Microsoft Investors Focus on the Positive

Microsoft joined the stock market in a strong rally on Friday, as investors looked past the company’s lower than expected sales and guidance to focus on new product launches and a $19 billion stock buyback.

Analysts called Microsoft’s guidance conservative, and said that upcoming releases such as SQL Server 2005, Xbox 360 and next year’s highly anticipated new Windows release could fuel growth for some time to come, and the huge buyback could add leverage to the company’s earnings growth.

CS First Boston upgraded the stock, and Microsoft shares gained 2.7% on the day.

The broader market soared after third-quarter GDP came in at a strong — but not too strong — 3.8%, with inflation well contained, as traders looked past the largely expected indictment of vice presidential aide I. Lewis “Scooter” Libby. The Federal Reserve will meet next week and is expected to raise interest rates by a quarter point once again.

The Nasdaq surged 26 to 2089, the S&P 500 rose 19 to 1198, and the Dow soared 173 to 10,402. Volume declined to 2.38 billion shares on the NYSE, but rose to 1.89 billion on the Nasdaq. Advancers led 24-8 on the NYSE, and 20-10 on the Nasdaq. Upside volume was 84% on the NYSE, and 65% on the Nasdaq. New highs-new lows were 53-153 on the NYSE, and 53-112 on the Nasdaq.

Gateway , JDS Uniphase , Check Point , Overstock and Western Digital rose on their results.

KLA-Tencor , Sapient , Lexar , MicroStrategy , RealNetworks , SafeNet , and International Rectifier fell on their earnings reports.