There WILL Be a Quiz: Weekly Markets Recap

Wall Street was hotter than a defective laptop battery last week. The major indices advanced each day, as benign data extinguished concerns over inflation.

Although Wall Street opened on Monday enthusiastic over a ceasefire in Lebanon and lower oil prices, optimism faded later in the day. After gaining more than 100 points, the Dow finished just less than 10 points higher.

A positive report indicating a slowdown in wholesale inflation powered the market higher on Tuesday. Believing that the Fed would leave rates unchanged at its next meeting, the major indices enjoyed powerful rallies, sending the Dow up more than 132 points, and the Nasdaq and S&P 500 up 2.22% and 1.37%, respectively.

The winning streak continued Wednesday, bolstered by a lower-than-expected reading on consumer prices. The indices displayed widespread gains, and the Dow climbed another 96 points.

Strong earnings and lower oil prices allowed the rally to continue on Thursday, although the indices notched smaller gains. While the market initially appeared to be running out of power on Friday, late-afternoon buying sparked further advances.

In a quiet week for economic data, reports scheduled for release include existing home sales on Wednesday, as well as durable goods and new home sales on Thursday.

Companies reporting earnings include Bob Evans, Candela, and Lowe's today, and Borders, Medtronic, and Toll Brothers tomorrow. We'll hear from Chico's, Eaton Vance, Michaels Stores, and Smithfield Foods on Wednesday, followed by Williams-Sonoma on Thursday.

Stay market-tuned and Foolish!

Capital Markets Summary

U.S. Equities

Commodities

Foolish Quiz
1. The Nasdaq enjoyed its biggest weekly gain in more than:
(a) three weeks
(b) three months
(c) three years

2. True or false: Altria (NYSE:MO) helped power the Dow higher on Friday.

3. Which of the following retailers delivered energizing earnings reports?
(a) Abercrombie & Fitch (NYSE:ANF)
(b) Ann Taylor (NYSE:ANN)
(c) Barnes & Noble (NYSE:BKS)
(d) Wal-Mart (NYSE:WMT)

4. Whose shares surged to a new high last week -- CA (NYSE:CA) or Hewlett-Packard (NYSE:HPQ)?

5. Last week's deal news included acquisition announcements from which of the following companies?
(a) KinderMorgan
(b) Jones Apparel Group
(c) R.R. Donnelley
(d) all of the above

6. True or false: Merck suffered a double dose of pain from Vioxx last week.

7. Which company's stock performed better last week -- Dell or Sony?

8. True or false: PepsiCo announced a significant new acquisition last Monday.

9. Which company is making plans to literally dig for gold -- AOL or Microsoft?

10. Dell called the effect of its recall on the company's business:
(a) "draining"
(b) "explosive"
(c) "powerful"
(d) none of the above

Answers
1. (c). The Nasdaq hasn't seen a percentage-point rise like last week's since May 2002.

2. True. The 4% gain in shares of Altria, following a federal judge's ruling not to impose financial penalties on cigarette manufacturers in a tobacco-industry racketeering case, assisted the Dow's climb on Friday.

3. (a), (b), (c). Retail generally racked up gains generally last week. Shares of Abercrombie & Fitch rose 14.2% on Wednesday after the teen retailer reported a 14% higher second-quarter profit and an unanticipated strong earnings forecast for the year.

Following suit, Ann Taylor reported a record sixfold increase in second-quarter profits on Friday and raised its full-year guidance, although its shares slipped 0.8%.

Shares of Barnes & Noble rose 5.4% after the bookseller opened its own books on Thursday and reported a 23% increase in second-quarter profits, with declining sales offset by lower expenses. Wal-Mart, however, reported a 26% drop in second-quarter earnings on Tuesday, owing to a charge related to the impending sale of its German operations. The company maintained its outlook for the year, while its shares fell 1.2%.

4. Hewlett-Packard. After hitting a new high of $36.73, shares rose 2.1% on Thursday, following the company's report of better-than-expected third-quarter profits, with a 5.3% increase in revenues due to strong printer and laptop sales. The company also raised its fourth-quarter and full-year forecast, and announced approval of a $6 billion share-buyback plan. The news out of CA (formerly Computer Associates) after the market closed on Monday was not so good. The software provider announced a 64% drop in first-quarter profits due to higher expenses, and pledged to cut its workforce by 10%. As proof that Wall Street is largely about managing expectations, shares rose 6.8% the next day.

5. (a). Last week had fewer definitive deals in the news than usual. Kinder Morgan announced on Monday that it would sell its natural-gas retail distribution operations to a unit of General Electric for more than $710 million, plus working capital to cut debt and buy back stock. The deal is expected to close at the end of 2007's first quarter. Shares of Kinder inched up 0.1%, while shares of GE celebrated the company's entry into the retail gas business by gaining 1%.

Meanwhile, Jones Apparel Group announced on Tuesday that it was pulling itself from the auction rack after failing to find a buyer in its search since March; its shares slipped 0.3%. Rumors that printer R.R. Donnelley is reviewing offers by two leveraged buyout firms helped send the company's shares up 2.2%.

6. True. Merck was dealt two separate headaches on Thursday over its painkiller, Vioxx. First, a New Orleans jury found the company negligent in a Vioxx-related heart attack case and ordered the company to pay the plaintiff $51 million. Later in the day, a New Jersey judge cited new evidence as a basis to throw out a ruling favorable to the company in an earlier Vioxx trial, and ordered a retrial. Shares of the drug maker felt the pain, retreating 5.7%.

7. Dell. Shares of both companies rose from the potential ashes of one of the largest product recalls in history. In a week when Dell announced the recall of 4.1 million laptop computer batteries manufactured by Sony due to their fire-hazard potential (as well as a dismal earnings report), shares of Dell finished the week up 5.2%, while those of Sony increased 3.9%.

8. False. PepsiCo didn't acquire anything when it announced the internal promotion of Indra Nooyi, its president and chief financial officer, to the position of chief executive. However, don't be surprised if she takes the company on an increasing path of acquisitions, given her noted interest in globalization. When she takes the helm on Oct. 1, PepsiCo will become the third-largest company by revenue to be headed by a woman, following Archer Daniels Midland and Kraft Foods.

9. AOL. While Mr. Softy made headlines on Friday to boost its share-buyback plan by $16.2 billion through 2011, the future plans of AOL, a unit of Time Warner, include digging for gold in Massachusetts. The commonwealth is historically known more for pilgrims and tea parties than for a gold rush -- though the Big Dig continues to make headlines. But CNNMoney.com reported that AOL plans to search for gold bars believed to have been buried on the property of a man who owes the company a federal court judgment of $12.8 million for spamming its customers. Just business as usual, of course.

10. (d). Chairman Michael Dell told the press on Tuesday that he does not expect the recall to have any material impact on the company's business. He said the same thing on Friday concerning the SEC's probe into the company's accounting. Something is affecting Dell's business, though. On Thursday, the company reported a 51% decline in its second-quarter profit, which Michael Dell blamed on "aggressive pricing pressures."

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!

Wal-Mart, Dell, and Microsoft are Motley Fool Inside Value picks. Dell and Time Warner are Motley Fool Stock Advisor selections. Kraft is a Motley Fool Income Investor pick, while Merck was a former selection of that newsletter. Whatever your investing style, the Fool has a newsletter for you.

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.