Investors dumped their baggage throughout most of last week, but they held on tightly as travelers tossed their shampoo on Thursday.
The market opened its week with a hangover from the previous trading session. On edge over what the next day's Fed announcement might bring, and further stymied by surging oil prices, stocks declined on Monday.
When the Fed announced a pause in its two-year rate-raising campaign on Tuesday afternoon, stocks initially spiked upward. But then prices lost ground the rest of the day, as investors proved their inherent unease by pointing to the possibility of future increases or expressing fears of a slowing economy.
Although the market was initially buoyed by strong earnings reports, the volatility and uncertainty continued on Wednesday, with the same negative results. The major indices closed lower, with the Dow losing 98 points, despite having gained 78 points earlier in the session.
Investors awoke on Thursday to news of a thwarted terrorist plot aimed at air travel. That news sent prices down early. The market did recover, though, buoyed by strong earnings reports and lower prices. The major indices each closed on a gain for the first time that week.
The market, however, headed into the weekend showing that sticky economic data scared investors more than potentially explosive hair gels and sports drinks. On Friday, fears of a slowing economy, coupled with stronger-than-expected retail sales figures, combined to send the indices down for a fourth time in a week.
Investors will again scrutinize economic data this week for signs of future Fed action, with the consumer price index on Wednesday being the most closely watched. Other data scheduled for release includes the producer price index and housing market index on Tuesday, housing starts on Wednesday, leading indicators in Thursday, and consumer sentiment on Friday.
Retailers will take center stage with their earnings reports this week. Companies scheduled to announce include Abercrombie & Fitch, American Eagle, Home Depot and Wal-Mart on Tuesday, Hewlett-Packard on Wednesday, Barnes & Noble, Dell, Gap, New York & Co., Nordstrom, and Sears Holdings on Thursday, and Ann Taylor on Friday.
Stay market-tuned and Foolish!
Capital markets summary
U.S. equities
|
8-11-06 Close |
Weekly Change |
YTD Change | |
|---|---|---|---|
|
Dow |
11,088.03 |
(1.4%) |
3.5% |
|
Nasdaq |
2,057.71 |
(1.3%) |
(6.7%) |
|
S&P |
1,266.74 |
(1.0%) |
1.5% |
Commodities
|
Price |
Weekly Change | |
|---|---|---|
|
Crude Oil |
$74.35 |
(0.34%) |
|
Gold |
642.00 |
(2.39%) |
Foolish quiz
1. These indices broke their weekly winning streaks:
(a) Dow
(b) Nasdaq
(c) S&P 500
2. True or false: The stock market reacted to the latest exposed terrorist plot much like it did to the London bombings last summer.
3. The following companies delivered good earnings reports:
(a) Cisco (NASDAQ:CSCO)
(b) Expedia (NASDAQ:EXPE)
(c) Toll Brothers (NYSE:TOL)
(d) Disney (NYSE:DIS)
4. True or false: The closure of the Prudhoe Bay oil field is the first serious matter in some time facing BP (NYSE:BP) in the United States.
5. Last week's deal news included acquisition announcements by the following:
(a) Aramark
(b) IBM
(c) ImClone
(d) Morgan Stanley
(e) Sears
6. True or false: The Fed's decision to hold rates steady was unanimous.
7. Shares of this targeted U.S. airline held up the best last Thursday:
(a) American
(b) Continental
(c) United
8. Travel or toothpaste: Which sector performed worse last Thursday?
9. Airlines or oil: Which sector performed worse overall last week?
10. Bono or Martha Stewart: Who is a new business partner of Forbes Media?
Answers
1. (a), (c). The Dow and S&P 500 had their three-week winning streaks broken last week, while the Nasdaq notched its second consecutive losing week.
2. True. Stocks followed the pattern set last July, when the market initially sold off and then rebounded, possibly showing optimism that the plot was foiled and discounting long-term effects on the economy.
3. (a), (b), (d). Although Cisco posted flat earnings late on Tuesday, it reported a higher-than-expected 21% growth in revenues, affected by stock-options expenses. Shares of the network-equipment maker surged 14.4% the next day. In a week dominated by opinions on the outlook of the travel industry, shares of Expedia journeyed more than 6% higher on Thursday after the online travel service announced a 30% rise on profit, thanks to strong hotel bookings that offset weaker airfare revenue. Disney reported a 39% increase in the Magic Kingdom's earnings on Wednesday, but after first rising on the news, shares felt the effects of the day's declining market and dipped 0.5%. On the same day, Toll Brothers announced disappointing news: Its third-quarter sales fell, and its signed contracts declined by nearly half. Noting that an oversupply of new homes was the worst it has seen in 40 years, shares of the homebuilder tumbled 6.4%.
4. False. Although BP is adept at putting forth a slick image of corporate conscientiousness, the energy company attracted scrutiny for its environmental record well before it had to shut down the Prudhoe Bay oil field because of leakage and corrosion problems. Over the past year, the company has had to address a spill in March at the same field, safety violations at an Ohio refinery, a California air-pollution lawsuit brought by regulators, and an explosion that killed 15 people in a Texas company unit. BP shares fell 4.4% for the week.
5. (a), (b), (d). On Tuesday, Aramark announced its $8.3 billion acquisition by a group of investors. Shares of the food-service provider declined 1.5%. The next day, Morgan Stanley announced its $706 million purchase of residential-mortgage originator Saxon Capital. Shares of the investment bank pulled back 2.4%, while shares of Saxon raced up 26.2%. IBM announced its $1.6 million purchase of software developer FileNet on Thursday. Big Blue shares inched up 0.5%, while those of FileNet climbed 4.4%. Meanwhile, on Tuesday, Sears made known some setbacks in trying to complete its takeover of its Canadian subsidiary, Sears Canada, because of rulings by Ontario regulators. Shares slipped 0.4%. Preferring to go it alone, ImClone announced on Thursday that it is taking itself off the block after seven months of searching for a buyer. Ultimately unimpressed with offers, the drug developer saw its shares sink by 13.4%.
6. False. Lending a bit of surprise to an otherwise expected announcement, Richmond Fed President Jeffrey Lacker dissented. He favored another quarter-point rate increase.
7. (a). Shares of AMR, the parent company of American Airlines, remained steady on Thursday, closing unchanged despite the day's turbulence, while those of Continental dropped 1.45% and United fell 1.30%.
8. Travel. The Dow Jones U.S. Travel and Leisure Index gained 1.09% on Thursday, while the Dow Jones Nondurable Household Products Index, consisting of manufacturers of toothpaste, sunscreen, and many other items that got tossed in airport trash bins, advanced by 0.8%.
9. Airlines. The Amex Airline Index plummeted 10.3% last week, while the Amex Oil Index gained 0.3%.
10. Bono. Apparently, one can sometimes find what one's looking for. Elevation Partners, a private-equity company that includes the U2 front man as a partner, has purchased a minority stake in Forbes Media. Martha, on the other hand, may not have been looking for a $195,000 fine from the SEC to settle civil insider-trading charges, but she did agree to pay it and to abstain from serving as a director of a public company for five years. Shares of her company didn't seem to mind -- Martha Stewart Living Omnimedia ended the week up 1.1%.
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!
New York & Co. is a Motley Fool Hidden Gems recommendation. Home Depot and Wal-Mart are Motley Fool Inside Value picks. Dell is a recommendation of both Inside Value andMotley Fool Stock Advisor. And Martha Stewart Living Omnimedia is a former Stock Advisor recommendation. All of our investing newsletters come with a 30-day free trial.
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.
