Skip to main content

Updated from 4:03 p.m. EST

Late-day buying helped the

Dow Jones Industrial Average

and the

S&P 500

establish new 18-month highs for the second-straight session and finish higher for the third-straight week, as investors remain bullish despite a disappointing reading from the American consumer.

The Dow gained 34 points, or 0.3%, to 10,042.16, holding the key level it successfully breached Thursday for the first time since May 24, 2002; the S&P 500 rose 2.92 points, or 0.3%, to 1074.14; and the

Nasdaq Composite

improved 6.68 points, or 0.3%, to 1949.00.

Volume was light on the day. More than 1.21 billion shares traded on the

New York Stock Exchange

, while 1.45 billion shares changed hands on the Nasdaq. Advancers beat decliners on the NYSE by nearly 2 to 1 and by about 3 to 2 on the Nasdaq.

The Dow gained 1.8% on the week, the S&P 500 rallied 1.2%, and the Nasdaq improved 0.6%. According to investors, the Dow's relatively stronger performance was driven by a sector rotation into cyclical and more stable stocks.

"Managers are desperate to have a good year and view the glass as half full," said James Awad, chairman of Awad Asset Management. "Therefore, they were willing to overlook the weak consumer sentiment number, which is generally volatile, and focus on all the other signs that have been positive."

"The late-day rally was most likely technical in nature," said Brian Pears, head of equity trading at Victory Capital Management, "with mutual funds trying to take advantage of the market's momentum, rather than long-term outlook."

Robert Basel, co-head of equity trading at Citigroup, believes short-cvering contributed to the late move.

TheStreet Recommends

The University of Michigan consumer sentiment index for December registered an 89.6 reading. Economists expected it to improve to 96 after November's 93.7 reading.

On the positive side, the producer price index fell 0.3% in November, despite forecasts for a 0.1% gain after an increase of 0.8% in October.

And though the trade deficit widened to $41.8 billion in October from $41.3 billion in September, it was in line with expectations.

Near-Term Correction?

Many investors remain focused on the psychological meaning of Dow 10,000 and Nasdaq 2000. With the averages hovering close to these milestones, it is easy to lose sight of what could be the toughest hurdle for stocks to overcome in the months ahead. Can stocks continue their run after significant year-to-date gains across all three major averages? Several market experts are growing nervous that a correction could be imminent.

"The stock market is very vulnerable right now, and if one institution starts to trim positions in order to lock in gains, the herd mentality could take hold," said Tim Heekin, director of trading at Thomas Weisel. "I expect this to spark a cascading rally, which could take the broader market down 10% to 15%."

"If it doesn't happen before the end of the year, I expect it will happen sometime in January," added Heekin.

Awad is also concerned. "Last December, the consensus was for 2003 to be a modest year, up 5% to 10%, and 2004 to be a good year," said Awad. "What happened is we got 2004 in 2003, and investors still expect a good year in 2004.

"Stocks are not compellingly cheap, and bullishness is still everywhere," said Awad. "I am beginning to worry that the market could begin to price in a nasty 2005 in early 2004."

However, Heekin believes some stocks will fare better than others. "The Dow and S&P are likely to outperform the Nasdaq in such a correction," he said. "We are already starting to a see a rotation into big capitalization industrials from smaller-capitalization technology stocks."

Other Markets

In currency trading, the dollar was lower against both the Japanese yen and the euro. At $1.2294, the dollar finished lower for the fifth-straight week against the European currency.

The 10-year Treasury bond fell 3/32, its yield rising to 4.24%, despite the mostly bond favorable economic data.

Overseas markets closed higher, with London's FTSE 100 up 0.4% to 4348 and Germany's Xetra DAX up 0.03% to 3860. In Japan, the Nikkei closed 0.9% higher at 10,169.66, while the Hang Seng in Hong Kong rose 0.3% to 12,594.42.

Movers

In earnings news,

Adobe Systems

(ADBE) - Get Adobe Inc. Report

posted a 22% jump in revenue and earned 34 cents per share in the fourth quarter. This was 2 cents ahead of analysts' expectations, and a sharp improvement from 17 cents a year ago. Adobe shares rose 42 cents, or 1.1%, to $40.20.

At a meeting with analysts and investors,

Coca-Cola

(KO) - Get Coca-Cola Company Report

said it plans share repurchases of at least $2 billion. The company's shares rallied 99 cents, or 2.1%, to $49.38.

Thomas Weisel reiterated its outperform rating on

Schering-Plough

(SGP)

and increased its price target to $25 from $23. The broker cited a survey of cardiologists, which said that use of the company's Zetia medication should increase to 15% of the market from 11%. The shares rallied 18 cents, or 1.1%, to $16.98.

United Technologies

(UTX) - Get n.a. Report

shares rallied $2.35, or 2.6%, to $91.62, after the company confirmed 2003 full-year earnings guidance at $4.64 per share, and between $5 and $5.30 in 2004. The consensus expectations are $4.66 and $5.14 for 2003 and 2004, respectively.

Looking Ahead

Next week's economic releases include the consumer price index, which is expected to rise 0.1% in November, after holding stable in October. The

Federal Reserve

surprised the market earlier this week when it said in its December policy statement that the risk of inflation was equal to that of disinflation. The market may be focused on this release.

In addition, capacity utilization is expected to rise to 75.3% from 75%. Excess capacity has been a key factor helping to keep inflation under control and the Fed on hold during the recent upswing.

The earnings calendar picks up again with several large brokerage houses expected to release some of the first fiscal fourth quarter earnings.

Morgan Stanley

(MWD)

,

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

,

Bear Stearns

(BSC)

and

Lehman Brothers

(LEH)

are all scheduled to report.