NEW YORK (CNN/Money) -
The major indexes surged to new multimonth highs Thursday, with buyers diving into technology and financial stocks on bets that the recovery is on track.
Unless a bout of profit-taking should kick in Friday, stocks are likely to continue their rise, at least in the early going.
"Between very high short-interest looking to cover, fairly good economic news, signs the Fed is staying put and better earnings on the way, people are very eager to get in right now," said Joseph Battipaglia, chief stock strategist at Ryan Beck & Co. "I think that barring a terrorist attack or some very disappointing earnings, the market looks like it's going to continue to gain through the next few weeks."
All three major indexes -- the Dow Jones industrial average (up 113.48 to 9659.13, Charts), the Standard & Poor's 500 (up 13.61 to 1039.58, Charts), and the Nasdaq composite (up 26.45 to 1909.55, Charts) -- rallied to new highs for the year, and then some, Thursday.
The Dow and S&P 500 hit new 15-month highs, both closing at their highest levels since June 18, 2002. The Nasdaq hit a new 18-month high, closing at its best level since March 12, 2002.
No economic reports are due Friday to influence trade, and little in the way of earnings news is expected. However, trading could get a little witchy, particularly near the close. Friday is a triple-witching day, the last day of trade before the expiration of contracts for stock index futures, stock index options, and individual stock options. The impact is often increased market volatility, particularly near the close.
Barring any major selloff Friday, stocks are set to close the week higher. As of Thursday's close, the Dow and the S&P 500 are both up around 2 percent and the Nasdaq composite is up just under 3 percent.
Among the stocks that could be influencing early trade Friday: Nike (NKE: up $0.13 to $57.25, Research, Estimates), which reported earnings after the close Thursday. The shoe retailer earned 98 cents per share, 10 cents better than expected and up from a profit of 81 cents per share a year earlier. Nike shares rose 4 percent in after-hours trade.
In addition, handheld computer maker Palm (PALM: up $1.63 to $22.57, Research, Estimates) reported a narrower-than-expected loss of 58 cents per share, better than the $1.26 per share loss it posted a year ago. Analysts surveyed by First Call expected a loss of 83 cents per share. Shares fell 3.8 percent in after-hours trade.
Thursday's market
Stocks lagged briefly in the first half-hour of trade, as investors reacted to the resignation of Richard Grasso from his post as chairman of the New York Stock Exchange and the latest updates about the quickly advancing path of Hurricane Isabel.
But the inertia was short-lived, and stocks surged soon after and stayed higher for the rest of the session.
Among the factors bolstering the gains: strong economic reports, including a bigger-than-forecast dip in weekly jobless claims and bullish brokerage calls, earnings and other news in the technology and financial sectors.
"I think the market is in pretty good shape right now. The economy is improving, and you're seeing investors react to that," said Jon Burnham, portfolio manager at Burnham Securities.
Shares of brokerage firm Bear Stearns (BSC: up $3.73 to $76.20, Research, Estimates) rose 5.1 percent after the company reported better-than-expected third-quarter results that rose from a year earlier, thanks to its booming bond business.
Dow stock Citigroup (C: up $1.71 to $46.65, Research, Estimates) gained 3.8 percent after Merrill Lynch restarted coverage of the company with a "buy" rating.
Shares of American Express (AXP: up $1.73 to $47.08, Research, Estimates), also a Dow 30 member, rose 4 percent on news that credit card rivals Visa and MasterCard lost an appeal that would have overturned an earlier ruling that makes it easier for companies like American Express to go after their business.
Microsoft (MSFT: up $1.00 to $29.50, Research, Estimates) surged 3.5 percent, saying that it will expand its board to 10 members from eight as a means of building up its corporate governance controls.
On the downside, Dow member DuPont (DD: down $0.36 to $42.11, Research, Estimates) shed almost 1 percent after J.P. Morgan downgraded the stock to "neutral" from "overweight" one session after the company warned that current-quarter results won't meet expectations.
A variety of technology stocks gave support to the Nasdaq. The most-active issue was wearable computer maker Xybernaut (XYBR: up $0.28 to $2.20, Research, Estimates), which rose 14.6 percent after the company received a new $510,000 contract from the U.S. Defense Department.
Motorola (MOT: up $0.49 to $11.13, Research, Estimates) gained 4.6 percent in active NYSE trade after Bancorp Piper Jaffray upgraded the stock to "outperform" from "neutral" and raised its 12-month price target, saying that there was less risk in the company's handset portfolio and that the business environment in the United States and China is improving.
The main technology sub-sector not participating was chips, with companies like Applied Materials (AMAT: down $0.33 to $20.79, Research, Estimates) edging lower. The book-to-bill ratio -- an industry report which measures the amount of orders booked for future delivery versus those being shipped presently -- came in lower than analysts were expecting.
Economic news pleases
The number of Americans filing new weekly jobless claims dipped to 399,000 last week versus a revised 428,000 the previous week, the government said. Economists expected 410,000 new claims. The prolonged weakness in the labor market has continued to unnerve those betting on a strong economic recovery. As a result, any signs of a pickup have been greeted warmly by investors.
But with so many other factors on traders' minds in the morning, the report didn't initially provide much cheer. However, in conjunction with the August reading on leading economic indicators, it served to improve the mood on Wall Street, confirming that an economic recovery is developing.
The LEI showed a gain of 0.4 percent in August, as expected. The August reading followed a revised 0.6 percent increase in July.
Stocks had been even higher before the release of the Philadelphia Fed index at noon. The regional manufacturing survey showed a reading of 14.6 this month, lower than the 17.0 forecast and down from 22.1 last month.
NYSE Chairman Richard Grasso resigned late Wednesday at the request of the exchange's board, in response to the growing controversy surrounding his multimillion-dollar compensation package. Questions about Grasso's ability to lead the NYSE in light of the controversy have been the talk of market watchers over the last few weeks, but they haven't hurt day-to-day stock trading. Nonetheless, the abrupt departure cast a shadow over Wall Street.
Advancing issues outnumbered decliners by more than two to one on the NYSE, where 1.46 billion shares changed hands, and by three to two on the Nasdaq, where volume reached 1.98 billion shares.
Treasury prices were flat, with the 10-year note yield at 4.17 percent, little changed from late Thursday. The dollar lost ground against the yen and the euro.
NYMEX light sweet crude oil futures rose 8 cents to settle at $27.24 a barrel. COMEX gold rose 40 cents to settle at $377.70 an ounce.
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