Financial markets ran the gamut of fear to greed this week, with greed winning out in the end.

For the week, the

Dow Jones Industrial Average

rose 1.6%, the

S&P 500

gained 1.6% while the

Nasdaq Composite

climbed 2.1%.

At its onset, the week didn't seem to have the makings of the S&P's biggest weekly gain since April. It started with a continuation of last week's theme:

fear of inflation and rising rates. These concerns were prominently displayed Tuesday, as the 10-year Treasury yield eclipsed 5.30% intraday and closed at its highest level since 2002. Stocks cascaded lower in response, but Tuesday's decline proved to be the end of the selling, at least for this week.

Thanks in part to benign comments about price pressures in the

Federal Reserve's

beige book, Treasury yields stabilized Wednesday, paving the way for the Dow's biggest point gain since July 19, 2006. Wednesday's advance led to more gains on Thursday and Friday, both aided by tame inflation data, falling yields and more merger activity.

As the 10-year's yield retreated to 5.17% Friday following tame core consumer price index data, the Dow rose 0.6% to 13,637, the S&P rose 0.7% to 1533, and the Nasdaq Composite rose 1.1% to 2627.

The combination of falling core CPI inflation plus signs of strength this week -- including Wednesday's stronger-than-expected retail sales report and Friday's Empire State Manufacturing Index -- revived talk of the so-called Goldilocks economy. At a minimum, the PPI and CPI, along with Friday's weak industrial production report, reduced concerns about the potential for a Fed rate hike.

"The tame core CPI data will temper but not erase the FOMC's 'predominant concern' about the risk of faster inflation at their meeting on June 27-28," writes Stuart Hoffman, chief economist at PNC. "I believe the next FOMC move will be to lower the funds rate but not until nine to 12 months from nowwhen the ongoing stalemate between their 'predominate concern' about the risks of faster inflation vs. their lesser concern about subpar economic growth finally ends in 2008."

M&A Here to Stay

The Nasdaq's relative strength for the day -- and the week -- was spurred by chip stocks, which rallied despite disappointing guidance Tuesday from

Texas Instruments

(TXN) - Get Report

, followed by the Semiconductor Industry Association lowering its growth forecast midweek. Most notably,


(INTC) - Get Report

rose 4.4% Friday after a Goldman Sachs upgrade, gaining 11% for the week.

Friday's gains were further fueled by merger activity involving

Penn National Gaming

(PENN) - Get Report

and speculation of a possible bidding war for




Germany's Deutsche Boerse, the

NYSE Euronext



Chicago Mercantile Exchange

(CME) - Get Report

have held talks with NYMEX,


reported. Meanwhile, CME separately sweetened its bid for the

Chicago Board of Trade


, which has a competing bid from the


(ICE) - Get Report


These deals and speculation of more to come belie recent fears that higher interest rates would choke off private-equity buyouts and corporate M&A. As

detailed here, such fears overlooked the ample liquidity still circulating to do deals and the continued tight spreads between corporate and Treasury yields, which keep leverage buyouts attractive.

For example,

Home Depot's

(HD) - Get Report

auction of its supply business is expected to get competing $10 billion private-equity bids,

Bloomberg reports


Nevertheless, some market players remain wary the three-day advance can continue.

"I can't fight the tape, but I'm not convinced at all," Peter Costa, senior floor trader at Lipari Partners said Friday in an

interview on TV. "You can't discount the fact that companies are going to spend more to borrow. It's going to hurt profits. Everything is great now, but when earnings come out and

disappoint because the cost of money is that much higher, this might disappear."

Costa, who describes himself as an optimist by nature, nevertheless believes the better trade is to short the market here. "I hate to see exuberance when I don't see the fundamentals to cause it," he says. "Interest rates are up, oil is high and it's going to affect the economy at some point down the road."

Crude prices did rise this week, settling above $68 per barrel on Friday. But compared with the 1970s, energy is less a portion of consumers' income and far less of an important input cost for business. In addition, bulls say the current strength in oil prices is a reflection of a surging global economy, a.k.a. a "demand shock" vs. the "supply shock" of the 1970s. Finally, energy has become a bigger portion of the S&P 500, so crude's rise helps the stock market as it boosts shares of producers such as


(XOM) - Get Report



(COP) - Get Report

, among this week's big gainers.

Freeport McMoRan

(FCX) - Get Report

was another standout this week, benefiting from strength in copper prices, as well as the robust M&A environment and trend of activist fund managers. On Monday, Atticus Capital revealed a 6.4% stake in the miner and advocated for actions to enhance shareholder value. On Wednesday, the company's CEO said it may sell some "non-core" assets to pay for the debt incurred in its $26 billion acquisition of

Phelps Dodge


In sum, liquidity remains robust, the global economy strong and stocks remain attractive, even as Treasury yields have risen. That's the message at the end of a wild week that again reminded investors there's

no upside to negativity in this market.

Aaron L. Task is editor at large of In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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to send him an email.