(RTTNews) - After seeing initial weakness following the release of some disappointing economic data, stocks staged a substantial turnaround over the course of the trading day on Friday. The major averages moved firmly into negative territory, although they gave back some ground in late day trading.

Before the start of trading, the Commerce Department released a showing a slightly bigger than expected decrease in personal spending in the month of September. Spending fell by 0.3 percent compared to estimates of a 0.2 percent decrease.

While the data added to a recent string of data indicating considerable weakness in consumer spending, selling pressure waned not long after the open, as many traders felt that the weakness was already priced into the markets.

Traders subsequently disregarded separate reports showing a substantial contraction in manufacturing activity in the Chicago-area as well as a reading on consumer sentiment that showed a record decline in October.

The buying interest that emerged came as traders continued to pick up stocks at reduced levels following recent weakness.

In an interview with RTTNews, Robert Loest, senior portfolio manager at Integrity Mutual Funds said investors are getting back into the market because they want to “recoup some of their huge losses,” indicating that the markets are due for at least a “20 to 30 percent rally.”

However, Loest stressed that he believes we have only put in a short-term bottom and said he expects another big downturn next year.

“The economy is in the early stages of deterioration and will continue to deteriorate severely,” Loest said. Once that sinks in with investors, he predicts that we’ll see a new test of the old lows and said we’ll “probably, ultimately close below that.”

In other news, Federal Reserve Chairman Ben Bernanke said Friday that government support of Fannie Mae (FNM) and Freddie Mac (FRE) must remain strong as the nation works its way through the remainder of the housing crisis.

In addition, the Fed chief told a Berkeley, California audience that the federal government must continue to play an important role in the mortgage financing market in the future.

“Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress,” Bernanke said.

The major averages pulled back well off their highs in the last hour of trading, but they ticked back to the upside going into the close. The Dow closed up 144.32 points or 1.6 percent at 9,325.01, the Nasdaq closed up 22.43 points or 1.3 percent at 1,720.95 and the S&P 500 closed up 14.66 points or 1.5 percent at 968.75.

With the gains on Friday extending the upward move seen earlier in the week, the major averages all posted strong gains for the week but still closed sharply lower for the month of October. The Dow posted an 11.3 percent weekly gain, but it fell 14.1 percent on the month.

Sector News

With traders picking up stocks at relatively low levels, housing stocks saw considerable strength over the course of the trading day. The Philadelphia Housing Sector Index closed up 6.4 percent, moving further off the record closing low it set on Monday.

Beazer Home (BZH) and PMI Group (PMI) turned in two of the housing sector’s best performances, closing up 29.4 percent and 24.5 percent, respectively.

Significant strength was also visible among airline stocks, as reflected by the 6.6 percent gain posted by the Amex Airline Index. With the gain, the index ended the session at its best closing level in well over a month.

While airline stocks gave back some ground in late day trading amid a substantial rebound by the price of oil, they managed to hold onto the bulk of their early gains. After falling as low as $63.12 a barrel, crude for December delivery closed up $1.85 at $67.81 a barrel.

Financial stocks also performed well on the day, with both brokerage and banking stocks posting notable gains. The Amex Securities Broker/Dealer Index closed up 6.3 percent, while the S&P Banks Index closed up 5.1 percent.

A variety of other sectors also showed strong upward moves, with considerable strength visible in the real estate, electronic storage, and retail sectors.

Meanwhile, gold stocks saw significant weakness amid a decrease by the price of the precious metal. With gold for December delivery closing down $20.30 at $718.20 an ounce, the Amex Gold Bugs Index closed down 4.3 percent.

Notable losses by some telecommunications, utilities and steel stocks also helped to limit the upside for the broader markets.

Dow Components

A majority of the Dow components ended the session in positive territory, contributing to the substantial gain posted by the blue chip index. Of the thirty Dow components, only eight ended the day lower, while DuPont (DD) closed unchanged.

Financial giant JP Morgan (JPM) turned in one of the Dow’s best performances, moving further off the three-month closing low that it set on Monday. Shares of JP Morgan closed up 9.7 percent, contributing to a 16.4 percent gain for the week.

American Express (AXP) also showed a strong upward move, with the credit card company closing up 5.5 percent. With the gain, AmEx moves further off its recent lows, although it remains stuck in a recent trading range.

A variety of other Dow components also posted notable gains, including Bank of America (BAC), Citigroup (C) and Home Depot (HD). Shares of Home Depot closed up 3.8 percent, at a nearly one-month closing high.

On the other hand, shares of General Motors (GM) bucked the uptrend, with the auto giant closing down 4.6 percent. The loss by GM came amid reports that the company’s proposed merger with Chrysler is on hold.

Telecom services provider Verizon (VZ) also posted a notable loss, ending the session down 2.7 percent. Coca-Cola (KO), Microsoft (MSFT), Exxon Mobil (XOM), and AT&T (T) were among the other Dow components that ended the day in the red.

Other Markets

In overseas trading, the stock markets in the Asia-Pacific region turned in a mixed performance on Friday after showing strong upward moves in the previous session. Japan’s Nikkei 225 index showed a notable decline following news of a rate cut by the Bank of Japan.

The Bank of Japan trimmed its key interest rate by 0.2 percentage points to 0.3 percent, although the cut was by a split vote and was smaller than the market had expected. The move came amid government pressure to join the global response to the worst financial crisis in 80 years.

Meanwhile, the major European markets all ended the day higher, adding to Thursday’s gains. The French CAC 40 Index and the German DAX Index closed up 2.3 percent and 2.4 percent, respectively, while the U.K.’s FTSE 100 Index posted a 2 percent gain.

In the bond market, treasuries turned lower over the course of the trading day, as traders moved their money out of bonds and into stocks. Subsequently, the yield on the benchmark ten-year note closed up 3.1 basis points at 3.97 percent, a two-week closing high.

Looking Ahead

Economic data is likely to be in focus next week, with traders likely keep a close eye on the release of the Labor Department’s monthly employment report on Friday. The report is expected to show a continued decrease in employment in October.

Data on manufacturing and service sector activity, construction spending, labor productivity, and pending home sales is also likely to attract some attention. The weekly reports on jobless claims, oil inventories, and mortgage applications may also impact trading.

Additionally, another batch of companies are due to release their quarterly results next week as the earnings season starts to wind down. Cisco (CSCO), Anheuser-Busch (BUD), Disney (DIS), Ford (F), and Sprint Nextel (S) are among the companies due to report their results.

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Posted in Categories: Australia, Economy, Eurozone, Japan, Releases, USA.

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