Top Stocks Markets of 2010 Round Out With Another Strong Rally

Stocks market rallied on Friday, rounding out a strong week with yet another rally, as a slowdown in the pace of U.S. job losses spurred broad gains.

Bank stocks were a bright spot after the government said late Thursday that 10 of 19 banks need a total of $74.6 billion in additional capital following a round of stress tests. That fell short of the worst case that investors had feared.

The Dow Jones Industrial Average gained 164.80 points, or 2%, to end trading at 8574.65, the highest close since January 9. The benchmark is now down just 2.3% for the year and up 30.97% from its 12-year closing low of 6547.05 hit on March 9.

The Dow was bolstered Friday on by gains for American Express and J.P. Morgan Chase, which rallied 10% and 11%, respectively, after coming through the stress tests without being told to raise more capital. Chevron jumped 3.5% and Exxon Mobil rose 2.7% as front-month crude-oil futures topped $58.

Crude ended New York floor trading on Friday at a six-month high, settling up $1.92 a barrel at $58.63, as stocks market of 2010 rallied and the dollar weakened against other major currencies in the wake of the employment data. Crude rose 10% this week.

The tech-heavy Nasdaq Composite Index gained 22.76 points, or 1.3%, to close at 1739.00. It rose 1.2% this week and is up 10% for the year so far. The S&P 500 rose 21.84 points, or 2.4%, to 929.23. Its financial sector rose 7.4% and its energy sector advanced 4.3%. The broad market gauge rose 5.9% this week and is up 37% from its 12-1/2 year closing low of 676.53 hit on March 9.

"The most relevant factor is that there is a recovery under way, which basically overwhelms any other potential problems," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. "Were we going to have two more quarters of (-6%) in the GDP, there's no way the banks could handle that. Since we are not going to have that, then they are fine."

Investors focused on the Labor Department's release of new data on nonfarm payrolls, which fell 539,000 in April, better than the mean expectation for a 610,000 decline. Though the headline payrolls number was not as bad as many feared it would be, the report painted a stark picture of an economy that is still shedding jobs at an historic clip, bringing the total number of job losses since the recession started in December 2007 to 5.7 million.

"It's not clear to me why this market should continue to rally [from its March lows] based on the fundamentals," including the latest jobs report, said Russ Koesterich, portfolio manager at Barclays Global Investors in San Francisco. "We may get the S&P up to 950 or 1000 in the short run, but probably not much beyond that, especially when you consider the market isn't so cheap anymore."

Mr. Koesterich said he is placing some early bets on a U.S. recovery, but unlike many participants in this spring's stock rally, he's not piling into consumer-related names to do it. Instead, Mr. Koesterich has favored investment in commodity-related best stocks for 2010, especially in resource-rich countries like Canada and Australia likely to benefit from early spending by businesses to ramp up production in the early stages of a global rebound.

Other money managers are even more cautious.

"What's happening on Wall Street these days isn't necessarily lining up with what's going on in the domestic economy," said portfolio manager Matthew Smith, of Smith Affiliated Capital, which for now continues to favor Treasury bonds and other forms of low-risk debt over top stocks for 2010.

Many bank stocks to buy rallied on Friday, after results of the government stress tests on banks produced results that were not as bad as expected in some cases.

In reaction to the stress tests, Wells Fargo and Morgan Stanley sold shares to raise capital under the government's orders, with shares of both companies mixed Friday. Wells Fargo gained 14% and Morgan Stanley rose 3.9%.

"You had a lot of the institutional investors just waiting for an opportunity like this to buy, and the banks knew that," said Jerry Kallas, managing director at Terra Nova Financial, a Chicago brokerage. "They wouldn't have done the offerings if they didn't already know that appetite was out there."

Elsewhere in the financial sector, Bank of America and Citigroup rose sharply, up 4.9% and 5.5%, respectively. Bank of America needs to raise $34 billion, the largest amount of any of the banks with a capital hole. Citigroup needs to raise $5.5 billion, less than some analysts had feared.

Kent Engelke, managing director at Capitol Securities Management in Glen Allen, Va., said he's holding onto preferred shares he owns in several financial bellwethers, including Citigroup and Bank of America. But he didn't see any reason in the stress-test results to add to his positions or to take on new bets in the banks' common stock.

"The good news here is that we've taken the solvency concerns off the table," said Mr. Engelke. "But I'm still a little concerned about what the government might due later," including possible interference in more day-to-day management decisions at the banks.

Many regional banks that were told to raise more capital were also rising on Friday. Fifth Third Bancorp, which needs $1.1 billion, surged 59%, while Regions Financial, which is facing a $2.5 billion capital gap, soared 25%. SunTrust Banks, which needs to raise $2.2 billion, ended up 12%.