Updated from 4:05 p.m. EST
Blue-chips jumped Friday, with financials providing leadership, as investors drew encouragement from a settlement of the Wall Street conflict-of-interest scandal and comments from Federal Reserve Chairman Alan Greenspan.
"There's a lot of different twists in the wind today, with the S&P rebalancing and a quadruple witching," said Bob Basel, director of listed trading at Salomon Smith Barney. One positive catalyst is the fact that brokerage houses are now pinned to a definitive fine number, enabling investors to put the conflict-of-interest controversy behind them, Basel noted.Wall Street brokerages will pay $900 million in fines to settle charges that they intentionally misled investors in order to secure sweeter investment-banking deals. Citigroup will pay the biggest chunk of change, tendering $300 million in fines. Credit Suisse First Boston will pay a $150 million fine and Merrill Lynch will pay $100 million. A number of other major firms will pay $50 million apiece. Shares of Citigroup, Merrill, Goldman Sachs and Morgan Stanley were all higher following the announcement. Another tenet of the deal is that the practice of doling out IPOs to preferred customers, or spinning, will be strictly prohibited, ensuring that retail investors get a fair shake. Friday marks the simultaneous expiration of index futures and options contracts as well as individual stock futures and options, known as quadruple-witching. "For the guys that play these type of days, it just turned out better to buy," Basel said. In major political news Friday, Sen. Trent Lott said he is stepping down as the Republican majority leader in the Senate, following a whirlwind of controversy about remarks he made that were perceived to be racially divisive. Senator Bill Frist of Tennessee is being touted as the odds-on favorite to replace Lott. Meanwhile, Greenspan said Thursday night that the U.S. economy has been working its way through a "soft patch" since the November easing of interest rates, but that he remains optimistic on the economy's ability to recover. "The labor market has remained subdued, as businesses apparently have been reluctant to add to payrolls," he said in a speech to the Economic Club of New York. "The manufacturing sector remains especially damped, and nonresidential construction has trended lower." He added, "Oil prices have recently risen and, not least, the economies of most of our major trading partners have shown little vigor. Still, low interest rates and rapid advances in productivity have been providing considerable support to economic activity. Fortunately, the ability of our economy to weather the many shocks inflicted on it since the spring of 2000 attests to our market system's remarkable resilience." Underpinning the market's positive tone Friday was the government's final third-quarter GDP report, which showed the economy grew at a 4% clip in the summer period, consistent with the preliminary forecast issued in November. The report revealed notable strength in consumer spending, particular in big-ticket items such as automobiles.