While Warren Buffett was busy giving away money last week, the Fed bestowed upon the market its own gift, by appearing to soften its stance toward increased rate hikes. Stocks as a result enjoyed a strong one-day rally that left indices in positive territory heading into the holiday.
Perhaps the news breaking over the previous weekend of Buffett's $37 billion donation to the Bill and Melinda Gates Foundation cheered the market the following Monday. But more likely, it was almost $90 billion worth of announced deals lending a helping hand to beleaguered equities. Major indices closed on an upswing, with respectable gains on light volume.
The market's optimism proved short-lived, though. Much like Larry Ellison's promised $115 million gift to Harvard University, which was recalled later that day, all hopes of a sustained rally were quickly withdrawn. Stocks sank on Tuesday as stronger-than-expected consumer confidence and housing numbers gave rise to renewed fears of interest rate hikes extending beyond the expected quarter-point increase later in the week. The Dow dropped by more than 120 points, and the Nasdaq slid by more than 33 points.
Investors couldn't decide what to do with their wallets for most of the day on Wednesday. Supported by end-of-quarter buying late in the day and possible favorable news regarding the situation in Iraq, stocks closed moderately higher.
On Thursday, the Fed announced a hike in the federal funds rate to 5.25%, its 17th consecutive increase. And the closely scrutinized accompanying policy statement awarded the market a powerful rally across all sectors by appearing to signal that it would soon stop raising rates. Prices slipped on Friday after reports announced that personal income and spending rose more than projected and a measure of business activity came in weaker than forecast.
Equities trading will close early today to celebrate the Independence Day holiday and will remain closed tomorrow. Economic data scheduled for release include construction spending and ISM manufacturing today, the ICSC store sales index and Redbook retail sales index on Wednesday, non-manufacturing ISM and chain-store sales figures on Thursday, and employment figures on Friday.
Corporations reporting earnings include Laidlaw on Thursday, and A. Schulman on Friday.
Stay market-tuned and Foolish!
Capital Markets Summary
U.S. Equities
| 6/30/06 Close | % Weekly Change | % YTD Change | |
|---|---|---|---|
| Dow | 11,150.22 | 1.5 | 4.0 |
| Nasdaq | 2,172.09 | 2.4 | (1.5) |
| S&P | 1,270.20 | 2.1 | 1.8 |
Commodities
| Price | % Weekly Change | |
|---|---|---|
| Crude oil | $73.88 | 4.29 |
| Gold | $617.30 | 5.34 |
Foolish Quiz
1. This index enjoyed the largest percentage gain on Thursday: (a). the Dow, (b). the Nasdaq, (c). the S&P 500.
2. True or false: Each of the major indices fell during this past second quarter.
3. The company reporting the most generous earnings last week was: (a).ConAgra
4. True or false: Shares of General Motors accelerated Friday on news of its planned introduction of the Smart Car.
5. Merger Monday news included which of the following companies? (a). Johnson & Johnson
6. True or false: The Fed cautioned that "some further policy firming may yet be needed."
7. Companies making news for former stock option practices include: (a). Apple
8. Socks or stock: Which costs more: one share of J. Crew or a half-dozen of the preppy retailer's striped socks?
9. News of the naked involved (a). Britney Spears, (b). brokerage firms, (c). Take Two Interactive, (d). all of the above.
10. True or false: You would have to sell close to 42,000 shares of Oracle to afford lunch with The Oracle.
Answers
1. (b). Each index celebrated on Thursday, but the Nasdaq partied the most. The index rose 3%, marking its largest one-day gain since March 2004. The Dow increased 2%, its largest gain in more than three years, and the S&P 500 rose by 2.2%.
2. False. The Dow managed to inch up 0.4%, while the Nasdaq tumbled 7.2% and the S&P 500 fell 1.9%.
3. (c). Monsanto reported a sevenfold growth in its third-quarter profit on Thursday, as sales across the agricultural chemical business and the seed businesses sprouted. Shares sprung up 8.8%. Otherwise, last week's earnings results were not as robust.
Nike announced late Tuesday a 5% drop in its fourth-quarter profit because of a one-time charge, and it warned of World Cup marketing expenditures kicking the current quarter's results. Shares sprinted southwards by 4.7% the following day.
Packaged-food manufacturer ConAgra delivered a 7% rise in its fourth-quarter profit on Wednesday, chiefly because of a one-time gain that allowed it to meet estimates. Engaged in a restructuring plan, the company expects to meet this year's forecast, although the current quarter's earnings may dip from a year ago. Shares fell by 0.4%.
General Mills had a flaky quarter, spooning out on Thursday a 52% decline in its fourth-quarter profit because of sales of certain businesses in the previous year and somewhat soggy underlying profit growth. Shares of the cereal manufacturer increased by 0.6%.
For more on these companies, see:
- Monsanto Tends Its Garden
- Nike Plays It Cool
- ConAgra's Long Road Ahead
- General Mills: A Bargain in the Grocery Aisle?
4. False. Let's back up for a moment. It was DaimlerChrysler that announced plans last week to introduce the $15,000, 40-mile-per-gallon Smart Car to the U.S. in 2008. Shares of General Motors raced up by 8.6% Friday for a different reason. Billionaire Kirk Kerkorian, owner of 9.9% of the company's stock through his investment vehicle, is pressuring the automobile manufacturer to explore joining with Renault and Nissan, which are reportedly interested in purchasing a minority stake. General Motors responded by saying it has not received any offer from Renault or Nissan and had no further comment. For more, see "Konichiwa, Mon Frere."
5. (a), (b), (c). Johnson & Johnson announced on Monday that it will buy the consumer-health division of Pfizer for $16.6 billion, making J&J the largest player in the things-to-put-in-your-medicine-cabinet category. Shares of J&J fell by 1.8%, and Pfizer stock rose 1.6%.
Dutch company Mittal and Russian company Arcelor welded together a $33 billion deal to create a combined entity with nearly 10% of the global steel market. Shares of Mittal rose 7.1% on Monday -- the announcement had been made over the previous weekend.
Copper producer Phelps Dodge announced its intended $40 billion purchase of Canadian mining companies Inco and Falconbridge, a move that management hopes will create a metals powerhouse. Shares of Phelps Dodge slid 8%, while Inco and Falconbridge closed up 10% and 5%, respectively.
On Tuesday, Spanish-language TV network Univision said "si" to a $12.3 billion acquisition offer from a group of private investors. Shares rose 6.2%, but a disappointed Grupo Televisa, the Mexican broadcaster that owns 11% of the company, may yet thwart the deal.
For more related Foolishness from the past week:
- J&J Makes an Expensive Deal
- Phelps Dodge's Golden Nickel
- Mittal and Arcelor: Who Bought Whom?
- Univision Settles for a Little Less
6. False. This language appeared in the May policy statement, but not in the statement released last week. Fed watchers interpreted the omission as a sign of softening attitudes toward future rate hikes.
7. (f). Inquiries by either the SEC or federal prosecutors into the alleged backdating of options by corporations now number approximately 58.
8. Socks. Shares of J. Crew began trading on Wednesday at $25.05, 25% higher from its initial pricing, and closed on Friday up a trendy 9.6%. A pair of J. Crew's regularly priced Schoolboy socks costs $12.50 and comes in an array of colors not typically seen in stock certificates (not that many of those are even seen nowadays, anyway), including meadow, peppermint, pool, and yam.
9. (d). Video game publisher Take Two announced Tuesday that it has received grand jury subpoenas relating to its Grand Theft Auto: San Andreas game, which contained hidden sex scenes on its initial release. Shares of the company dropped 16% on Tuesday's news. Meanwhile, brokerages including Bear Stearns, Goldman Sachs, and Morgan Stanley may have to bare it all, or at least expose their roles in naked short selling. The firms face antitrust lawsuits stemming from allegations that their prime brokerage units charged fees for borrowing stocks without actually doing so. While one hopes that these companies will not engage in any cover-ups, perhaps Britney Spears might consider one since posing nude last week. See "Take Two Subpoenas and Call Me in the Morning."
10. True. An individual investor from California placed the $620,100 winning eBay charity auction bid for lunch with the Oracle of Omaha, a.k.a. Warren Buffett. That represents a 76.6% appreciation over last year's price, far better than this year's 3.4% increase in Berkshire Hathaway's stock.
As for the other Oracle, CEO Larry Ellison is probably dining alone. At the very least, you can be sure that's he's not doing lunch with too many Harvard endowment types, after he pulled the plug last week on his pledge to the school. He cited the departure of President Larry Summers for his turnaround. Does Wall Street really reward the big-hearted? For the week, Berkshire Hathaway closed down 0.5%, and Oracle fell by 2.8%.
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!
Johnson & Johnson is a Motley Fool Income Investor selection. Pfizer and Mittal are Motley Fool Inside Value picks, and eBay has been recommended in Motley Fool Stock Advisor . Try out any of our investing newsletters free for 30 days.
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 Goldman Sachs. She serves as an arbitrator for the New York Stock Exchange and the NASD. The Motley Fool has a disclosure policy.
