The Wall Street Journal-20080202-Dow Industrials Advance 4-4- for Week

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Dow Industrials Advance 4.4% for Week

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After weeks of wallowing in gloom, Wall Street is suddenly full of optimists.

Shrugging off the ugliest employment report in four years, the Dow Jones Industrial Average rose 92.83, or 0.73%, to 12743.19 on Friday, capping a 4.4% gain for the week. That was the Dow's best weekly performance since March 2003, when the market was finally shaking off the pessimism of the dot-com bust. But even after its second winning week in a row, the blue-chip average is down 3.9% so far this year.

It might seem unthinkable that stocks could rise on a day when the Labor Department reported that nonfarm payrolls declined for the first time since 2003, seeming to rubber-stamp recession worries.

But there were enough silver linings in the jobs report to reassure investors. Ugly payroll reports have been revised higher lately, leading some traders to second-guess any bad news. The unemployment rate fell, and the day's other economic indicators, including a surprisingly strong manufacturing report from the Institute for Supply Management, were solid enough to keep recession worries at bay.

What's more, a lot of bad news already has been priced into the market. Weaker job growth might make it more likely that the Federal Reserve will keep cutting interest rates, never an unwelcome development for stock traders.

After a dizzying plunge in the first three weeks of the year, major stock indexes seem to have hit at least a short-term bottom after the Fed's emergency rate cut on Jan. 22 and have been climbing ever since. A second rate cut Wednesday only added to the bounce.

The Standard & Poor's 500-stock index rose 1.2%, or 16.87 points, to 1395.42, up 4.9% for the week but off 5% year-to-date.

"Traders feel like the selloff was way too hard and fast and are now regathering positions," said Steven Grasso of brokerage firm Stuart Frankel. "These people are paid to manage money, not to sit on the sidelines when the Fed is cutting rates."

Meanwhile, fear seems to be draining from the market. The Chicago Board Options Exchange's volatility index, known as the VIX and a closely watched measure of the market's level of fear, plunged 8% on Friday. It has tumbled 36% since the morning of the Fed's emergency rate cut, when the index surged briefly to its highest intraday level since October 2002.

Some market pros suggested the panic had gotten out of hand and the worst of the selling was nearly over. Now, some money managers are starting to look ahead to a rebound in the second half of the year.

Instead of reacting to news by selling first and asking questions later, traders are accentuating the positive and eliminating the negative, even if the news exhibits a little of both.

Microsoft's unsolicited $44.6 billion offer for Yahoo, announced Friday, seemed to inspire hopes of a new mergers boom, despite warnings from some analysts that the bid was likely a one-off event, especially with credit still tight.

Reports that several banks are considering a bailout of bond insurer Ambac Financial also boosted the market. In a hint that Wall Street's cheery demeanor might be fragile, worries about the bond-insurance industry often sent stocks tumbling lately. Investors worry that bond insurers' woes could hurt the value of debt held by banks, leading to more write-downs.

There were isolated pockets of weakness on Friday. Shares of big energy conglomerates such as Exxon Mobil and Chevron fell as the price of oil sank nearly $3 a barrel to $88.96. Shares of technology bellwethers Microsoft and Google tumbled on worries about the repercussions of Microsoft's Yahoo bid.

But the tech-stock-led Nasdaq rose nearly 1% to end the week 3.7% higher.

Prices for Treasury bonds rose, a hint of lingering economic worries. Wall Street's unbridled optimism wasn't universal -- many analysts still believe a recession isn't fully priced into the stock market and warn that signs of a steeper downturn will trigger another decline in equities.

"The first quarter will be a struggle for the market," said Bruce Bittles, chief investment strategist at Robert W. Baird.