Like teenage girls fawning over Elvis, the stock market swooned over the Fed this week. But hopes the central bank will stop raising its fed funds rate next month quietly exited the building by Friday, leaving most market participants where they started the week -- anxious -- despite gains for major averages.

After starting the week concerned about inflation, stock investors latched onto dovish words from Fed speakers and the March FOMC meeting minutes Tuesday , inciting a rally that carried major averages to weekly gains despite mixed follow-through.

Record oil prices and U.S. Energy Secretary Samuel Bodman crashed the party when the price of crude topped $75 per barrel Friday and Bodman warned of possible gasoline supply problems. Maybe that qualifies as one of the "surprises" San Francisco Fed President Janet Yellen was talking about Wednesday after commenting that rate hikes are over and inflation contained -- minus any data to suggest otherwise, of course.

The Dow Jones Industrial Average did rise modestly Friday to 11,347.45, another six-year high, but the S&P 500 dipped 0.01% to finish 1311.28 and the Nasdaq Composite fell 19.69 points, or 0.83%, to 2342.86 as Dell's ( DELL) weakness offset Google's ( GOOG) strength.

For the week, the Dow gained 1.9%, while the S&P rose 1.7%, and the Nasdaq climbed 0.7%, lagging its blue-chip counterparts amid disappointment over results and/or guidance from big-caps such as Intel ( INTC), eBay ( EBAY) and Amgen ( AMGN), as well as prior highfliers F5 Networks ( FFIV) and PortalPlayer ( PLAY).

Meanwhile, the dollar sunk, commodities prices soared and the yield on the benchmark 10-year rose above 5%.

"The reaction to the Fed minutes was very emotional, and it is still undecided whether 5% is the end," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum, adding that the new fear is that perhaps $70 per barrel is the bottom end of a new range. "We look at gold and commodities. These are inflation indicators."

Oil settled at $75.17 a barrel Friday on the New York Mercantile Exchange after hitting an all-time peak of $75.35 per barrel earlier. Gold for June delivery finished up $12.40 at $635.50 an ounce Friday, making up for Thursday's losses. The metal plunged more than $20 intraday after hitting a 25-year high of $649, dragging down producers such as Newmont Mining ( NEM), before finishing down 2% at $623.10. Silver advanced as well Friday after suffering a 14% drop Thursday, its biggest percentage decline in 19 years, while copper hit a new all-time price high up 17.85 cents at $3.1405 a pound.

As commodities prices once again spilled over their just-set records, odds that the fed funds rate will go to 5.25% at the June 29 FOMC meeting reached 46% Friday, the highest since the Fed minutes were released, according to Miller Tabak & Co. Odds of a June hike dropped to 32% Tuesday from 54% on Monday.

While commodities grabbed the headlines, there were other signs that everything wasn't as rosy as Tuesday's market action suggested.

The IMF warned mid-week in its World Economics Outlook of "global imbalances," high commodities prices and inflation, the huge U.S. trade deficit and currency valuation problems.

"With the risks associated with inaction rising with time, the principal challenge for global policymakers is to take advantage of the unusually favorable conjuncture to address these vulnerabilities," says the IMF in the Outlook.

Speaking of vulnerabilities, even the Fed minutes warned that a possible housing market collapse and a pullback by the U.S. consumer could create big financial stress for the U.S.

Several news outlets reported Thursday that 71% of U.S. consumers believe a national housing bubble will burst and that the value of residential real estate will collapse sometime next year. U.S. consumers being as optimistic as ever, 56% of those polled, said they believed it wouldn't happen in their neighborhoods.

On the data front this week, housing starts came in down 7.8% in March, and the core consumer price index came in higher than expected, up 0.3% in March, the latter offsetting the tame producer price report on Tuesday.

Meanwhile, China's President Hu Jintao didn't help matters when he neglected to bend to pressures from the U.S. to allow its yuan to appreciate. Most economists believe such a step would help right the massive U.S. trade deficit with China, which was about $202 billion at the end of last year. Unresolved currency issues could rekindle protectionist sentiment in Washington, which would be negative for U.S. markets, says Ashraf Laidi, chief currency analyst at MG Financial Group. The meeting of the Group of Seven nations that kicked off in Washington Friday might provide some answers about both currency issues and commodity prices, he adds.

The dollar index ended fell 1.72% this week, down 0.26% Friday. Factoring into Friday's fall was an announcement early Friday that the Swedish Riksbank has reduced its dollar reserve holdings by 17% to 20%, and upped its euro holdings to 50%.

The data-dependent Fed can chew on GDP numbers out next week, and the stock market can decide to dance with the Fed again or not.

Insuring GM

In a week chock full of earnings and economic data, perhaps the biggest company-specific story was General Motors ( GM), which soared Thursday after posting a first-quarter loss that wasn't as awful as Wall Street feared.

Thursday's action in GM stocks and bonds suggested less fear about a possible bankruptcy at the beleaguered automaker.

On Friday, however, The Wall Street Journal's C1 story says evidence that bankruptcy "haunts" GM's stocks and bonds can be found in the risk premiums of its credit default swaps -- or "protection."

Not exactly. The UAW haunts GM. While spreads on GM CDS do indicate that investors want to protect themselves against events of default at GM, it doesn't provide a crystal ball of how likely default is for the company. One doesn't say that a young guy with a big life insurance policy is more likely to die than someone without any life insurance. That being said, people do murder their spouses for the recently purchased life insurance windfall. Point is, it is important to break down what the GM protection spreads really do tell investors.

According to my sources, one-year GM CDS has a risk premium of 5.5% over Libor, indicating that the CDS market doesn't expect the hammer of default to fall within one year. The risk premium jumps significantly in the two-year protection market, after which spreads range between 12% and 20% on 10-year CDS. This shows investors' legitimate concern about GM's negotiations with the UAW, whose labor contract expires that year.

While the so-called insurance buyers are worried about default, it is important to note that risk premiums on GM's CDS are moving tighter in concert with sentiment in other markets after being on a widening trend since December. Thursday, GM's stock soared 10.06%, or $2.07, to end the day at $22.64 on about three times its average volume. (Friday, the stock fell 3.75% to $21.79 in sympathy with Ford ( F), which tumbled 7.9% after reporting a large first-quarter loss.)

The risk premium on its five-year protection dropped to about 18% as of Friday midday, down about one point each day over the past week from highs around 20.75% which it hit last Wednesday. This conveys that investors feel more confident now that GM will not default in five years. Five-year CDS on GM traded at roughly 12% in December.

Indeed as the WSJ pointed out, GM default would not be due to its cash position right now. It holds $21.6 billion in cash as of the end of the first quarter. While companies usually go into bankruptcy because they run into money problems, GM is not likely to face a liquidity crunch anytime soon except in the case of a worker strike. Just like that young guy's life insurance policy isn't likely to be triggered unless he's hit by a truck.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.