Updated from 6:45 p.m. EDT
Major averages rallied in this holiday-shortened week as strong economic news and more M&A activity trumped concerns about rising Treasury yields, terrorism and higher crude prices.
Friday's session embodied the week: Stocks initially fell as Treasury yields jumped in the wake of a stronger-than-expected June payroll report, which followed stronger-than-expected reports on ISM manufacturing and services indices earlier in the week.
The benchmark 10-year note ended down 11/32, its yield rising to 5.19% as Treasury traders fear a strengthening economy will spur faster inflation. But major averages rebounded from early weakness leaving the
Dow Jones Industrial Average
up 0.3% at 13,61168, while the
0.3% rose to 1530.44 -- within 10 points of an all-time closing high -- and the
gained 0.4% to 1530.44, marking a six-year high.
Friday's outperformance by the Nasdaq reflected the weekly trend, which saw the tech-laden index rise 2.4% while the Dow gained 1.5% and the S&P climbed 1.8%.
"Technically we look like we're in pretty good shape
and the most important thing is the Nasdaq is reasserting itself," Stephen Porpora, head floor trader at William O'Neill & Co. said in an
interview on TheStreet.com TV
. "Technology was the last sector not participating and the more the rally broadens out, the better it is."
Big-cap technology stocks
were big winners Friday, while
Research In Motion
dominated headlines and hit 52-week highs this week, as did the Philadelphia Stock Exchange Semiconductor Index.
Porpora noted many mid- and small-cap tech stocks are also perking up of late. While he didn't mention specific names, one example is
, which soared 72% this week.
Meanwhile, energy stocks, led by giants
, continued to benefit from rising crude prices both on Friday, when crude jumped $1 to a 10-month high of $72.81, and throughout the week.
Despite hand-wringing to the contrary, higher crude prices did not disrupt the rally this week (much less for the past four years) for the structural reason that energy stocks have become a bigger influence on the S&P 500.
On the macro front, crude is rising in large part because of high demand -- evidence of strong global growth -- in contrast to a 1970s-style supply shock, even if many pundits continue to refer to the "playbook" from that bygone era. Similarly, energy is far less important an input cost for corporations now vs. during the disco-era, with employee compensation the biggest outlay for companies today.
Outside of tech and energy, major averages were aided by more M&A activity, this week featuring
huge premium bid for
, as well as bidding wars for the
Chicago Board of Trade
Bausch & Lomb
Law of Unintended Consequences
The Hilton deal was marred by heavy trading in the hotel chain's stock and options in an otherwise thin pre-holiday atmosphere ahead of the deal being announced after Tuesday's 1 p.m. EDT close.
The appearance of possible insider trading in Hilton stock could give retail investors the impression the game is rigged and hurt confidence in the marketplace.
Less obvious, but potentially as damaging, are incidents such as the
June 28 trading snafu in shares of
Thursday's story about NYSE Arca canceling trades in Wyeth, someone asked me why I continue to pursue the story.
Beyond "because that's what reporters do," the answer is multifaceted.
First and foremost, a multihour halt in stocks because of computer error is a big deal and canceling millions of trades in a stock like Wyeth is a very rare occurrence. So this certainly rises to the level of "news" in my opinion, even if other media outlets have
largely ignored the story.
Second, the events of June 28 did not happen in isolation. They followed other high-profile glitches, notably the erroneous early trades in Blackstone's IPO that ultimately had to be broken and the Feb. 27 computer glitch that drove the Dow 300 points lower in a matter of minutes.
Furthermore, these events come during a time of rapid technological and regulatory changes that could result in more halted, cancelled or just plain frustrating trades.
For example, Bausch & Lomb's stock was halted by both the NYSE and Nasdaq at 2:56 p.m. EDT Thursday amid word of a bid for the company by
Advanced Medical Optics
. But shares continued to trade in alternative electronic platforms, resulting in mismatched closing prices of $68.66 on the Big Board vs. the more widely reported Composite close of $72.
An NYSE spokesman said the NYSE Arca mirrored the Big Board's halt and did not have information about any off-market trades that may have occurred.
The Composite price reflects trading on a variety of exchanges and electronic platforms, which are increasingly grabbing more volume of trades thanks both to their technological appeal and regulatory changes such as Regulation NMS, which is designed to route trades to the market platform with the best price, regardless of where the trade originated.
"We're for anything that is anything that's going to make the market's more efficient," says Randy Williams, a spokesman for Kansas City, Mo.-based BATS Trading, one of the alternative all-electronic platforms that has benefited from the phased roll out of Reg NMS, beginning in March. The ECN, which counts
among its investors, took credit for a matched market share of about 8% of Nasdaq trading in May, according to
Monday, July 9, marks the next phase of implementation of Reg NMS. Specifically, broker-dealers will be responsible for complying with Rules 610 and 611, or the Access Rule and the Order Protection Rule, respectively, for 250 pilot stocks.
"It's the way it should be -- the best bid should be hit, the best offer taken," said one trader, who requested anonymity, citing the uncertainty of how the next phase of Reg NMS will work in practicality vs. the idealistic intent of the regulation.
Joseph Saluzzi, co-head of equity trading at Themis Trading, an independent agency broker, says a key issue is how block traders -- trades of at least 10,000 shares -- are handled in the new regulatory environment. Reg NMS "may be a game changer," he says, because block traders "may not be willing to commit as much capital if they're in the spread and can't put up a bid a nickel below" the best displayed price.
And that's really the key takeaway -- no one really knows the long-term effects of Reg NMS or, for that matter, Friday's end of the "plus tick test," which dictated investors could only short stocks on a tick, or price, that was higher than the previous tick.
After a week in which the stock market continued to shake off a lot of "obvious" negatives, it's important to remember it's usually the things people
worried about that tend to prove problematic.
Aaron L. Task is editor at large of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
to send him an email.