Equities reversed their recent upward trajectory last week as quickly as Paris Hilton checked in, out of, and back into jail.

On Monday, not even another sell-off in Chinese equities or geopolitical tension with Russia could hold U.S. stocks captive for long. The market closed narrowly higher after late-session buying.

Prices then fell over the next three days. On Tuesday, higher bond yields, together with retail profit warnings and hawkish comments from Fed Chief Ben Bernanke, spooked the market. The Dow lost 81 points, while the S&P 500 slipped 8 points and the Nasdaq gave back 7.

Wednesday brought more selling, when evidence of higher labor costs and a rate increase from the European Central Bank caused investors to consider that the next Fed move might be an increase. Each of the three major indices fell nearly 1%.

A staggering sell-off in the bond market and its corresponding higher yields translated into more losses for equities on Thursday. As investors found a 5% yield on the 10-year Treasury attractive, losses mounted for stocks and the Dow lost close to 1.5%, while the Nasdaq and S&P 500 each lost 1.8%.

Finally, a reprieve came on Friday, when the market's slump was cut short by falling oil prices and lower yields. Techs led the way higher, with the Nasdaq rising 1.3%, the Dow gaining 1.2%, and the S&P 500 moving ahead by 1.1%. Still, stocks suffered their worst weekly losses in more than three months.

Whether equities will be sent back to the slammer this week will likely again hinge on bond yields. Economic data scheduled for release includes retail sales, business inventories, and the Fed Beige Book on Wednesday, the producer price index on Thursday, and the consumer price index and industrial production on Friday.

Corporations posting earnings include Take-Two Interactive today, Lehman tomorrow, Adobe, Bear Stearns, and Goldman Sachs on Thursday, and Winnebago on Friday.

Stay market-tuned and Foolish!

Capital Markets Summary

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6/8/07 Close

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Foolish quiz
1. True or false: All of the Dow's components dropped on Thursday.

2. True or false: Bond manager Bill Gross believes the Treasury market is in decline.

3. Bed Bath & Beyond (NASDAQ:BBBY) announced: (a) strong earnings, (b) an earnings warning, (c) a buyout.

4. Deal news included the following announcements: (a) Avaya (NYSE:AV) will purchase Palm, (b) Flextronics (NASDAQ:FLEX) will purchase Solectron, (c) TD Ameritrade (NASDAQ:AMTD) will purchase E*Trade, (d) all of the above.

5. Pork or doughnuts: Which item produced tastier quarterly results for its provider?

6. True or false: The FTC approved the intended merger of Whole Foods and Wild Oats.

7. True or false: A green monster is taking a bite out of sales at McDonald's.

8. Which retailer posted stronger same-store-sales growth last month: Saks or Wal-Mart?

9. True or false: Trump Entertainment Resorts made a lot of money, money, money for its shareholders last week.

10. Where should investors turn if they want to read insightful stock commentary: the Fool or Prudential Financial?

1. True. All 30 stocks in the Dow closed lower on Thursday. The index experienced its third-largest drop this year, led by a 2.3% decline in Alcoa and a 2.2% fall in Microsoft. For those keeping track, each of the component stocks in the Dow Jones transportation and utility averages also fell that day.

2. True. Bearish comments on the state of the bond market from bond guru Bill Gross, chief investment officer of PIMCO, included his opinion that the 10-year Treasury yield might reach 6.5% in the next five years. These comments exacerbated selling in bonds, which pushed yields higher and drew more money away from equities. For more fixed-income fun, trail "Investor 007's Bond Dossier," appearing Mondays on Fool.com.

3. (b). On Tuesday, Bed Bath & Beyond, citing a challenging market for home merchandising, issued its first profit warning as a public company. While this news may have perked up the ears of some leveraged-buyout types, any such news is premature, and a takeover may not ever happen anyway -- the company is regarded as well managed and has a solid earnings history. Shares slipped 1.3%.

4. (b). During another week of steady deal activity, electronics manufacturer Flextronics agreed to purchase peer Solectron for $3.6 billion, and telecom equipment company Avaya agreed to be purchased by private equity firms TPG and Silver Lake Partners for approximately $8.2 billion. Meanwhile, Palm plans to sell 25% of itself to private equity firm Elevation Partners, and two hedge-fund investors in TD Ameritrade are pushing the online brokerage to seek a larger merger partner.

5. Pork. Fourth-quarter profit at pork processor Smithfield Foods climbed to $37 million from $1.1 million a year ago, helped by higher selling prices and the contributions of two acquisitions over the past year. There wasn't anything sweet in the center of Krispy Kreme's earnings, however. The doughnut maker reported a wider first-quarter loss as it continues to hope that its turnaround strategy, which will soon include TV advertising and ice cream products, will bake up better results.

6. False. The FTC filed a lawsuit challenging the proposed $565 million buyout by Whole Foods of rival Wild Oats, citing antitrust concerns and resulting higher prices for consumers. For the week, shares of Whole Foods fell 5.6%, while those of Wild Oats advanced 1.2%.       

7. False. McDonald's reported on Friday an 8.7% increase in global same-store sales for May, its largest monthly increase in more than three years. The company attributed U.S. sales strength to its promotion of Shrek the Third, as well as new products and breakfast business, and shares gained 2.4%.

8. Saks. Same-store sales soared 38% at Saks, almost triple the expected figure, to lead a general upswing in retail sales for May over April's dismal results. Sales at Wal-Mart increased 1.1%, a better showing than its record 3.5% decline the prior month, and the company forecasts a turnaround beginning in the third quarter.

9. False. Investors in Trump Entertainment Resorts didn't feel a lot of love last week. Shares declined 4.3% following a downgrade from Bear Stearns, which believes Trump's chances of being bought are remote. Shares closed at $15.60 on Friday, still far above what the Bear sees as fair value of $11 per share.

10. The Fool. An easy question for you, fellow Fool! On Wednesday, shares of Prudential slipped 1.1% after it announced that it will discontinue operations at Prudential Equity Group, which encompasses institutional equity research, sales, and trading businesses, by the end of this month. Parent Prudential says it wants to focus on "businesses where we can be a top-tier player." So does the Fool.


  • 8-10 correct: Foolishly impressive.
  • 6-7 correct: Almost Foolish.
  • 1-5 correct: OK, but just barely.
  • 0 correct: Really?! Keep reading the Fool, and watch your scores improve!

Bed Bath & Beyond, Wal-Mart, and Microsoft are Motley Fool Inside Value picks. Whole Foods, Bed Bath & Beyond, and Palm are Motley Fool Stock Advisor selections. Whatever your investing style, the Fool has a newsletter for you.

Fool contributor S.J. Caplan is a former vice president and assistant general counsel of Goldman Sachs and former vice president and derivative finance specialist at Lehman Brothers. She serves as an arbitrator for the New York Stock Exchange and the NASD. The Fool has a disclosure policy.