Calm Trading Day Ends Strong Week for Stocks

Stocks closed flat yesterday, but Wall Street maintained a three-month rally, ending the week in positive territory after a mixed unemployment report.

The Dow Jones industrial average fell a few points short of recouping its losses for the year, but still managed to close the day slightly positive. The index of 30 blue-chip stocks was up 0.1 percent, or 12.89 points, to 8763.13. The broader Standard & Poor's 500-stock index fell 0.3 percent, or 2.37 points, to 940.09, while the tech-heavy Nasdaq composite index was also flat, down 0.6 points, to 1849.42.

Despite a rocky week of trading, all the major indexes posted gains. The Dow and S&P 500 were up 3.1 percent and 2.3 percent respectively, while the Nasdaq climbed 4.2 percent this week. It is up 17.3 percent this year so far.

"I think this market is riding on its momentum. It behaves very much like my five-year-old -- it hears what it wants to hear," said Randy Cass, founder of First Coverage, which studies market sentiment using analysts' recommendations.

Investors have been cheered by early signs that the economy's deterioration is slowing. That optimism has helped rally crude oil prices, which briefly traded above $70 a barrel yesterday, and sap demand for government bonds, a traditional safe haven during market turbulence, analysts said. The price of 10-year government bonds fell this week, for example, causing its yield to rise to 3.83 percent. A higher yield means there is less demand for the bond.

Yields are still low by historical standards and are likely to continue to rise, said Pete Hastings, a senior vice president at Morgan Keegan in Memphis. "With our view that the economy is slowly improving or in a state of being less bad, we would expect a gradual increase in the Treasury yields," he said.

But investor optimism may be premature, said Thomas Francis Nordby, a futures analyst at LaSalle Futures in Chicago. The value of the dollar bounced back against major currencies yesterday, but could still sell off again, he said. "While economists are forecasting stabilization, the recession is still quite alive."

Yesterday, investors' focus was on a mixed unemployment report. Economists had expected employers to cut 525,000 last month, but the number came in much lower, at 345,000. But the unemployment rate soared above 9 percent for the first time in 26 years.

Job losses will continue throughout 2009 and the unemployment rate will peak above 10 percent, said Nigel Gault, chief U.S. economist for IHS Global Insight. "But the worst news is behind us, and job declines should progressively soften as the year proceeds," he said in a research note.