Equities tested their endurance last week, much like runners did in Monday's Boston Marathon. Stocks ultimately held up, with the three major indices still positive when they reached Friday's finish line.
Stocks got off to a slow start at the beginning of the week, with the continued rise of commodity prices causing all three indices to lag. Adrenaline, in the form of benign economic data, heightened hope that the Fed might ease off its 22-month rate-raising campaign that kicked in on Tuesday, with each index rallying to its biggest point and percentage gains in a year. Remarks from San Francisco Fed President Janet Yellin that economic growth would soon likely slow, together with the minutes from the last FOMC meeting revealing concern from some bankers over raising rates too high, provided an additional boost.
The race had now changed, and investors chose to cheer on earnings rather than get sidelined over inflationary fears and high commodity prices. The market continued to move ahead Wednesday despite a report showing record oil prices and consumer inflation being somewhat higher than expected. General Motors provided additional market power on Thursday, when it accelerated almost 10% after reporting that its first-quarter net loss had narrowed, helping the Dow reach its highest close in six years. Although the Dow managed to hit a fresh high on Friday, the broader market struggled, injured by weak earnings from the chip sector and oil surging to more than $75 per barrel.
The corporate earnings race continues this week, with more than 30% of the S&P 500 reporting. Among those slated to release earnings are American Express and Caterpillar today, Amazon.com and DuPont tomorrow, ConocoPhillips and Pulte Homes on Wednesday, Microsoft on Thursday, and Chevron on Friday.
Fed watchers (which is pretty much all of us these days) will take note of Chairman Ben Bernanke's testimony regarding the economy before a Joint Economic Committee on Thursday morning. Data slated for release throughout the week include March figures on consumer confidence and existing home sales tomorrow, durable goods and new home sales on Wednesday, and gross domestic product growth and consumer sentiment on Friday.
Stay market-tuned and Foolish!
Capital markets summary
U.S. Equities
| 4-21-06 Close | Weekly Change (%) | YTD Change (%) | |
|---|---|---|---|
| Dow | 11,347.45 | 1.9 | 5.9 |
| Nasdaq | 2,342.86 | 0.7 | 6.2 |
| S&P | 1,311.28 | 1.7 | 5 |
Commodities
| Price ($) | Weekly Change (%) | |
|---|---|---|
| Crude Oil | 75.12 | 8.16 |
| Gold | 638.50 | 6.05 |
Foolish Quiz:
1. The Dow ran to its biggest weekly gain since:
__ (a). January
__ (b). February
__ (c). March
__ (d). two weeks ago
2. Runaway earnings from Google (NASDAQ:GOOG) kept the Nasdaq in positive territory on Friday.
__ True __ False
3. Strong earnings reports came from:
__ (a). McDonald's (NYSE:MCD)
__ (b). Motorola (NYSE:MOT)
__ (c). United Technologies (NYSE:UTX)
__ (d). Yahoo! (NASDAQ:YHOO)
4. Sectors losing ground last week included:
__ (a). airlines
__ (b). gold
__ (c). oil services
__ (d). semiconductors
5. Away from the earnings race, stocks outdistancing themselves included:
__ (a). 3M (NYSE:MMM)
__ (b). ChicagoMercantile Exchange Holdings (NYSE:CME)
__ (c). PortalPlayer
__ (d). Ford
6. Gold and silver lost their footing the day after each set new records.
__ True __ False
7. Acquisition activity last week involved news of the following companies:
__ (a). Aztar
__ (b). BerkshireHathaway
__ (c). Sprint Nextel
__ (d). all of the above
8. Net purchases of U.S. securities in February dropped to their lowest point in three months.
__ True __ False
9. Announcements made last week to settle shareholder suits came from:
__ (a). Freddie Mac
__ (b). JPMorgan Chase
__ (c). QwestCommunications
__ (d). none of the above
10. Unlike any tardy folks in the other 49 states, Massachusetts residents running late had an extra day to file federal taxes.
__ True __ False
Answers:
1. (a). Last week's performance by the Dow ranked second place for the year, behind the week of Jan. 27, when the index raced ahead 2.2%.
2. False. Despite shares of Google surging 5.6% on the strength of its 60% rise in first-quarter earnings, technology underperformed. Weakness from Dell, profit taking, and earnings disappointments from LM Ericsson and SanDisk led to the erasure of almost half of the Nasdaq's weekly gain.
To catch up on Google, see last week's articles:
3. (c), (d). Building and aerospace conglomerate United Technologies rose 6.6%, outpacing its other Dow peers reporting on Tuesday, when it announced an 18% increase in first-quarter net income. Yahoo! jumped 7.2% the same day, after it reported solid first-quarter profits in line with analyst expectations. Telecommunications equipment maker Motorola lost ground in the earnings contest, falling 6.6% Wednesday after it reported slightly lower first-quarter income despite a 23% increase in sales. McDonald's experienced mild heartburn on Friday, when it fell 1.4%, following its report of a 14% drop in its first-quarter profit, which was the largest decrease since 2002. This was chiefly due to a large tax benefit it received in the same period a year ago. Same-store sales, nevertheless, rose 5.2%, and shares closed the week at $34.60 -- not far from its five-and-a-half-year high of $36.75 set in February.
4. (a). The Amex Airline Index plunged 8.5% last week on low-flying performances by AMR, Continental Airlines, and JetBlue. The Philadelphia Semiconductor Index rose a respectable 2.1%, and both the Philadelphia Oil Service Sector Index and the Amex Gold Bugs Index surged 7.1%.
5. (b), (c). Chicago Mercantile, which will report earnings tomorrow, hit a high of $501 Wednesday morning, surpassing the $500 mark for the first time and closing at $500.11 for the week. Shares of the futures exchange have rallied by 9.8% since April 6, when it completed an agreement with the New York Mercantile Exchange to trade the latter's energy contracts on the exchange's own electronic platform. Semiconductor company PortalPlayer fell almost 42% Thursday, after it announced that one of its products would not be used in certain iPods manufactured by Apple. Inside the earnings competition, 3M raced ahead on Friday when it posted a 17% first-quarter profit increase and raised guidance for the year. Ford skidded 7.9% when it reported its largest deficit in more than four years because of its restructuring plan and declining sales.
6. True. After gold charged up to $636 (a 25-year high) and silver ran up to $14.52 (a 23-year high) on Wednesday, both metals gave up ground the following day. On Thursday, gold futures fell 4% intraday before recovering a bit to close down 2%, while silver tarnished by 13.8%. Both metals regained some luster on Friday, rising modestly.
7. (d). On Monday, Berkshire Hathaway announced that it would cozy up to sweatshirt maker Russell and purchase the company for $18 per share, a 35% premium to the stock's closing price that day. Shares of Sprint Nextel felt a slight chill on Thursday and dropped by 1.2% when the company announced its agreement to purchase regional affiliate UbiquiTel for approximately $1 billion. Finally, in its latest "deal or no deal" go-round, casino operator Aztar received a revised $45-per-share offer on Friday from Ameristar Casinos. Earlier in the week, Pinnacle Entertainment had raised its offer to $43 per share from its original $38 offer made five weeks ago. Shares of Aztar closed 3.5% higher for the week.
8. False. The Treasury Department reported last Monday that foreigners bought $86.9 billion in U.S. securities in February, which is the highest level in three months and up 26% from January's figure. Japan ranks as the largest holder, trailed by China and the U.K.
9. (a), (b). Two days after it reported a $3.8 million settlement with the Federal Election Commission regarding alleged violations of campaign finance laws, Freddie Mac announced Thursday that it will pay $410 million to settle shareholder lawsuits arising from its restatement of earnings from 2000 to 2002. Shares of the government-sponsored financial services company rose 0.6% for the week. JPMorgan Chase became the first underwriter among 54 defendants to settle civil charges stemming from the improper awarding of new stock issues in 1999 and 2000, by announcing on Friday its agreement (subject to court approval) to pay $425 million to investor plaintiffs. Qwest Communications faces new legal woes now that New York State Comptroller Alan Hevesi announced late Tuesday a securities fraud lawsuit on behalf of one of the state's pension funds, alleging the company's former executives, certain directors, and Arthur Andersen LLP with conspiring to inflate financial results. The company's stock ended the week down 0.4%.
10. False. While it is true that Massachusetts residents didn't have to file until April 18, it wasn't the only state with a late file date. The folks in Maine, Maryland, New Hampshire, New York, Vermont, and Washington, D.C., also had an extra day, since their returns are all processed by the IRS Center in Andover, Mass., which observed Patriot's Day last Monday.
(Can't get enough of tax season? See "It's Always Tax Time!")
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!
Microsoft, Dell, and 3M are Motley Fool Inside Value picks. Amazon.com, Dell, and JetBlue are Motley Fool Stock Advisor selections. JPMorgan Chase is a Motley Fool Income Investor pick. Take the newsletter that best fits your investing style for a30-day trial run.
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.
