Controversy embroiled the Tour de France champion last week, while stocks clearly displayed their testosterone in winning fashion.
Stocks opened the week with an impressive tour de force as strong earnings and merger activity pushed the market higher. Each of the major indices posted strong gains, with the Dow rising over 182 points.
Prices initially showed a bit of fatigue on Tuesday amid some earnings disappointments and global jitters, but stocks got a second wind in the afternoon and managed to push higher.
For the next two days, the market tried to balance concerns of an economic slowdown with the possibility of a pause in interest rate hikes. Stocks basically pedaled in place on Wednesday as the market digested more earnings reports. Prices dropped modestly on Thursday, after an early rally sparked by several solid earnings reports faded in the afternoon.
Stocks emerged victorious on Friday, cheered on by a report on gross domestic product showing the economy slowing more than expected. Instead of fretting over any negative implications, Wall Street chose to embrace the data as a sign that the Fed will put the brakes on rate increases. The Dow climbed over 119 points, the Nasdaq gained more than 39, and the S&P 500 advanced over 15 points.
This week's more significant economic report will be the employment report on Friday. Other data to be released includes personal income, construction spending, and the ISM manufacturing index tomorrow, followed by factory orders, the ISM non-manufacturing survey, and chain-store sales on Thursday.
Corporations reporting earnings this week include ABNAmro, Chipotle Mexican Grill, MetLife, and Whole Foods today, and Blue Nile, Burger King, Coach, Verizon, and Vornado tomorrow. On Wednesday, we'll hear from Cigna, Clorox, Dean Foods, Great Wolf, Hanson, MasterCard, Moody's, Procter & Gamble, Starbucks, and Time Warner. Thursday will bring reports from Cardinal Health, El Paso Electric, Marsh & McLennan, Morningstar, Toyota, Unilever, and Wild Oats Markets, followed by Berkshire Hathaway and The Washington Post on Friday.
Stay market-tuned and Foolish!
Capital Markets Summary:
U.S. Equities
| 7-28-06 Close | Weekly Change (%) | YTD Change (%) | |
|---|---|---|---|
| Dow | 11,219.70 | 3.2 | 4.7 |
| Nasdaq | 2,094.14 | 3.7 | (5) |
| S&P | 1,278.55 | 3.1 | 2.4 |
Commodities
| Price ($) | Weekly Change (%) | |
|---|---|---|
| Crude oil | 73.36 | (0.65) |
| Gold | 646.4 | 2.47 |
Foolish Quiz:
1. The S&P 500 raced to its biggest weekly gain in:
(a) two weeks
(b) two months
(c) two years
2. True or False: Second-quarter earnings results so far have been stronger than the first quarter.
3. Choose the company that could claim a yellow jersey for its solid earnings report:
(a) Amazon.com
(b) Boeing
(c) Schering-Plough
(d) UPS
4. Chevron
5. Last week's deal news included acquisition announcements by the following companies:
(a) Advanced Micro Devices
(b) EMI Group
(c) Hewlett-Packard
(d) National City
6. True or False: The proposed $21 billion buyout of HCA ranks as the largest leveraged buyout deal ever.
7. Drugs or Trucks: Choose the sector benefiting investors the most last week.
8. True or False: A new edition of Monopoly will scrap cash in favor of debit cards.
9. Recently reported suspicious trading patterns involve shares of:
(a) HCA
(b) Kerr-McGee
(c) Maverick Tube
(d) Petco
(e) all of the above
10. True or False: The Tour de France winner receives a cash prize equivalent to approximately 17,733 shares of General Motors.
Answers
1. (c) The market's rally pushed the index to its largest weekly gain since November 2004.
2. True. According to Bloomberg, 70% of S&P 500 members reporting results at this time have beaten estimates, outpacing the first quarter's 67.6% outperformers.
3. (c) Schering-Plough sped ahead of this field of contestants by reporting on Monday that it returned to profitability the second quarter on stronger-than-expected sales. Shares of the pharmaceutical company shot up 5.7%. UPS couldn't deliver the goods when its shares fell 10.3% on Tuesday after reporting a 7.6% second-quarter profit increase, below expectations. The company further disappointed investors by stating that the full year's earnings would be at the lower end of its projected range, and by opining of an economic slowdown during its conference call. Amazon swooned 22% on Wednesday to $26.26, its lowest level in over three years, after it reported that its second-quarter profit reflected higher expenses and fell 58%. The company also lowered its guidance for the year. Boeing encountered turbulence the same day, falling 4.6% when it announced a second-quarter loss of $160 million, blamed on costs attendant with settling a government probe. The company also lowered this year's earnings forecast. (See "Can Schering-Plough Continue to Shine?")
4. ExxonMobil. The oil company's 36% second-quarter profit fueled Thursday morning's rally, but shares slipped 0.2% as the market ran out of gas. Shares of Chevron declined 2.48% on Friday after it reported its own record-high second-quarter profit, which nevertheless disappointed analysts. (See "Does ExxonMobil Mark the Spot?")
5. (a), (c), and (d). Amid a busy week for merger announcements, EMI said on Thursday that it will no longer pursue plans to acquire Warner Music Group. Otherwise, Advanced Micro Devices announced on Monday that it plans to acquire chipmaker ATI Technologies for $5.4 billion. The news sent shares of Advanced Micro down 4.8%, while shares of ATI soared 19%. Shares of Hewlett-Packard gained 1.3% on Wednesday after it stated that it would expand its software operations by purchasing software maker Mercury Interactive for $4.5 billion. Shares of Mercury raced up 28%. While most Floridians are eager to escape the summer heat, National City is back in the Sunshine State with its second purchase of a local bank this month. The Cleveland-based bank announced on Thursday that it will buy Fidelity Bankshares for $1 billion. Shares of Nat City fell 4%, while those of Fidelity Bankshares gained 4.8%. (See "AMD + ATI = True Love.")
6. False. If you exclude the debt, then the deal ranks just behind the 1988 $25.07 billion buyout of RJR Nabisco. Stay tuned, however, as private equity firm Blackstone Group is reportedly mulling potential options to better the existing offer by Merrill Lynch Global Private Equity, Kohlberg Kravis Roberts, and Bain Capital. (See "HCA Investors Get a Parting Gift.")
7. Drugs. OK, let's not alarm anyone -- we'll call it pharmaceuticals instead. Strong earnings reports from Merck and Schering-Plough, coupled with money flowing to typically defensive market plays, aided the sector. For the week, the Amex Pharmaceutical Index rose 3.5%. Meanwhile, the Dow Jones Transportation Average drove in reverse and slipped 0.9% for the week, improved from its 2% decline on Wednesday when poor earnings from UPS and NorfolkSouthern took their toll. The index continues to be closely watched, as some believe that this sector can toot its horn to signal an economic downturn ahead of the rest of the market.
8. True. According to CNNMoney.com, a British version of the popular board game will replace its pastel-colored paper money with a Visa debit card. Perhaps this relates to the fact that Hasbro, the parent company of the game's manufacturer, Parker Brothers, reported that its second-quarter profit fell an expected 8%.
9. (e) Athletes aren't the only ones whose actions face scrutiny. A report in The Wall Street Journal on Friday described "suspicious trading patterns" in securities of these companies, prior to news of impending deals. Unlike the sports world, no definitive test exists yet to pinpoint whether any of these suspicions were simply well-thought-out speculations or the product of illegal leaks.
10. True. The winner of the race receives 450,000 euro, equivalent to $573, 659. GM shares closed at $32.35 on Friday, after having a considerably better past several days than Floyd Landis. The company reported stronger-than-expected second-quarter earnings on Wednesday and drove away 11.6% higher for the week.
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!
Whole Foods, Time Warner, Moody's, Starbucks, Amazon, and Hasbro are
Stock Advisor
recommendations. Blue Nile is a Rule Breakers and Hidden Gems pick. Unilever, National City, and Merck areIncome Investorrecommendations. Great Wolf is a former Rule Breakers pick.
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.
