Rally takes pressure off weak market

It could well be that an awful lot of people on Wall Street and in Washington, D.C., are breathing a bit easier today, thanks to Europe's big government debt bailout plan.

The $1 trillion bailout package set off huge rallies in stock markets around the world.

• 3 big reasons Europe isn't fixed yet

The Dow Jones industrials ($INDU) closed up 405 points, or 3.9%, to 10,785. The Standard & Poor's 500 Index ($INX) jumped 49 points, or 4.4%, to 1,160, and the Nasdaq Composite Index ($COMPX) rallied 109 points, or 4.8%, to 2,375.

It was the biggest rally for the market since March 23, 2009, when the Dow soared 497 points, or 6.8%. 

The fact, is, however, that U.S. stocks were in a world of hurt at the end of last week's debacle. The Nasdaq, the Nasdaq-100 Index ($NDX.X) and the small-cap Russell 2000 Index ($RUT.X) ended last week down 10% or more from their April highs. And it's not clear -- even with today's huge rally -- that the stock market is poised to shoot still higher.

Only seven stocks in the S&P 500 had gains last week, led by Fidelity National Information Services (FIS), which jumped 22% because of rumors it will be taken private in a deal that includes the Blackstone Group (BX).

Only two of the 30 Dow stocks were higher -- 3MM (MMM) and Walt Disney (DIS). Disney reports fiscal third-quarter earnings after Tuesday's close. The shares were up 5.6% to $35.29.

Just one Nasdaq-100 stock was higher for the week: DirecTV (DTV), up 13.6%.

And there were any number of stocks that took beatings last week, including JDS Uniphase (JDSU), down 19.7%; Foster Wheeler (FWLT), down 18.6%;  Dow Chemical (DOW), down 17.3%; News Corp. (NWSA), off 11.4%; Apple (AAPL), down 9.7%; and Microsoft (MSFT) down 7.6%. (Microsoft publishes MSN Money.)

The market had clearly shown signs of fatigue over the last month or so. On April 14, the S&P 500 closed at 1,210, its first close above 1,200 since Sept. 26, 2008. Three days later, the index hit 1,217 -- and then stalled.

At the end of last week, five of the 10 S&P 500 sectors had fallen 10% or more from their 2010 peaks, most of which occurred at the end of April. They were: energy, materials, consumer discretionary, finance and technology.

These were the sectors that contributed the most to the market's huge rally since March 2009.

A decline of 10% or more is the popular definition of a market correction. A 20% decline is a bear market.

"The sell-off from last week is overdone. That’s why we're rallying," James Dunigan, chief investment officer at PNC Wealth Management, told Bloomberg News. "If you're able to stabilize Europe, the growth story continues to be in place in the U.S."

There is skepticism that Europe is, in fact, stabilized, said Stephen Roach, chairman of Morgan Stanley Asia. The European efforts to stave off contagion will not be enough to prevent "significant" contractions in some of the affected countries, Roach told Bloomberg. Every "fix" is accompanied by "an adjustment in the real economy," he said.