Stocks stage comeback
Wall Street gains at the end of a choppy session.
NEW YORK (CNNMoney.com) -- Stocks rallied Friday, ending a choppy session on a high note as investors eyed the federal bailout of Bank of America, Citigroup's plan to split its businesses and geared up for next week's presidential inauguration.
The Dow Jones industrial average (INDU) gained 0.8%. The Standard & Poor's 500 (SPX) index added 0.8% and the Nasdaq composite (COMP) climbed 1.2%.
Next week also brings the first big batch of fourth-quarter earnings, with 55 of the S&P 500 due to report. Earnings are currently on track to have fallen 20.2% from a year ago, according to Thomson Reuters.
Because a lot of the weak results have already been priced in to the market, the reaction to the earnings could be muted, said Will Hepburn, chief investment officer at Hepburn Capital Management and manager of the Kids Fund.
Next week is a holiday-shortened trading week, with all financial markets closed Monday for Martin Luther King Jr. Day. Tuesday is Inauguration Day, when Barack Obama is sworn in as the 44th president of the United States.
The momentum of the new president taking office is likely to coincide with a brief stock rally, he said. "There's always a honeymoon period, where everyone gives the guy a break," Hepburn said. "There's partisanship, but there are also a lot of people rooting for him to do well."
Hepburn said stocks could also benefit from some positive seasonal factors at this time of year.
Stocks rallied Friday morning, slipped in the afternoon and then rallied again as the session wore on. The volatile trading reflected concerns that the efforts to aid Bank of America and Citigroup are not enough, said Terry L. Morris, senior equity manager at National Penn Investor Trust.
"There's a lot of pessimism out there, and the year hasn't started out well," Morris said. "But I think that some of these stocks have gotten so washed out that you could see a nice rally over the next few weeks.
As of Friday's close, the S&P 500 is down nearly 6% so far this year, while the KBW Bank index is down nearly 28%.
Financials: Stocks staged a late-session rally Thursday on reports that a Bank of America (BAC, Fortune 500) bailout was looming. Early Friday morning, the government said it gave the company another $20 billion from bailout funds, along with guarantees on $118 billion of assets related to the bank's recent purchase of Merrill Lynch.
Bank of America also reported a huge $1.79 billion fourth-quarter loss, losing 48 cents a share versus forecasts for a profit of 8 cents a share. BofA also slashed its dividend. Additionally, Merrill Lynch lost over $15 billion in the fourth quarter. Bank of America shares fell 13.7% Friday. (Full story)
Citigroup (C, Fortune 500) reported a bigger-than-expected quarterly loss of $8.3 billion Friday. The bank also said it was splitting its operations in two, separating its more traditional businesses from the riskier assets. Citi shares lost 8.6%.
On Thursday, JPMorgan Chase (JPM, Fortune 500) reported a 76% drop in fourth-quarter earnings. Shares fell 6.2% Friday.
Investors are again pulling money out of equity mutual funds after a brief period of adding funds in December. For the week ended Jan. 14, investors pulled $13.3 billion out of stock funds, according to investment-research firm Trim Tabs. In the previous week, investors poured $6.4 billion into funds.
Other company news: Intel (INTC, Fortune 500) reported a 90% drop in fourth-quarter earnings Thursday night that nonetheless met forecasts. Shares of the chipmaker gained 3.4% Friday.
Advanced Micro Devices (AMD, Fortune 500) said it will cut 9% of its workforce, or 1,100 employees, during the first quarter. Shares gained 1.3%.
Circuit City, the bankrupt electronics retailer, said Friday it plans to close its remaining stores and sell off its merchandise. (Full story)
Market breadth was mixed. On the New York Stock Exchange, winners beat losers two to one on volume of 1.62 billion shares. On the Nasdaq, advancers beat decliners five to four on volume of 2.31 billion shares.
Economy: The Consumer Price index (CPI) fell 0.7% in December versus forecasts for a drop of 0.9%. CPI, a measure of consumer inflation, has been declining over the last year in response to the recession.
In November, CPI fell 1.7%. The so-called core CPI, which strips out food and energy, was flat versus forecasts for a rise of 0.1%. Core CPI was flat last month, too.
The University of Michigan consumer sentiment index rose to 61.9 from 60.1. It was expected to dip to 59.
Late Thursday, a Senate measure to block the release of the second half of the bailout failed, giving the Treasury and President-elect Barack Obama access to the remaining $350 billion.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.33% from 2.20% Thursday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates tightened. The 3-month Libor rate rose to 1.14% from 1.09% Thursday, just above a five-year low, according to the British Banker's Association. Overnight Libor rose to 0.14% from 0.12% Thursday. Libor is a bank-to-bank lending rate.
Other markets: The dollar fell versus the euro and gained against the yen.
U.S. light crude oil for February delivery rose $1.11 to settle at $36.51 a barrel on the New York Mercantile Exchange.
COMEX gold for February delivery rose $32.60 to settle at $839.90 an ounce.
Gasoline prices rose 1.7 cents to a national average of $1.816 a gallon, according to a survey of credit-card swipes released Thursday by motorist group AAA. 
