From Briefing.com: So Friday was an unusual session versus recent history. The major averages gapped substantially higher off the open on that modestly better than expected May Employment Report. More specifically, Non-farm payrolls dropped by 17K, which was marginally stronger than the consensus estimate calling for a 30K decline. The Unemployment Rate for May was in line with consensus expectations at 6.1%.
Now it's also worth noting Oracle's (ORCL) hostile bid for competitor PeopleSoft (PSFT) placed the entire software sector in play early in the session. Conventionally, the prospect of consolidation in any industry is interpreted by the market as a positive. At the baseline, it suggests a given sector is undervalued in the view of those management teams positioned to know a competitors 'real' worth.
Nonetheless, in many ways, Oracle's bid raised more questions regarding the industry. The offer itself came in a lame $1 above Peoplesoft's closing price Thursday -- so Oracle didn't exactly view PeopleSoft as a 'screaming buy' at current levels. As a separate matter, PeopleSoft's characterization of the bid as "atrociously bad behavior" intended to disrupt PeopleSoft's deal with J.D. Edwards (JDEC) essentially speaks for itself. So while that Oracle offer properly raised eyebrows among analysts, it may not send the signals conventionally associated with a hostile bid. For additional color on the Oracle offer, please see our Stock Brief page.
Now from a technical perspective, the Nasdaq carved out a pronounced reversal on yet another session of record volume. Frequent readers know we've harped on this support point around 1619 all week. So it's only fitting the index would gravitate towards that area to finish the week. All in all, the current picture remains consistent with the assessment outlined Friday morning. That is, continue to watch this support point in the somewhat broader area of 1619 to 1632 -- the immediate bias improves or deteriorates based on the Nasdaq's relationship to that general area.
Looking towards the coming week, there are some identifiable catalysts, though the schedule is somewhat limited versus this past week. The more impactful reports -- and 'impactful' is a relative term in this case -- are scheduled towards the tail end of next week. Look for Retail Sales data due out Thursday morning at 8:30 ET, followed by the preliminary Michigan Sentiment number scheduled for Friday just after the market open at 9:45 ET.
On the corporate earnings front, the calendar is notably limited, with no reports scheduled that carry broader market implications. For a more detailed look at upcoming reports, please visit Briefing.com's Earnings Calendar and Economic Calendar. -- Mike Ashbaugh -- Briefing.com
4:27PM Weekly Wrap :
Yet another good week for stocks. The Dow posted a gain every day. The S&P 500 index was up every day until a small decline on Friday. The Nasdaq was down on Monday and Friday, and up the rest of the week. Interestingly, that tells something of the story that is developing in the market.
The hot, speculative sectors were cooling down a bit by the end of the month. On Friday, eBay (EBAY 97.18 -4.12), Yahoo! (YHOO 27.95 -1.44) and Amazon.com (AMZN 33.35 -2.17) were all down sharply. The biotechs were also weakening, as Genentech (DNA 71.70 -1.96) finally hit some profit-taking on Friday after a yet another big week, and the biotech index fell 1.6% on Friday.
Instead, the action was shifting to high-yield blue chip stocks. Financial stocks like JP Morgan Chase (JPM 35.13 +0.03) that pay a high dividend had a good week, along with industrials such as General Electric (GE 30.30 +0.52). That may explain why, for a change, the Dow had a better week than the Nasdaq (despite a very bad week for IBM). Investors seem to be reaching out to stocks for yield rather then into the bond market, where the 10-year yields only 3.36% (and was unchanged for the week). Why not buy a stock with a 2.5% dividend, especially if the market outlook is bullish?
The economic data this week was generally viewed as consistent with expectations of a strengthening economy. The May ISM Index and Services Index were up, suggesting business are seeing a modest pickup. New Claims for unemployment went the wrong way, but the employment data on Friday was well received. Although payrolls fell slightly and the unemployment rate was up a bit, the data are moving in the right direction, and about as would be expected for this point in the economic cycle. Employment gains lag upturns, as it takes time for businesses to hire. There are signs that employment is leveling off, and the workweek firming. In addition, announced layoffs for the month were down sharply, as reported by the Challenger survey.
Same-store sales for May were reported about as expected with small gains, but in this environment, that is good news. The same applied to Intel's "no news" mid-quarter update, which was also interpreted as good news. Fed Chairman Greenspan also chipped in this week, saying an uptick in GDP is likely, and expressing little concern about inflation.
Finally, the week ended with Oracle making an unsolicited bid for PeopleSoft (PFST ). This provided some amusement to the market as Oracle CEO Ellison has oftend derided PeopleSoft. To many, this was viewed as something of a hasty, attention-grabbing move by Oracle.
Next week there are few earnings reports. The biggest economic releases are Retail Sales on Thursday and PPI on Friday. The cooling off of the momentum plays in the stock market may signal that the strong run will slow. But economic, profit, and interest rate expectations are all still favorable, and long-term investors seem to be stepping back into the market over time.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8850.26 9062.79 212.53 2.4 % 8.6 %
Nasdaq 1595.91 1627.42 31.51 2.0 % 21.9 %
S&P 500 963.59 987.76 24.17 2.5 % 12.4 %
Russell 2000 441.00 453.94 12.94 2.9 % 18.5 %
Close Dow +21.49 at 9062.79, S&P -2.38 at 987.76, Nasdaq -18.59 at 1627.42: If you're a fan of roller coasters, particularly ones that drop really fast and knock the wind out of you, then today was your day... The indices started the session with impressive gains following this morning's favorable Employment report, which checked in with Non-Farm Payrolls at -17K (consensus -30K), Unemployment Rate at 6.1% (inline with consensus), Hourly Earnigns up 0.3% (consensus 0.2%), and Average Workweek at 33.7 (consensus 34.2)... At their session highs, the major averages were showing gains of 1.9%, 1.8%, and 2.3% for the Dow, the S&P 500, and the Nasdaq, respectively...
The advance was broad-based and characterized by sector-wide participation... As a matter of fact, the only laggard of note through the morning was the homebuilding sector, which was undercut by profit-taking incited by a rise in bond yields... Nevertheless, the market's momentum on record-breaking volume did not prove to be sustainable as traders chose to turn their paper profits into hard cash ahead of the weekend...
The retreat was spearheaded by the Nasdaq, which had been outperforming its blue-chip counterparts throughout the session and is up 21.9% year-to-date versus an 8.7% increase year-to-date for the Dow and a 12.3% increase year-to-date for the S&P 500... From that point on, the selling pressure never abated and the indices spent the rest of the session deleting their earlier gains... Just like the advance, the retreat was broad-based and was led by influential sectors such as biotech, semiconductor, retail, networking, computer, oil service, and financial... As a result, the indices closed the session near their worst levels of the day, with the S&P 500 (down 0.24%) and the Nasdaq (down 1.1%) in negative territory...
The Dow (up 0.24%) was able to maintain only a fraction of its earlier gains... Despite today's losses, the market is up for the week, with the Dow, the S&P 500, and the Nasdaq up 2.4%, 2.5%, and 2.0%, respectively...NYSE Adv/Dec 1641/1653, Nasdaq Adv/Dec 1480/1750
11:00AM Intel target increase by UBS (INTC) 22.84 +1.00: -- Correction -- In our 08:35 comment, we stated that the Intel target increase to $26 from $24 was by CIBC. This was a UBS action, not CIBC.
10:52AM McDonald's rallies as comps exceed expectations (MCD) 21.21 +1.93: -- Update -- Stock lifts following co's report of 2.2% (global) rise in May comparable unit sales and 6.3% for the U.S. (some analysts were expecting slightly negative comps for global, while expectations for the U.S. were in the 2-3% range). "In May the U.S. delivered very strong comparable unit sales . . . up 6.3%, the highest increase in four years," commented the co's CEO.
9:06AM Adv Fibre Comm cut to Equal Weight from Over Weight at Pacific Growth (AFCI) 17.97: In firm's opinion, a great deal of uncertainty exists in this story. Notes that many of those who have followed this sector have waited in anticipation for several years for the RBOCs to get serious about expanding broadband services. Now that this time has finally arrived, it is unclear where AFCI's opportunities exist. With its prospects for DSL becoming more limited, firm believes Company could be viewed by investors as not having a robust area of growth. (AFCI is trading at $18 in pre-market).
8:50AM Intel upgraded at Wedbush (INTC) 21.84: -- Update -- Wedbush Morgan upgrades to Buy from Hold, saying 3 consecutive qtrs of better-than-seasonal demand is a trend; firm says the co's mid-qtr update was a positive surprise considering: 1) the negative effects of SARS in Asia, 2) poor economic conditions in Europe and Japan, and 3) very conservative IT spending by U. S.-based Fortune 1000 companies; also, the new and quite narrow rev guidance of $6.7 bln is very encouraging considering that the June qtr is typically a back-end loaded qtr; target is $28.
8:44AM Sun Microsystems target raised to $7 from $5 at Sterling (SUNW) 4.92: -- Update -- Sterling reiterates Buy rating and moves 12-month price target from $5 to $7. Catalyst for upward guidance include dominant market share position for Linux + UNIX Servers and Sun ONE (Open Network Environment) application server software (for 3 mln Java programmers) appears to be gaining traction. Europe may provide two factors favoring a boost to SUNW revenues and earnings: (a) a strong euro versus the dollar and (b) a tilting towards Linux as the OS of choice. Recent insider trading at Microsoft and Intel's better-than-expected update are viewed as positive signals.
8:42AM CIBC rebalances weightings in Healthcare sector : Firm is upgrading CMX from SP to SO; upgrading PHS (formerly PHSY; target $41) and HNT (target $30) from SU to SP; downgrading LH and MIMS from SP to SU; raising price target on CMX from $20 to $27.
8:35AM Intel target raised to $26 from $24 at UBS (INTC) 21.84: --Update-- Firm believes the higher target is justified by Intel's improving competitive position, especially in higher growth, higher margin notebooks processors and its leadership position in process technology.
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