Stocks Rise, Buoyed by Hopes for Stimulus

NEW YORK (TheStreet) -- U.S. stocks rose Friday as investors cheered the possibility that central banks would stand ready to coordinate a global liquidity boost if needed after the Greek elections.

"You get markets rioting and then policy makers respond; the market rallies and then the policy makers relax their pace of progress, then the market riots again," said Michelle Gibley, director of international research at Charles Schwab. "It's just this roller coaster of volatility that we continue to get every time we get some kind of news of a grand plan. Markets rally until we realize that the real decisions are just very difficult at this point."

The Dow Jones Industrial Average closed up 115.3 points, or 0.9%, at 12,737. The index advanced 1.7% for the week and is up 4.5% in 2012.

The S&P 500 finished up 13.7 points, or 1%, at 1,342 and grabbed a second weekly pop to finish up 1.3% for the past five trading days. The index is up 6.8% this year.

The Nasdaq rose 36.5 points, or 1.3%, at 2,872. The index nudged up 0.5% for the week and has jumped 10.3% for 2012.

Of the 30 Dow components, 26 increased, led by gains in Microsoft (MSFT), Chevron (CVX), IBM (IBM) and Alcoa (AA). Home Depot (HD), Verizon (VZ), Procter & Gamble (PG) and Walt Disney (DIS) were falling. All major sectors of the S&P 500 posted gains, with financials posting by far the biggest advance amid the stimulus talk. Energy, technology and basic materials were also showing sector leadership.

Microsoft shares rose more than 2%, the most prominent gainer on the blue-chip index, as the Wall Street Journal reported that Yammer agreed to sell itself to Microsoft for $1.2 billion.

It's unclear when the acquisition of Yammer, a business-software company, would be announced, said a person familiar with the deal, the Journal reported.

U.S. stocks jumped Thursday on rising hopes that additional stimulus is on the way from the Federal Reserve after a disappointing initial jobless claims number, and following a report by Reuters that G20 central banks are planning for coordinated liquidity provisions if there were a severe fallout from the weekend Greek elections leading to a euro exit.

But whether the election outcomes will result in strong enough catalysts to mobilize a coordinated effort among central bankers and allow for investors to move forward again with more conviction remains to be seen.

Those who expect Monday morning to bring clarity to the Greek polity are likely to be "sadly disappointed," said Paul Donovan, a global economist with UBS.

Carl Weinberg, chief economist at High Frequency Economics, warned that the market may not get the conclusive result it's hoping for.

"Election results from Greece are all but sure to indicate that a government still cannot be formed because the population is divided over the issue of fiscal promises already made to the EMU governments and the IMF," cautioned Weinberg.

"Euroland," he warned, "could remain saddled with the reality of a dysfunctional member and social unrest flaming on its periphery for a very long time."

Elsewhere in the eurozone, worries persist about Spain and Italy running out of money and experiencing widespread defaults.

Weinberg cautioned that an appeal by the eurozone, led by German Chancellor Angela Merkel, for resources from abroad to support the continent's banks and governments will likely be rebuffed by G-20 leaders at their summit in Mexico that kicks off next week. This, combined the possibility of another Greek impasse, could "cut off Spain's access to capital markets altogether, force Greek banks to shut down and boost yields on Italy's 10-year bonds back toward the 7.5% high experienced last November," said Weinberg.

"Stocks in Euroland will tumble, and even Bund yields will rise because no government in the Euroland can be deemed safe anymore," Weinberg said.

Gibley added, "We've got weak banks and weak sovereigns [in Europe] and that link hasn't been broken, so it's [policy maker responses are] a Band-Aid but it doesn't really fix anything."

"You have a weak sovereign borrowing money to lend to weak banks, who are then buying the bonds of the weak sovereigns," Gibley said.

Gibley said if Spain's banks were to begin receiving bailout loans from the new bailout facility, the European Stability Mechanism, existing bondholders could become subordinated, making it even more difficult for Spain to raise money in bond auctions at a time when foreign investors are already shunning the market.

Sam Stovall, chief equity strategist at S&P Capital IQ, said the Fed would likely have to see an impact on the U.S. economy before making any moves. He doesn't think there's been enough bad U.S. economic data to convince the Fed just yet to take any major action. The next Federal Open Market Committee meeting takes place next week.

Stovall said that until central banks globally make a statement -- for instance if the European Central Bank actually came out and said, "We are going to be guaranteeing euro deposits" -- investors should be wary about their assumptions.

He called the market pop on Friday a "counter-trend rally" that could work its way up to the 1,350 area on the S&P 500 before the market then digests gains and makes revaluations. "There's fear of buying at this counter-trend top, but then fear of missing out on a further move."

The FTSE in London settled up 0.2% and the DAX in Germany closed higher by 1.5%. The Hong Kong Hang Seng closed ahead by 2.3% and the Japan Nikkei Average finished flat.

July crude oil futures were up 6 cents at $83.97 a barrel. August gold futures settled up $8.50 to $1,628.10 an ounce.

The Federal Reserve Bank of New York reported Friday that its Empire State Manufacturing Index showed a much steeper-than-expected decline to 2.29 in June, the lowest level going back to last November, from 17.1 in May. Economists surveyed by Briefing.com expected a fall to 10.

Painting the same picture on the overseas drag was the Federal Reserve's May industrial production report, which said that industrial production fell 0.1% in May after a revised 1% gain in April. This was in contrast to the rise of 0.1% that economists, on average, were expecting. Capacity utilization dropped to 79% in May from 79.2% in April.

"With the U.S. Philly Fed index having fallen into negative territory last month, today's drop in the U.S. Empire State manufacturing index, to a seven-month low of 2.3 in June from 17.1 in May, is another worrying sign that the slowdown in China and Europe is becoming a larger drag on activity at home," said Paul Dales, senior U.S. economists at Capital Economics.

Dales said it's no surprise that the manufacturing sector, which is very exposed to overseas economies, appears to be struggling at a time when demand in China and the eurozone is easing.

The Reuters/University of Michigan's consumer sentiment index meanwhile fell to 74.1 in June, which was weaker than the 77 that the market was expecting and the softest read going back to last December based on final reads, from 79.3 in May.

The benchmark 10-year Treasury was up 18/32, diluting the yield to 1.581%, while the dollar was falling 0.45%, according to the dollar index.

In corporate news, Dell (DELL) is the "strategic bidder" that offered to buy Quest Software (QSFT) for $2.15 billion in cash, sources familiar with the matter told Reuters.

PC maker Dell is the unidentified company mentioned in a statement made by Quest, which disclosed on Thursday that it had received an offer from a "strategic bidder" of $25.50 a share, Reuters said.

The reported Dell bid tops an earlier offer of nearly $2 billion from private investment firm Insight Venture Partners.

Dell shares closed down 0.3%.

The Federal Reserve said that the U.S. government bailout funding that went to American International Group (AIG) has been repaid, according to Bloomberg.

Shares of AIG on Friday were up 1.4%.

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-- Written by Andrea Tse in New York.



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