Markets Rally Ahead of Stimulus Vote

Led by the financials, the major indices rose Friday in anticipation of the stimulus package being passed.
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Updated from 4:11 p.m. EST

Stocks in New York finished the week on a high note Friday, claiming more than 2.5% gains despite the continued decimation of U.S. jobs, amid a debate-ridden economic stimulus package and a reportedly imminent bank-relief package.

Led by a 26.7% gain in

Bank of America

(BAC) - Get Report

, a 12.6% gain in

JP Morgan

(JPM) - Get Report

, and a 10.8% rise in

Citigroup

(C) - Get Report

, the

Dow Jones Industrial Average

rose 217.52 points, or 2.7%, to 8280.59, and the

S&P 500

tacked on 22.75, or 2.7%, to 868.60. The

Nasdaq

was better by 45.47 points, or 2.9%, at 1591.71.

For the week, the Dow gained 3.5%, the S&P added 5.2% to 825.88, and the Nasdaq tacked on 7.8%.

While Dow component

GE

(GE) - Get Report

declared a 31-cent quarterly dividend -- but said it will

further "evaluate" dividends for the second half of the year -- financials continued to lead the swell, with the KBW Banking index up 11.9%. The gains came with headlines divided between the impending stimulus package and the worst jobless numbers in years.

"The strategy in play is to try to catch as much of a ride as possible due to the stimulus plan and the bank bailout news that is coming," says James "Rev Shark" DePorre, founder of Shark Asset Management, blogging for RealMoney. "However, traders are going to have their fingers on the eject button and are going to be extremely careful about getting caught in a 'sell the news' reaction.

"For the moment, the bears are standing aside and letting the buyers run unimpeded, but I don't think we are seeing a lot of long-term buying here."

Anu Sharma, managing director at the Market Intelligence Desk at Nasdaq OMX, agreed that it's purely short-term sentiment, but has a different take on why. "We're not seeing the big mutual fund companies coming back in because of the stimulus." Rather, he says, investors are trying to protect their short positions with the mindset that there will be something passed, and the market could rally on it on Monday.

"Short sellers don't want to get caught in that market, especially if there's a provision that Wall Street happens to like." Keep in mind, he says, the market is aware that the stimulus package we're seeing today could be very different than what we see on Monday - no one is sure which version will show up.

The major indices were rising despite a report Friday by The Department of Labor that

non farm payrolls declined 598,000, with the unemployment rate rising from 7.2% to 7.6%. Expectations were for a decline of more than 524,000 jobs and an unemployment rate of 7.5%.

Among the unemployed, the number of those who lost jobs or completed temporary work increased to 7.0 million in January, having grown by 3.2 million during the last 12 months.

But, writes Tony Crescenzi, chief bond analyst at Miller Tabak, "the main theme today is the same as the past few months: the degree of preparedness for today's data was extremely high."

Continuing layoff announcements don't show any immediate relief. Indeed, cuts

announced

in January shot up 45% to 241,749 month over month, according to a report by ADP Employment Services earlier in the week.

"Obviously there will be a tremendous amount of pressure on

the Senate and Congress to pass the stimulus package," says Michael Pento, Chief Economist at Delta Global. Because job losses are a lagging economic indicator, the hope is that the economy will recover first and you'll see job losses improve thereafter, notes a bearish Pento, "But I just don't see any hope for that."

The Senate was expected to vote on the $937 billion stimulus bill Thursday night, but lawmakers

continued haggling over details pushing a potential vote to Friday.

"The situation could not be more serious - these numbers demand action," said President Obama, referring to the report from the Department of Labor, at a press conference. It's important to understand that the problem is accelerating, not decelerating, he said, "if we drag our feet and fail to act, this crises could turn into a catastrophe."

Still, there are some, like Delta Global's Pento, who are frustrated with the measure. "Any stimulus package that we have passed today will add mountains of debt to the country's obligations," he says. "We are going to have to have massive tax increases in the future to pay for the misallocation in capital that's occurring today."

The stimulus package isn't the only thing coming out of Washington. Wall Street is well aware of Treasury Secretary Tim Geithner's promise to unveil on Monday the next banking-relief package, the aid measures for the financial industry, reportedly including some answer to "bad bank" concept, among other things.

Thursday

CNBC

reported that the Securities and Exchange Commission might be looking to suspend or restructure the so-called mark-to-market accounting rules that have punished banks' balance sheets as they struggle with the market value of distressed assets.

Checking in on earnings,

Toyota

(TM) - Get Report

swung to a third-quarter loss of $1.8 billion on a stronger yen and plummeting car sales in the U.S. and Europe. The company said it now expects to report an annual loss of 350 billion yen from a previous forecast of net income of 50 billion yen, its first fiscal-year loss since 1950.

Bellwether biotech

Biogen Idec

(BIIB) - Get Report

reported

a 3% increase in adjusted fourth- quarter earnings Friday to $274.3 million, matching Wall Street's expectations.

Toyota shares were higher by 0.8% at $69.38 at the end of the session, while Biogen shed 1.5% to $52.48.

In commodities, crude oil fell $1 to settle at $40.17 on Friday. Gold added 10 cents to settle at 914.30

Longer-dated Treasuries were recently falling; the 10-year note was giving up 19/32 to yield 3%, the 30-year was dropping 19/32, yielding 3.7%.

The dollar was recently stronger against the yen, and weaker against the euro and pound.

Stocks overseas were trading higher. In Europe, the FTSE in London and the DAX in Frankfurt rose 1.5% and 3%, respectively. In Asia, Japan's Nikkei and Hong Kong's Hang Seng also registered gains in their session.