Stocks rose Friday despite more evidence of weakness in the economy. Though the employment and manufacturing reports were not as grim as some market players had expected, investors seem to be convinced that the Federal Reserve will cut interest rates at its Nov. 6 policy meeting to boost the economy.
The Dow Jones Industrial average gained 120.60 points, or 1.44%, to 8,517.64. The tech-heavy Nasdaq composite index was up 30.95 points, or 2.33%, to 1,360.70. And the broader Standard & Poor's 500-stock index added 15.20 points, or 1.72%, to 900.96.
S&P chief economist David Wyss notes that the strength of the stock market in the last month is very encouraging, since it ran against the tone of the economic data. "Usually, when the market ignores bad news it is a sign that it wants to rally," wrote Wyss in a report Friday.
Next week, the main event for the markets is the Federal Open Market Committee meeting Wednesday, when the Fed will decide the direction of interest rates. With the latest batch of economic data coming in on the weak side, S&P's Wyss expects a quarter-point cut in the key federal funds rate, to 1.5%. "Another rate cut is possible in the first quarter, especially if war seems probable," Wyss says.
Other than the Fed meeting, there will be a few updates on various segments of the economy, including factory orders on Monday and the ISM services survey on Tuesday. On Thursday, releases on third-quarter productivity and unit labor costs, as well as wholesale inventories and sales for September, are scheduled. Plus, the congressional elections will be on Tuesday.
On the earnings front, big-name companies slated to release quarterly numbers include Cisco Systems (CSCO), Walt Disney (DIS), Halliburton (HAL), Qualcomm (QCOM), HealthSouth (HRC), and Metropolitan Life Insurance (MET).
Friday's employment report sent stocks lower at first, but investors quickly brushed off the news. October nonfarm payrolls fell by 5,000, after an upwardly revised 13,000 decline in September (down 43,000 previously). The unemployment rate inched up to 5.7% from 5.6% in September, which was a smaller rise than many economists predicted.
The ISM-manufacturing index for October declined to 48.5 in October from 49.5 in September, matching expectations and reflecting damper expectations following the West coast port lockout and weaker manufacturing. (A reading below 50 indicates contraction.) However, new orders rose to 50.9 from 50.2, while employment rose slightly to 45.0 from 44.9 and prices eased to 58.3 from 62.5.
Among stocks in the news Friday, Goldman Sachs reportedly downgraded Tenet Healthcare (THC) from its recommended list to market outperform. On Thursday, the company announced a federal investigation of alleged unnecessary angioplasties, coronary bypasses, heart catherizations by doctors at one of its medical centers, as well as false billings.
Microsoft (MSFT) fell ahead of a decision coming late Friday from the federal judge overseeing the company's antitrust case on what sanctions should be imposed on the software giant.
And the Big Three U.S. automakers saw their sales fall sharply in October. General Motors (GM) announced a drop of 32% from the year-earlier period, while both Ford Motor (F) and the Chrysler unit of DaimlerChrysler (DCX) saw declines of 31%.
Treasuries finished the session lower Friday, but recovered from the deepest losses. Rather than ending rate cut hopes, the inconclusive economic data merely tamed the extreme view that the Fed could go for a larger 50 basis-point cut next week, says MMS International, an economic research outfit.
MMS notes the Treasury's $40 billion refunding next week could either be a big non-event for traders or else a major stomach ache, depending on what the Fed does about interest rates Wednesday.
European markets were mixed. In London, the Financial Times-Stock Exchange 100 index fell 42.70 points, or 1.06%, to 3,997. In France, the CAC 40 lost 40.53 points, or 1.3%, to 3,109.51. And in Germany, the DAX Index gained 12.31 points, or 0.4%, to 3,165.16.
In Asia, the markets finished mixed. In Japan, the Nikkei rose 45.24 points, or 0.52%, to close at 8,685.72, helped by gains in auto stocks. The market rebounded at the close of Friday's session, having fallen initially on Thursday's U.S. third-quarter GDP report which indicated slower than expected growth in the world's largest market.
In Hong Kong, the Hang Seng fell 33.57 points, or 0.36%, to close at 9,407.68.