Stocks edge mostly higher; Microsoft drags Nasdaq

Wall StreetOptimists are back in control of the stock market.

Major stock indicators climbed 11 percent in the past two weeks to their best levels since last fall as hopes for an economic recovery take hold. A series of strong earnings reports has many traders more optimistic about business conditions, while some are simply afraid to miss another rally. Over the past 10 days the Dow Jones industrial average jumped 947 points and broke through the 9,000 barrier for the first time since January.

Investors who had been cautious after a powerful three-month rally fizzled last month are scrambling to keep up with the market’s latest upward momentum. The market’s biggest jump of the week came on Thursday as the Dow gained 188 points on news of the third straight monthly gain in existing home sales in June.

Stocks began surging higher last week as many big companies reporting results for the April-June quarter said business wasn’t as bad as feared. Heavy equipment maker Caterpillar Inc., manufacturing conglomerate 3M Co. and Ford Motor Co. kept the buying going for a second week after they also turned in better-than-expected results.

Bad news could always puncture the enthusiasm, but for now investors are shrugging off most disappointments.

The technology-heavy Nasdaq composite index fell 0.4 percent following weak profit reports from Microsoft Corp. and Inc., breaking a 12-day winning streak. The Nasdaq is still up 24.7 percent for the year, far outpacing gains in the Dow and S&P, which both posted small gains Friday.

“You don’t turn the Queen Mary on a dime, but when it does turn it turns in a big way,” Richard Ross, head of technical strategy at Auerbach Grayson in New York.

Analysts warn that investors still have a number of obstacles to contend with, including earnings reports from retailers that will provide more insight into the financial health of the consumer.

“It’s healthy that there is fear and skepticism in the marketplace,” said Jeffrey Frankel, president of Stuart Frankel & Co. “The more people are concerned and the more people are careful, the healthier the market will be. What gets us in trouble is when there is no fear.”

The Dow rose 23.95, or 0.3 percent, to 9,093.24, its highest finish since Nov. 6. The S&P 500 index rose 2.97, or 0.3 percent, to 979.26. It has risen 100 points in the two-week rally and is up 45 percent since it hit a 12-year low on March 9.

The Nasdaq fell 7.64, or 0.4 percent, to 1,965.96.

For the week, the Dow rose 4 percent, the S&P 500 index added 4.1 percent and the Nasdaq rose 4.2 percent. Each of the indexes is up 11 percent in two weeks.

The market’s climb in the past two weeks reflects a mix of forces. Some analysts link part of the buying to short-covering, where investors have to buy stock after having earlier sold borrowed shares in a bet that the market would fall. That rush to cover ill-timed bets can hasten the market’s climb.

It’s not just traders making all the moves. Everyday investors also are withdrawing money from some safe corners of the market where the returns are low. In the week ended Tuesday, money market mutual fund investors pulled $3.99 billion from taxable funds, according to according to iMoneyNet Inc. This has been flowing into stock and bond funds.

Analysts also say money managers are afraid of missing out on a continued rally.

“There is so much cash still on the sidelines,” said David Darst, chief investment strategist at Morgan Stanley Smith Barney.

“People missed it and they’re beginning to worry that the train isn’t going to come back for them,” he said, referring to the rally.

Bond prices rose, pushing yields slightly lower. The yield on the benchmark 10-year Treasury note fell to 3.66 percent from 3.67 percent late Thursday.

The incremental moves in stocks Friday came as investors shifted money out of tech stocks. Microsoft fell $2.11, or 8.3 percent, to $23.45 after company reported revenue that fell short of analysts’ forecasts. also reported weaker-than-expected sales. It dropped $7.38, or 7.9 percent, to $86.49.

The dollar was mixed against other major currencies, while gold prices fell.

Oil rose 89 cents to settle at $68.05 a barrel.

About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to a light 1 billion shares, compared with 1.4 billion traded Thursday. Light volume can skew the market’s moves.

The Russell 2000 index of smaller companies rose 2.61, or 0.5 percent, to 548.46.

Overseas, Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index fell 0.3 percent, and France’s CAC-40 lost 0.2 percent. Japan’s Nikkei stock average jumped 1.6 percent.

Copyright 2009 The Associated Press.