Spring officially began last week, but no early blossoms bloomed for equities investors.
Poised to take off at the beginning of the week, the equities market failed to flourish as price action meandered around rather aimlessly much of the week. Wall Street, trying to discern future interest rate policy, first focused on a speech Monday night by new Fed Chief Bernanke. As the week progressed, the familiar pull between weak economic data nurturing optimism that rates won't be raised too much longer versus stronger reports caused sell-offs to continue.
The week's last piece of data showing that new-home sales slid 10.5% in February, the largest decrease in almost nine years, provided hope for sunnier skies to investors hoping that the Fed might soon be finished with rate increases. The major indices closed without much change for the week.
Consensus estimates clearly point to a quarter-percentage-point hike in rates to 4.75% following the first Federal Reserve meeting headed by Bernanke, which is to be held Monday and Tuesday. More closely scrutinized will be the accompanying commentary released Tuesday afternoon for indications whether additional increases may rain on equities. In addition, reports of last year's fourth-quarter GDP on Thursday and consumer sentiment on Friday will be watched to further deduce the forecast for stocks.
Stay market-tuned and Foolish!
Capital Markets Summary:
|3/24/06 Close||Weekly Change||YTD Change|
1. Last week's strangest movement in the equities market occurred:
__ (a). Monday.
__ (b). Tuesday.
__ (c). Wednesday.
__ (d). Thursday.
__ (e). Friday
__ True __ False
3. Flowery earnings reports came from:
__ (a). Morgan Stanley
__ (b). FedEx
__ (c). Carnival
__ (d). General Mills
4. Sectors wilting last week included:
__ (a). telecommunications.
__ (b). retail
__ (c). energy.
__ (d). real estate.
5. Last week's retail news included:
__ (a). Wal-Mart Stores
__ (b). Michaels Stores
__ (c). Dollar General
__ (d). Jones Apparel Group
__ True __ False
7. Crude oil futures targeted the same fear last week as:
__ (a). gold.
__ (b). silver.
__ (c). orange juice.
__ (d). lean hogs.
8. Investors in Dubuque will soon be able to purchase securities enabling them to bet against the strength of the real estate market in San Francisco.
__ True __ False
9. If faced with an identity choice last week, you probably would have preferred to be a General Motors
__ (a). shareholder.
__ (b). bondholder.
__ (c). engineer.
__ (d). blue-collar worker.
10. Tony Soprano may be an aficionado of penny stocks.
__ True __ False
1. (b). After opening flat while investors parsed the language of Fed Chief Bernanke's speech the previous evening, the market suddenly jumped Tuesday at approximately 11:30 a.m. Analysts attributed the move to a myriad of causes, including a technical move based on the S&P 500, a flood of European cash, and even rumors concerning Osama bin Laden. Despite nearly reaching six-year highs, the Dow came back down in the afternoon on account of higher oil prices and bond yields, finishing down by 39.06 points. Both the Nasdaq and the S&P 500 also declined, down by 19.88 points and 7.86 points, respectively.
2. False. Despite Mr. Softy's announcement after Tuesday's closing bell that its anticipated release of a new consumer operating system, Windows Vista, would be delayed until January 2007, tech shares remained mainly level the next trading session. Microsoft fell 2.1% while the Nasdaq closed up 9 points on Wednesday.
3. (a) and (b). Morgan Stanley reported that its first-quarter earnings grew 17% on the strength of bond underwriting and securities trading, above Wall Street's expectations, which sent shares up 2.5% on Wednesday. FedEx delivered a sunny 35% increase in its third-quarter profit also on Wednesday and bumped up its profit projections for this fiscal year. The delivery company's shares closed 1.1% higher for the day. General Mills investors dined Thursday on a 7% increase in third-quarter profits, reporting higher sales across all business segments. Despite acknowledging higher commodities and higher fuel, employee, and advertising expenses, shares rose 0.5%. The fun boat didn't have much reason to party last week, when it reported Thursday that first-quarter profit sank 19%. Higher fuel costs took the blame, and shares plunged by 5.1%.
4. (b) and (d). Retail and real estate sectors, both sensitive to interest-rate hikes, slumped ahead of this week's Fed meeting. Home Depot
5. (a), (b), and (d). Wal-Mart stated that it will hire up to 150,000 employees over the next five years as it expands its number of stores in China. The company's international division is growing faster than its domestic operations; it made up almost 20% of last year's overall net sales. Arts-and-crafts retailer Michaels Stores announced Monday that it may try to glue itself to a purchaser in order to boost shareholder value and improve performance. The company's stock rose 13% that day and was up 11.9% for the week. News that struggling Jones Apparel Group, owner of Barney's New York, as well as moderately priced Nine West, may put itself on sale boosted the stock to 52-week highs. Meanwhile, the dollar stores made headlines last week for reasons other than cashing in. Dollar General reported that fourth-quarter earnings rang up 8.5%, while same-store sales dropped 1.6%, and Dollar Tree announced that it will experiment with selling items for more than a buck. Remember to bring both your piggy banks next time you go.
6. False. Standard & Poor's, a division of McGraw-Hill
7. (c). Black gold and citrus gold prices were both blown higher in the face of forecasts predicting an active upcoming hurricane season. Wary of last year's storm threats to domestic refiners and views that U.S. petroleum reserves may be peaking, oil rose $1.46 for the week. Orange juice hit a sweet note, rallying to 14-year highs, its price fertilized further by an academic study forecasting that the Florida citrus industry may shrink by 15% over the coming years because of crop disease and urban development.
8. True. U.S. investors will have the opportunity beginning in April to go long or short in futures and options contracts that will track the performance of housing price indices promulgated by Standard & Poor's. In addition to a weighted composite index, the S&P/Case-Shiller Metro Area Home Price Indices will record prices in Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C.
9. (a) and (c). Confronted with such a devil's choice, the two most benign short-term selections for last week would have been shareholder and blue-collar employee. Shares of the troubled automaker accelerated 7.2% for the week on account of its $8.8 billion sale of its financing unit, GMAC, and optimism about its buyout offer, whereby blue-collar workers were offered $140,000 plus benefits to quit. Hopefully, those choosing that buyout in real life will assess their financial situation carefully and plan Foolishly. GM's 7.2% bonds due in 2011 lost $3.25 last week, and its debt ratings remain under review by Moody's for a potential downgrade from its current B2 level. Engineering layoffs are expected this week.
10. True. The Wall Street Journal reported Friday that the Justice Department's U.S. attorney's office in Brooklyn has brought an indictment against members of reputed organized crime families, charging them with manipulation of over a dozen penny stocks.
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, Home Depot, and Dollar Tree are Motley Fool Inside Value picks. FedEx is a Motley Fool Stock Advisor pick. Take the newsletter that best fits your investing style for a 30-day free spin.
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.