Stocks rose modestly on Friday to a two-year high, capping a week in which the broad indices gained in every session. For the week, the Dow was up 2.9%, the S&P 500 rose 3.6%, the Nasdaq gained 2.9%, and the small-cap Russell 2000 Index gained 4.7%.

The financial stocks of the Dow Industrials led the index on Friday, encouraged by a Federal Reserve decision to allow healthy banks to raise dividends. This is the first time since the financial crisis began that the Fed has relented on this issue, and JP Morgan Chase & Co. (NYSE: JPM) rose 2.9% and Bank of America Corporation (NYSE: BAC) gained 1.9%.

Non-farm payrolls were up more than expected in October, but the unemployment rate is holding stubbornly at 9.6%. 

Better-than-expected corporate earnings were reported by Starbucks Corporation (NASDAQ: SBUX), The Boston Beer Company, Inc. (NYSE: SAM) and Atmel Corporation (NASDAQ: ATML). And better-than-expected revenues were reported by Fluor Corporation (NYSE: FLR) and Madison Square Garden, Inc. (NASDAQ: MSG).

The greenback rose on the better jobs data with the euro at $1.4039, down from $1.4209. And the benchmark 10-year note fell 0.5% to yield 2.538%.

On Friday, the Dow Jones Industrial Average rose 9 points to 11,444, the S&P 500 gained 5 points, closing at 1,226, and the Nasdaq was up 2 points to 2,579. The NYSE traded 1.2 billion shares with advancers over decliners by 1.4-to-1. The Nasdaq crossed 564 million shares with advancers ahead by 1.3-to-1

December crude oil rose 36 cents to $86.85 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $62.31, up 31 cents to a new two-year high. December gold rose $14.60 to a record $1,397.70 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 0.8 points to a new high at 214.91.

What the Markets Are Saying

Last week, stocks finally broke the impasse that has held the market for over a year within the tight trading range of S&P 500 1,040 to 1,220. Spurred on by a Republican landslide in Congress, the Fed’s decision to go ahead with quantitative easing (QE2), solid Q3 earnings gains, and a better-than-expected employment report, every major index hit new two-year highs.

Thursday’s breakout, with a sharp spike up on solid market breadth and up volume over down volume (9-to-1 on the NYSE and 3-to-1 on the Nasdaq) is proof enough that the advance and breakout from the Aug. 27 low is the “real deal.” Now all three major trends (near, intermediate and long term) are up, and the next upside target for the S&P 500 is the August 2008 high of 1,313. For the Dow, it is 11,933, and the Nasdaq’s next target is the December 2007 high at 2,728.

Does that mean that investors should “hock the farm” and put everything into the stock market? Of course not. Not only does the principle of diversification argue against such a move, but the market is now so technically overbought that prudence demands that we buy into pullbacks rather than chase the crowd. If the new bull market is to emerge, we will have plenty of time to capture significant gains.

The breakout’s rising tide has driven many quality stocks to new highs while lifting some of the market’s dogs to levels where they may be finally swapped out for cash or better performers.

Commodities are also in powerful uptrend. Our Trade of the Day has recommended precious metals stocks regularly with SPDR Gold Trust (NYSE: GLD), Barrick Gold Corporation (NYSE: ABX), Gabelli Global Gold, Natural Resources &Income Trust (AMEX: GGN) and Yamana Gold Inc. (NYSE: AUY) as names to continue to buy. But at current prices, silver may even be a better value than gold. Check out our Trade of the Day for a new silver recommendation.

Today’s Trading Landscape

Earnings to be reported before the opening include: AAON, AGA Medical, ATP Oil & Gas, Buckeye Partners, Chindex, Compass Group, Comverge, Dynegy, EMC Insurance Group, Feihe International, Frontier Communications, General Steel, Hospitality Properties, Invesco Mortgage Capital, LMI Aerospace, Louisiana-Pacific, Mediacom Communications, PDC Energy, Quicksilver Resources, Republic Airways, Rosetta Resources, South Jersey Industries, Sysco, TravelCenters of America, Warner Chilcott and XenoPort.

Earnings to be reported after the close include: Accuray, American Equity Investment Life, American Public Education, Anadys Pharmaceuticals, Bidz.com, BPZ Energy, Broadsoft, CardioNet, Chatham Lodging, Clean Energy Fuels, Clear Channel Outdoor, Convergys, Cousins Properties, Danaos, Diodes, DTX, Eagle Bulk Shipping, Emdeon, EnergySolutions, EnerNOC, EV Energy, Financial Engines, Genomic Health, Golden Star Resources, Healthcare Realty, Himax Technologies, Hologic, Kendle, Keynote Systems, LDK Solar, MarkWest Energy, McDermott, Metabolix, Middleby, Mindray Medical, MYR Group, Nationwide Health, Pan American Silver, Priceline.com, Qiagen, Quality Distribution, Rackspace, Safe Bulkers, Salix Pharmaceuticals, Silver Wheaton, Sun Hydraulics, TBS International, TechTarget, THL Credit, UDR, US Auto Parts, Vaalco Energy, Vivus, Warnaco Group and Wonder Auto Technology.

There are no significant economic reports due today.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.