Trying to match the prior week's gains proved to be a mission impossible for stocks, which cruised downwards for most of last week.
The first blow was rising oil prices, which ended the market's winning streak on Monday. When oil prices declined the next day, stocks began to recover. However, cameo performances by two Federal Reserve presidents who delivered hawkish comments led to the market closing narrowly mixed on Tuesday. The housing market stole the limelight on Wednesday, when a disappointing report on existing home sales dragged the market lower, with each of the major indices dropping and the Dow losing almost 42 points. Stocks registered little change on Thursday, as housing stayed center stage with a report on new home sales coming in weaker than expected. The week ended mixed on Friday after a sleeper session of choppy trading, void of any starring roles.
The spotlight will shine brightest on the release of the August FOMC minutes tomorrow, and employment data on Friday. Other economic reports scheduled to be released include preliminary second-quarter gross domestic product on Wednesday; personal income and outlays, and factory orders on Thursday; followed by consumer sentiment, construction spending, and last month's auto sales on Friday.
Companies scheduled to report earnings include Bayer and Novell on Tuesday; and Ciena, DelMonte, Dollar General, H&R Block, H.J. Heinz, Tiffany, World Wrestling Entertainment, and Zale on Thursday.
Stay market-tuned and Foolish!
Capital Markets Summary
U.S. Equities
|
8/25/06 Close |
Weekly Change (%) |
YTD Change (%) | |
|---|---|---|---|
|
Dow |
11,284.05 |
(0.9) |
5.3 |
|
Nasdaq |
2,140.29 |
(1.1) |
(2.9) |
|
S&P |
1,295.09 |
(0.6) |
3.7 |
Commodities
|
Price ($) |
Weekly Change (%) | |
|---|---|---|
|
Crude oil |
72.43 |
1.90 |
|
Gold |
631.60 |
1.19 |
Foolish Quiz
1. This sector fared the worst last week:
(a) housing
(b) retail
(c) semiconductors
2. True or false: Last week's trading volume was among the lowest so far this year.
3. The following companies lowered their earnings guidance for the year:
(a) H&R Block (NYSE:HRB)
(b) Lowe's (NYSE:LOW)
(c) Toll Brothers (NYSE:TOL)
(d) Williams-Sonoma (NYSE:WSM)
4. Shares of which retailer turned in a starring performance last week, Chico's FAS (NYSE:CHS) or Payless Shoesource (NYSE:PSS)?
5. Last week's deal news included acquisition announcements by the following companies:
(a) Bally Total Fitness
(b) Cisco
(c) Sony
(d) all of the above
6. True or false: A speech by Fed Chief Bernanke moved stocks higher on Friday.
7. True or false: Housing data showed that the South fared better than other regions.
8. Which high-profile banker drove away from the board of directors of Ford?
(a) Frank Quattrone
(b) Felix Rohatyn
(c) Robert Rubin
9. Sylvester Stallone, John Cusack, and Ed Koch all have the following in common:
(a) they each have made a lot of money in the market
(b) they each are being sued for return of their market profits
(c) they each are afraid of both snakes and planes
10. True or false: Following the termination of his relationship with Paramount Pictures, a unit of Viacom, Tom Cruise announced plans to finance future movies by selling photos of baby Suri.
Answers
1. (b). The S&P Retail Index fell off the rack by 4.8% last week, while the Philadelphia Semiconductor Index and the Philadelphia Housing Index dropped 2.7% and 1.8%, respectively.
2. True. Hardly surprising, though, given the time of the year. Expect more of the same until everyone's back from vacation and at their desks following Labor Day.
3. (b), (c), (d). Reductions in profit forecasts peppered earnings reports last week. On Monday, Lowe's disappointed investors by missing earnings estimates by a penny. The home-improvement retailer also cut its earnings outlook, blaming higher energy costs and a slowing housing market. Shares slid 4%.
Toll Brothers constructed a 1.7% gain in its shares on Tuesday, despite reporting a 19% drop in its earnings and reducing its forecast for fiscal 2006. Still, the homebuilder exceeded expectations by three pennies per share.
Shares of Williams-Sonoma plunged 8.3% on Thursday, after the specialty retailer announced a 15.1% increase in second-quarter profits, but lowered its full-year guidance because of softening consumer demand. The company recorded a fresh 52-week low of $28.29 the following day.
Perhaps we're being picky, but H&R Block did not explicitly lower its earnings outlook -- the company merely announced late on Thursday that it is setting aside more than $102 million to guard against losses for subprime home loans. Shares dropped 8.7% the next day, and several Wall Street analysts lowered their projections for the company, which reports quarterly earnings this week.
4. Neither. Sometimes, paying less does not equal more highly valued shares. Payless Shoes earned the dubious distinction of being the biggest percentage decliner on the Big Board on Wednesday, as its shares fell 11%. Although the shoe retailer reported a 63% jump in second-quarter profits, the results still missed expectations, since markdowns negatively affected margins. What a difference a day makes -- shares of Chico's plummeted 25.5% on Thursday after posting a 10% increase in second-quarter profits, but lowering guidance and reporting weak same-store sales.
5. (b), (c). Cisco shares gained 1.6% on Tuesday when the company announced its agreement to purchase on-demand television software producer Arroyo Video Solutions for $92 million. Shares of Sony slipped 1.3% on Wednesday, following the company's announcement that its film division paid $65 million to acquire Grouper Networks, an online video-sharing site. Shares of Bally pumped up 8.4% on Friday, on speculation of a forthcoming buyout offer, after the company signed a confidentiality agreement with hedge fund Pardus Capital Management. Gym buddies can be fickle -- just earlier this month, the company said it was taking itself off the block.
6. False. Any time the Fed Chief speaks, traders listen, even when he's holed up in Jackson Hole. Addressing globalization instead of monetary policy, the Fed Chief's speech to fellow economists didn't do much to move the market one way or another.
7. True. While July's existing home sales dropped to their lowest rate in two-and-a-half years, sales in the South dropped only 7%, compared to double-digit declines in the rest of the country. Tiger Woods will be helping out next month's figures in the South; the golfer reportedly shelled out another $6.5 million for a two-bedroom property neighboring his existing Jupiter Island home, for which he paid $38 million last year.
8. (c). While Ford wrestles with restructuring solutions, Mr. Rubin resigned from the company's board on Friday, because of potential conflicts of interest with his duties as a director of Citicorp. Meanwhile, Mr. Rohatyn, a former partner of Lazard Freres, announced last week that he will become senior advisor and chairman of Lehman Brothers' international advisory committee. As for Mr. Quattrone, his future plans are not yet known, but a legal victory for the former Credit Suisse First Boston tech investment bank cleared the way for a return to Wall Street -- if he stays out of legal trouble for a year.
9. (a), (b). The Wall Street Journal reported last week that those individuals invested in Lipper Convertibles, a now-defunct private investment partnership. It was recently discovered that a portfolio manager at the partnership had inflated profits by 40% four years ago. They are now being sued by the partnership for return of their profits so that they can be divided up among all the partners. Chances are that the fear of a successful outcome for the partnership scares these guys more than any ol' reptiles in the sky.
10. False. Mr. Cruise and his partner have stated that they will pursue financing from yet-unspecified hedge funds. Movie financing has historically been a risky business.
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!
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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 .
