There WILL Be a Quiz: Weekly Markets Recap

Not even Harry Potter could break the evil spell cast on the market last week by subprime worries and mixed profit reports.

The market opened Monday with higher oil prices and subprime concerns pressuring equities broadly. Still, the Dow closed at its third straight record high and the S&P 500 hit a new intraday high before finishing slightly in negative territory. On Tuesday, investors pondered mixed inflationary data and the major indexes likewise turned in a mixed performance. Although the Dow crossed 14,000 for the first time, it later declined to finish up 20 points, while the S&P 500 closed fractionally lower and the Nasdaq ended higher by 14 points.

Wednesday brought greater clarity, as stocks fell amid disappointing tech earnings and subprime worries. Federal Reserve Chairman Ben Bernanke didn't help either, giving hawkish remarks during his semiannual testimony to Congress, which acknowledged that housing troubles could slow economic growth. Late-day buying eased stocks from their lows, and the Dow ended down 53 points, the S&P 500 down three, and the Nasdaq down 13.

Good earnings reports charmed stocks on Thursday. Both the Dow and S&P 500 closed at record highs, and the blue chips closed above 14,000 for the first time. The week's choppiness continued on Friday, when disappointing earnings and the continuing credit saga continued to play Quidditch with equities. Stocks lost, with the major indices each giving back over 1% and closing the weekly chapter in the red.

The story continues this week with economic releases including existing-home sales and the Beige Book on Wednesday, durable goods and new-home sales on Thursday, and second-quarter gross domestic product data on Friday.

Quarterly reports will be the scene stealer this week, as the financial announcements roll in. Just a sampling of the corporations posting earnings include American Express, Halliburton, and Schering-Plough today; Amazon, Countrywide Financial, and UPS tomorrow; Boeing, ConocoPhillips, and Xerox on Wednesday; 3M, Exxon Mobil, Ford, and Kellogg on Thursday; followed by Chevron, Clear Channel, and Gemstar-TV Guide on Friday.

Stay market-tuned and Foolish!

Capital Markets Summary

U.S. Equities

Commodities

Foolish quiz

1. True or false: The Dow's 1,000-point climb to 14,000 was the shortest trip ever.

2. Whose earnings disappointed Wall Street? (a) Caterpillar (NYSE:CAT), (b) Google (NASDAQ:GOOG), (c) IBM (NYSE:IBM), (d) all of the above.

3. True or false: Merrill Lynch (NYSE:MER) eased subprime concerns.

4. True or false: JPMorgan Chase eased subprime concerns.

5. Which company posted a quarterly loss: Microsoft or Motorola?

6. What did Coca-Cola and Johnson & Johnson have in common last week: (a) better-than-expected earnings, (b) a drop in share prices following their earnings reports, (c) not much.

7. Which statement is correct: (a) Verizon made a bid for Vodafone, (b) Vodafone made a bid for Verizon, (c) neither.

8. Whose shares gained after announcing their deal: Applebee's or IHOP's?

9. Which product helped Mattel post solid earnings: toy cars or Barbie dolls?

10. True or false: Last week's upcoming publication of the final Harry Potter book cast an enchanting spell on shares of Scholastic.

Answers
1. False. Although the Dow didn't stay at its lofty 14,000 level for long, it took only a quick 58-day trip to get there from 13,000. That span ranks second in 1,000-point jumps, behind the 23-day climb to 11,000 in 1999.

2. (a), (b). The Dow's worst performer was Caterpillar, whose shares slunked down 4.4% on Friday. This followed the company's report of a greater-than-expected 21% drop in second-quarter profit, which was due to a drop in truck engine sales and a soft North American construction industry. A 28% increase in its second-quarter profit didn't allow Google to impress Wall Street, which criticized expense growth and a slowing revenue growth rate. Shares fell 5.2% on Friday, only four days after hitting a new 52-week high of $558.582. On the other hand, shares of IBM traded up 4.3% on Thursday, helping the Dow reach record territory after Big Blue posted a 12% jump in its second-quarter profit and raised its 2007 forecast.

3. True. Subprime concerns receded somewhat on Tuesday, following Merrill's 30.2% increase in second-quarter profit. The firm reported strong investment banking and brokerage fee results while only "limited, contained, and appropriately marked" exposure to subprime loans. Merrill's shares, however, continued their multi-month trek downward, and fell 1.4%.

4. False. JPMorgan reported a 20% increase in its second-quarter profit on Wednesday, but tripled its provisions for credit losses. Shares fell 2.1%, reflecting renewed subprime concerns a day after Bear Stearns announced that its two troubled hedge funds -- which invested in subprime mortgages -- were practically worthless.

5. Motorola. Motorola posted a $28 million second-quarter loss on Thursday, as sales of its key mobile-device business fell by 40% from a year ago. Although the company did not forecast how long it might be before cell-phone sales start ringing in again, shares gained 1.2%. Meanwhile, despite a $1.06 billion charge related to Xbox 360 repairs, Microsoft posted a 7% increase in its fourth-quarter profit on Thursday. Even though the company raised its full-year revenue guidance, shares fell 1.1% on Friday.

6. (a), (b). Smiles should have followed the earnings reports of both companies, but instead some small bandages were needed as the market focused on weaknesses. On Tuesday, both Coke and J&J posted strong second-quarter earnings that topped expectations, yet their shares slipped. Coke's profit bubbled up 1% on solid sales in the face of soft North American performance, while J&J posted a 9% profit increase despite a decline in sales of stents and its anemia drug, Cypher. Shares of Coke fizzled 1.3%, and those of J&J weakened 1.7%.

7. (c). Shares of Verizon rose 2.4% and American depositary shares of Vodafone slipped 1.1% on Monday; reports circulated that Vodafone was considering a $160 billion bid for the company, which was later denied.

8. Both. Investors apparently warmed to the recipe cooked up between casual restaurant chain Applebee's and pancake purveyor IHOP. Shares of Applebee's rose 2.2%, and those of IHOP popped 8.9% on Monday, following the news that IHOP will acquire Applebee's for $2.1 billion. The transaction is expected to close in the fourth quarter, after which most of Applebee's company-owned stores will be franchised.

9. Toy cars. Mattel posted a 15% increase in second-quarter profit on Monday, as strong sales of toy cars helped its bottom line, while domestic Barbie sales fell for the second consecutive quarter. Shares rose 2.7%.

10. False. Scholastic endured more of an evil curse last week, and not even the eve of publication of our young hero's last adventure could charm shares of Scholastic, which is initially printing 12 million copies of "Harry Potter and the Deathly Hallows." The publishing house struggled to contain damage from leaked copies of the book and also reported a 5% increase in fourth-quarter profit, which missed expectations. Shares dropped 5.8% for the week. In any case, it's always better to be a Fool than a Muggle.

Scoring
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!

3M, Microsoft, Vodafone, and Coca-Cola are Motley Fool Inside Value picks. Amazon is a Motley Fool Stock Advisor selection. UPS, JPMorgan Chase, and Johnson & Johnson are Motley Fool Income Investor picks. Whatever your investing style, the Fool has a newsletter for you.

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