquiry into CNN/Money parent AOL Time Warner for potential irregular accounting concerns.

But on Friday, AOL managed to bounce back from Thursday's sharp losses. However, Friday's edition of the Financial Times said the probe's scope may widen beyond the company's America Online unit.

Microsoft boost


There has been some significantly bad economic news in the U.S. for the market to digest

The Dow had gyrated throughout the session Friday, declining in late afternoon on rumors that IBM (IBM: down $2.95 to $66.40) would be the subject of a negative Barron's article this weekend, and on weakness in aerospace.

But gains in Microsoft and consumer companies, such as Philip Morris (MO: up $1.35 to $46.30) and McDonald's (MCD: up $1.64 to $23.49), pushed the Dow to a strong close.

No. 1 software maker Microsoft (MSFT: up $2.52 to $45.35) bounced Friday after declining in the previous session. On Thursday, the company said it would increase spending on research and development by 20 percent and hire almost 10 percent more workers this year, thanks to sales of Windows XP.

"One positive is that S&P earnings so far have looked better than the year-earlier period. Granted, comparisons are a lot easier as companies take less write-offs, but it's still something that's encouraging," said Julius Baer's Gallagher.

Economic reports

"I don't think we're going to have a big profit recovery, but we'll have the appearance of improvement."

Economic reports are due on consumer confidence, gross domestic product, manufacturing, factory orders, personal income and personal spending as well as the July monthly report on unemployment.

On the economic front, the University of Michigan's final July consumer sentiment index showed a reading of 88.1, an improvement from the initial 86.5 reading, although still lower than a revised 92.5 reading in June, Reuters reported. Economists were expecting the reading to be unchanged.

"The market took in some unbelievably significant bad news this week and is comparatively holding in, which is certainly encouraging," said Harvey Eisen, chairman of Bedford Oak Advisors.

"I think by any measure we are at a major bottom, but bottoms don't happen overnight. Stocks can hit a bottom and then trade sideways, go up and down as they adjust. But I'd be stunned if we traded more than 10 percent lower."