Friday Wrap - Dow +0.99%, S&P +1.38%, NQ +1.94%

by: Roy Mehta

Solid earnings reports from Microsoft and Countrywide Financial awakened the bulls Friday. The Dow Jones Industrial Average climbed 134.79 points (+0.99%), Standard & Poor's 500 index increased 20.88 points (+1.38%), and the Nasdaq surged 53.33 points (+1.94%). Volume at the NYSE came in at 1.4 billion shares, and advancers beat decliners by a ratio of about 3:1.

Microsoft (+9.5%) began the rally Thursday night, when it posted a 27% increase in revenues, 35% increase in income, and easily beat analysts' estimates. News that the company increased its guidance for the next quarter and the full year convinced many that the tech rally still has some legs. Shorts were also caught off guard Friday morning, as Countrywide (+32.3%) announced it projects making a profit in the next quarter and in 2008 (full story). The only major economic news was the University of Michigan's consumer sentiment index, which came in below estimates at 80.9. The markets did lose ground on the news, but were able to turn back around and finish near the highs they made in pre-market trading. The 10-year U.S. Treasury dropped 5/32 in price, now yielding 4.40%.

All sectors finished up, with exceptional days in financials (+2.5%), technology (+2.4%), materials (+1.7%), utilities (+1.5%), energy (+1.1%), telecom (+1.1%) and consumer discretionary (+1.0%). Merrill Lynch (+8.5%) rallied on news that CEO Stan O'Neal could be fired after approaching Wachovia (+3.2%) with the idea of a merger without the board of director's approval (full story). The move along with Merrill's disastrous third quarter fueled rumors O'Neal could be out by Monday. Crude jumped another $1.40 to close $91.86/barrel.

Next week the FOMC meeting should grab all the attention. The market has already price in a 25 basis-point cut, but if the Fed decides to ease more aggressively, we could be trading record highs by late next week.

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