U.S. stocks finished Friday with solid gains after technology bellwether Cisco Systems Inc.' (CSCO ) sparked a rally with optimistic comments. However, analysts do not expect the rally to have a lasting effect.
"The bulk of action seemed to be short covering in an oversold bounce," says Bill Meehan, an analyst with Cantor Fitzgerald. Cisco's positive comments, says Meehan, was the trigger for the day's rally, but he does not expect the gains to extend into next week. Though the one-time tech high-flyer's performance and is an important gauge of corporate health, its comments are only one part of a larger picture -- one in which the economy and corporate profits are still shaky.
Cisco said after the close on Thursday that it sees signs that its business is stabilizing. Orders for the first weeks of its first quarter are in line with expectations. The computer networking giant also said that it will reorganize into 11 technology groups, its biggest restructuring since 1997.
"We need to hear more upbeat statements like this," Steve Crowley, manager of Kopp Emerging Growth Fund (KOPPX ) tells S&P's AdvisorInsight. "This is in stark contrast to the type of pessimistic news flows we've endured over the past two quarters. This is indeed a subtle, but very important, change."
Wall Street will have a pile of economic data to mull over next week. Next Wednesday, investors will eye the latest revision to gross domestic product figures. Analysts are expecting a revision to a flat to negative figure on GDP. At the end of the week, the University of Michigan will unveil its consumer sentiment numbers for August. Updates on the Chicago Purchasing Managers index, a gauge of manufucturing health, and factory orders and inventories for July are also on tap.
In the past week, investors have been vacillating between fears of economic and corporate profit slowdowns and hopes for a recovery. The Federal Reserve trimmed interest rates Tuesday for the seventh time this year, but its comments on the economy were not encouraging.
News from another technology giant also bolstered the market on Friday. Software giant and Dow component, Microsoft Corp. (MSFT ) said its case was returned to a lower court to determine antitrust remedies. S&P's research unit says this puts the government's anti-trust case one step closer to being resolved, which is potentially good news for investors. Microsoft also released its Windows XP operating system to computer manufacturers and said development on the software is now complete.
The latest reports on orders for durable goods and new home sales offered a mixed picture of U.S. economic health. Capital spending at businesses continues to decline while the housing market remains even more robust than expected.
Among Friday's other stocks in the news, Williams-Sonoma Inc. (WSM ) became the latest retailer to report lackluster earnings and caution that its third-quarter results will not meet analysts' expectations. On Friday, the home furnishings retailer posted a 73% drop in fiscal second-quarter earnings due to higher costs and a difficult market.
The Dow Jones industrial average jumped 194.02 points, or 1.90%, to 10,423.17. The Nasdaq Composite added 73.83 points, or 4.01%, to 1,916.80. Meanwhile, the broader S&P 500 was up 22.84 points, or 1.97%, to 1,184.93.
U.S. Treasuries finished lower as investors turned their attention to buying stocks.
In the latest economic reports, orders of durable goods were about in line with expectations, falling 0.6%. Excluding automobile, sales orders orders fell 1.4%. June orders were revised sharply lower to a decline of 2.6% from a 1.7% decline initially. Semiconductor orders slumped 26% while non-defense capital goods orders were off 1.9%. Demand for automobiles and auto parts kept the durable goods data from a dramatic fall, as orders for other types of business equipment were lower.
U.S. new home sales continued to show strength, jumping 4.9% to a 950,000 pace in July. June was revised slightly lower to 906,000, from 922,000, while April and May figures were revised lower too.
European stocks finished higher on optimism from Cisco's comments. The networking company's optimism lifted technology and telecom shares in Europe. In London, the Financial Times-Stock Exchange 100 index finished higher by 75.40 points, or 1.40%, to 5,471.90. Some short covering before a long holiday weekend in Britain is also giving stocks there a boost.
Germany's DAX index soared 133.46 points, or 2.54%, to 5,387.50, amid a report that June industrial production was revised to a gain of 0.1%, from a decrease of 0.4% originally. Also, factory orders were revised an increase of 2.7%, from a 2.5% decline.
Meanwhile, France's CAC 40 closed up 107.06 points, or 2.23%, to 4,916.56, following a report that July consumer prices fell 0.2%.
In Asia, markets ended mixed. The Nikkei 225 gained 39.39 points, or 0.35%, to 11,166.31. Hong Kong's Hang Seng lost 235.08 points, or 2.07%, to close at 11,110.30.
By Amy Tsao in New York