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Stocks Finish Higher, Despite Sequester Scare

NEW YORK ( TheStreet) -- Major U.S. stock averages rose Friday as better-than-expected manufacturing and consumer sentiment data trumped the President's warnings about the economic impact of $85 billion in automatic spending cuts.

The Dow once again moved towards its all-time high of 14,164 as the VIX fear gauge fell 1.87%.

The Dow Jones Industrial Average rose 35.17 points, or 0.25%, at 14,089.66. The blue-chip index closed up 0.64% for the week. The S&P 500 was up 3.52 points, or 0.23%, at 1,518.2, and finished the five-day period up 0.17%. The Nasdaq was up 9.55 points, or 0.3%, at 3,169.74. The tech-heavy index rose 0.25% for this week.

Despite the recent strength, Hugh Anderson, HighTower's Las Vegas managing director and partner said his team is telling its clients that the market remains in a secular bear market, where risk- taking isn't being adequately compensated.

"Like it or not we are in a Fed-driven market which has distorted normal market behavior as it relates to valuations and market cycles," he said. "Periods of low volatility like we've enjoyed for the last six months are followed by periods of higher volatility, so be prepared."

Anderson said that insider sales have been 12 times greater than insider buys of late and that negative earnings guidance is four times more frequent than positive earnings guidance in the most recent quarter.

"Data points like this tend not to shine as brightly as a market that has enjoyed a rally without a 10% correction for over 500 days."

Sector action was mixed in the broader market. Transportation, healthcare and services shares were among those edging higher. Energy, basic materials, capital goods and conglomerates were retreating.

Volumes totaled 3.67 billion shares on the New York Stock Exchange and 1.86 billion shares on the Nasdaq. Advancers were edging decliners by a ratio of 1.3-to-1 on the Big Board and the Nasdaq.

President Barack Obama met with lawmakers Friday morning in a last-ditch attempt to avoid the sequester, but failed to reach a compromise. This came after the U.S. Senate Thursday failed to find a way to avert the cuts. Two bills, one from Republicans and the other sponsored by Democrats, didn't garner sufficient support.

During a live broadcast of a press conference following the meeting, Obama continued to lament that the sequester would hurt GDP and jobs growth. He added that he did not want to see the sequester replaced with worse, arbitrary cuts and emphasized the need for a balanced approach to deficit reduction.

Widespread spending cuts are now set to kick in at midnight.

UBS economists expect that a delayed compromise will be reached in the coming weeks, which Gareth Berry, a currency strategist at UBS, said should limit the economic fallout.

A raft of U.S. economic data was released Friday.

The Institute for Supply Management's manufacturing survey rose to 54.2 in February from 53.1 in January; the estimate was 52.4. It was the strongest reading since June 2011.

"The better-than-expected February ISM manufacturing data as well as the upbeat comments from the survey's respondents included in the accompanying report point to activity and sentiment improving during the first quarter of 2013," said David Onyett-Jeffries, an economist at RBC Economics.

The final read on the University of Michigan consumer sentiment index was 77.6 for February, above expectations that the level would stay at the preliminary reading of 76.3, and higher than January's average of 73.8.

Construction spending for January fell 2.1%, according to the Census Bureau. That compares with the prediction of a 0.5% uptick after an upwardly revised increase of 1.1% in December and an upward revision to 1.9% for November. Onyett-Jeffries noted that the sizable upward revisions were "softening the blow" of the weak January reading.

"Construction spending data are lagging indicators of activity in the sector and we believe the usefulness of this report is largely limited to evaluating the impact of construction on GDP," said John Ryding and Conrad DeQuadros, founders of research firm RDQ Economics.

The Bureau of Economic Analysis reported that personal income levels in January fell 3.6% after rising 2.6% the previous month. Economists expected personal income levels in January to fall 2.4%.

Personal spending levels increased 0.2%, after a downwardly revised 0.1% rise the prior month. Expectations were for an uptick of 0.2%.

Looking at inflation, the headline PCE price index ticked up 0.1% after being flat in December. It was forecast to have ticked up 0.2%.

"Bear in mind the drop in incomes are largely about the payroll tax restoration, higher taxes and importantly the accelerated bonus/dividend payments in December, so this drop is a one-off ... even if a big one," said David Ader, strategist at CRT.

The auto industry continued its gains in February, as Ford's (F) sales rose 9% while GM (GM) reported a 7% increase and Chrysler reported a 4% jump.

Ford shares were up 0.56% and GM shares were rising 0.74%.

The Nikkei Average in Japan closed up 0.41% and the Hong Kong Hang Seng index settled down 0.61% Friday as China's official manufacturing PMI disappointed, falling for a second straight month. Analysts think part of the decline was attributable to the long public holidays.

In Japan, headline consumer price inflation fell to negative 0.3% even after the substantial weakening of the yen in the last several months.

The FTSE 100 in London finished up 0.28% and the DAX in Germany fell 0.43% as U.K. manufacturing unexpectedly shrank in February and eurozone manufacturing PMI numbers continued to show contraction in January. The eurozone jobless rate, meanwhile, rose to a record 11.9%.

Gold for April delivery fell $5.80 to settle at $1,572.30 an ounce at the Comex division of the New York Mercantile Exchange, while April crude oil futures slumped $1.37 to close at $90.68 a barrel.

The benchmark 10-year Treasury was increasing by 8/32, diluting the yield to 1.852%. The dollar was popping 0.41%, according to the U.S. dollar index.

In corporate news, Best Buy (BBY), the consumer-electronics chain, ended talks with founder Richard Schulze over a deal in which he and a group of buyout firms proposed to take a minority stake in the company in exchange for three seats on the board, The Wall Street Journal reported, citing people familiar with the matter.

Best Buy on Friday posted fourth-quarter earnings, excluding restructuring and other costs, of $1.64 a share, above analysts' estimates of $1.54 a share. Shares rose 4.6%.

Andrew Mason was removed as Groupon's (GRPN) CEO on Thursday, and was replaced by Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis on an interim basis. Shares surged 12.6%.

Salesforce.com (CRM) posted a fourth-quarter adjusted profit, excluding items, of 51 cents a share, topping analysts' forecasts of adjusted earnings of 40 cents a share. Shares jumped 7.6%.

Boeing (BA) plans to cut hundreds of workers at a South Carolina factory where it builds 787 Dreamliners, the Journal reported, citing a person familiar with the plan. Shares were up 0.49% on Friday.

Gap (GPS - Get Report) said Thursday that fourth-quarter profit rose 61%, and the retailer raised its annual dividend to 60 cents a share from 50 cents. Shares gained 2.9%.

Revenue rose 10% to $4.73 billion in the quarter. Same-store sales rose 5%.

Deckers Outdoor (DECK) shares surged 15.4% after the footwear, apparel, and accessories company forecast that full-year 2013 revenue would increase by about 7% over 2012 levels.

Atlantic Power (AT) shares plummeted 28.6% after the power generation company posted a wider-than-forecast quarterly loss and much lower-than-expected revenue. The company is reducing its annual dividend by 65%.

Intuitive Surgical (ISRG - Get Report) shares popped 8.5% as analysts defended the stock, saying that its share-plunge Thursday in reaction to news about an FDA probe over the safety of its surgical robots was overdone.

A Cantor Fitzgerald analyst has since hiked his view of the stock to buy from hold. A Goldman Sachs analyst saw the slump in shares yesterday as buying opportunity, citing the long-term potential of robotic surgery over traditional surgery. JPMorgan expressed confidence in the Intuitive Surgical's data on its surgical robots.

Mentor Graphics (MENT - Get Report) shares stumbled 5.1% after the chip-design software company reported quarterly sales that were below its forecasts and gave disappointing current quarter and fiscal-year 2014 profit guidance.

-- Written by Andrea Tse and Joe Deaux in New York

>To contact the writer of this article, click here: Andrea Tse.

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