As this week's Fed meeting loomed on the horizon, Wall Street sweated it out during last week's heat wave, ultimately leaving stocks little changed.
Stocks closed lower two days in a row to open the week. On Monday, a dearth of economic news allowed the market to drift slightly lower as speculation returned again to the Fed's next decision, due out tomorrow. The focus intensified on Tuesday when a stronger-than-expected manufacturing report and hints of inflation led to increased expectations of further interest rate hikes and lower equity prices.
Strong earnings from several prominent companies refreshed investors on Wednesday and quenched the market's thirst for positive news. The rally surprised some who expected only lethargic action prior to the employment data release coming at the end of the week. Each of the major indices rose, with the Dow tacking on a 74-point gain. Despite a slow start, prices rose again on Thursday, amid increasing conjecture that the Fed's rate hike campaign would end.
Finally, Friday's release of the July employment report proved to be an illusory oasis. Although the data showed a weaker job market than expected, the market's initial rally cooled off later in the day. Instead of providing relief, the figures now fanned fears of an economic slowdown and reversed earlier gains, leaving the indices little changed for the day.
This week's most closely watched event will be the announcement by the Fed's Open Market Committee and its accompanying policy statement. Other data scheduled for release includes second-quarter productivity and costs tomorrow, the trade deficit on Thursday, and last month's retail sales on Friday.
As earnings season winds down, companies reporting include Cisco tomorrow, American International Group, General Electric, Viacom, and Walt Disney on Wednesday, followed by Target and JCPenney on Thursday.
Stay market-tuned and Foolish!
Capital Markets Summary:
U.S. Equities
| 8-4-06 Close | Weekly Change (%) | YTD Change (%) | |
|---|---|---|---|
| Dow | 11,240.35 | 0.2 | 4.9 |
| Nasdaq | 2,085.05 | (0.4) | (5.5) |
| S&P | 1,279.36 | 0.1 | 2.5 |
Commodities
| Price ($) | Weekly Change (%) | |
|---|---|---|
| Crude oil | 74.6 | 1.69 |
| Gold | 657.7 | 1.75 |
Foolish Quiz:
1. This index gained the most in July:
(a) Dow
(b) Nasdaq
(c) The S&P 500
2. True or False: The Dow and S&P 500 rose for the second consecutive week.
3. Choose the company whose earnings report threw some cold water on investors:
(a) Humana (NYSE:HUM)
(b) MasterCard (NYSE:MA)
(c) Procter & Gamble (NYSE:PG)
(d) SprintNextel (NYSE:S)
4. True or False: The IPO market heated up in July.
5. Last week's deal news included announcements by the following companies:
(a) IBM
(b) Sandisk
(c) Smithfield Foods
(d) all of the above
6. True or False: August is typically kind to stocks.
7. Wal-Mart (NYSE:WMT) or Target: Choose the retailer that posted higher same-store sales data for July.
8. Shareholders of Starbucks (NASDAQ:SBUX) can help their company most by:
(a) ordering fewer Frappuccinos
(b) taking rumba lessons
(c) both
9. True or False: Sound advice for those looking for employment would include applying for a job at AOL.
10. True or False: Shares of Con Edison experienced their own brown-out last week.
Answers
1. (c) The S&P 500 rose a staggering 0.5%, while the Dow gained 0.3% and the Nasdaq fell 3.7%.
2. False. Actually, it was the third consecutive week of gains for these indices.
3. (d) SprintNextel reported a 38% plunge in second-quarter earnings on Thursday, sending its shares down 12%, to a new 52-week low of $17.75 per share. Customer retention proved weak and management said the company was rebuilding its marketing efforts. Not a bad idea. Several other companies reported hotter earnings. On Monday, Humana reported a healthy 52% rise in second-quarter revenues and 10% earnings growth. Shares of the health insurer shot up 9%. Although MasterCard revealed on Wednesday that it swung to a second-quarter loss, its results, once expenses related to its May IPO and other unusual items were considered, impressed analysts. Shares of the credit card company gained 11%. Shares of P&G gained 4% the same day after it announced a 36% growth in fourth-quarter profits. (See "MasterCard and the Charging Lawyers" and "A Prosperous P&G.")
4. False. Last month ranked as the worst month yet this year for the IPO market, with fewer than usual launches and mainly dismal performances. (Keep up with the IPO market by reading the Fool's weekly report, "Scouting the Latest IPOs," running Mondays.)
5. (d) Merger news on Monday included the announcement that SanDisk agreed to purchase Israeli data storage supplier M-Systems in a stock deal worth $1.55 billion. Shares of SanDisk fell 1%,while those of M-Systems climbed 13.2%. Smithfield Foods displayed its carnivorous bent when it said the same day that it will buy most of the branded meats business of ConAgra for $575 million in cash and stock. Shares of Smithfield inched down 0.8%, while ConAgra shares slipped 1.1%. On Thursday, IBM announced it will acquire MRO Software, a solutions provider with key clients in the nuclear power and oil industries, for $740 million. Shares of Big Blue gained 1%, while those of MRO ramped up 18%.
6. False. Most certainly not. Whether it's attributable to vacant trading floors or unappealing sweaty stockbrokers, August ranks as one of the worst months for general market performance.
7. Target. The retailer's 3.1% increase nevertheless disappointed analysts who were looking for a 4%-6% increase. Rival Wal-Mart met expectations with its reported 2.4% gain.
8. (a) Shareholders of Starbucks received an unpleasant jolt last week as their shares plunged 10% over the week, during which time the company reported the lowest same-store sales figure in almost five years. Management cited high demand for frozen blended drinks as cutting into productivity. What does coffee have to do with dance lessons? Admittedly, not much -- just a way to sneak in the story recounted in The Wall Street Journal last week of a private banker at HSBC Holdings who spent $15.4 million for eight years of Latin dance instruction. Ay, caramba! She assumedly makes better wealth management decisions on behalf of her clients as a result. (See "Starbucks' Bitter Brew.")
9. False. A better suggestion would be to check out job postings at Toyota, which rolled out a 39% hike in profits and will begin production at additional plants, including in Texas, later this year. AOL, a division of Time Warner (NYSE:TWX), announced it will cut a quarter of its workforce over the next six months, as it tries to reduce costs by $1 billion. The Internet provider is also transitioning from a subscriber pay model to a free service supported by advertising. Shares of TimeWarner advanced 1.4% for the week.
10. True. The utility which powers New York City (although the 25,000 folks without service in Queens may disagree with that description) flickered downward 0.7% last week amid criticism of the widespread power outage. On Wednesday, the company also reported higher second-quarter earnings but lowered its forecast for the year.
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!
Disney, Starbucks, and Time Warner areStock Advisorselections. Wal-Mart is anInside Valuepick.
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.
