Stocks End Mostly Higher

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initially, stocks probably began to firm up on technical factors as the major indexes approached the mid-July lows, says Peter Cardillo, chief market economist at Avalon Partners in New York.

"The market is not not overly expensive in terms of [price-to-earnings multiples]," he says. "The market starts to discount an economic recovery six to eight months in advance. I think we’re headed for an economic recovery in the first half of 2009."

Orlando at Federated says he believes the range between 1,160-1,200 will eventually prove to be a bottom for the S&P 500 Index. But he thinks it makes more sense for stocks to start to rally from lower levels toward the end of this year, after some of the uncertainty around the November elections has been put to rest.

Avalon's Cardillo concedes that the dollar's sustained burst of strength in recent weeks brings "into question what happens to the bright spot of the economy, which has been exports" if the dollar continues to strengthen.

And the next big question for the market to chew on is what the Organization of Petroleum Exporting Countries, or OPEC, decides to do next week. "If they drastically cut production, the cost of oil could creep back up," Cardillo says, adding that a drastic cut would be on the order of 10%.

U.S. Mortgage Bankers Association said that loans entering foreclosure hit a record 1.19% in the second quarter, vs. 0.99% in the first quarter and 0.65% a year ago. Actual foreclosures reached a record 2.75% in the second quarter, up from 2.47% in the prior quarter and 1.4% a year earlier, while the second-quarter delinquency rate, which measures loans whose payments are at least three months in arrears, hit 6.41% -- the highest level since 1979 -- compared with 6.35% in the first quarter and 5.12% a year ago.

It's not surprising that mortgage delinquencies accelerated in the June quarter but the increase in delinquencies and foreclosures until now is most likely predominantly due to poor underwriting standards. From here on out, "we have to overlay the weak economy and labor market picture as this more traditional driver of delinquencies will probably become more of a factor," John Ryding of RDQ Economics wrote in an email note.

The White House, in response to calls for a second fiscal stimulus package to buoy the economy, said it was too early for that with the beneficial effects of the tax rebates still working their way through the economy.

But Orlando at Federated believes the benefits of the first stimulus package have come and gone, as evidenced by "dreadful" consumer spending data for the past three months.

The fact that some key retailers are saying that August sales were terrible is important because August is when back-to-school spending should occur and if that's bad, it doesn't bode well for Christmas sales, says Orlando.

"If back-to-school sales are that dismal, then we’re looking at the worst Christmas in five to 10 years, and Christmas is a critical component of fourth quarter GDP," he says. "For a lot of companies, Christmas represents a third of their sales for the year and maybe half of their profits for the year. I don’t think that's in share prices."

October NYMEX crude futures settled $1.66 lower at $106.23 on a surge in the dollar, making commodities plays as a hedge less alluring. The drop in oil prices is also a reaction to weakness in the global economy that is believed to be destroying some demand for fuel, Bloomberg News reported.

Among stocks in the news Friday, UST (UST) shares were higher after a New York Times report that Altria (MO) is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion.

Goldman Sachs (GS) downgraded its investment opinion on Merrill Lynch & Co. (MER) to sell and added the stock to its conviction sell list.