Joshua A. Krongold

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Eight Is Enough for Dow

Joshua Krongold

Stocks closed mixed after a late recovery, but the Dow's eight-week winning streak was halted amid profit-taking at the end of a huge earnings week.

The Dow lost 54.89 points, or 0.5%, to 10,568.29; the S&P 500 slipped 2.39 points, or 0.2%, to 1141.55, but managed to extend its winning streak to nine weeks; while the Nasdaq gained 4.86 points, or 0.2%, to 2123.87, which wasn't enough to secure a seventh consecutive up week.

The Dow finished the week down 0.3%, the S&P 500 rose 0.2% and the Nasdaq slipped 0.8%.

Volume on the New York Stock Exchange was 1.54 billion shares, while 2.24 billion shares changed hands on the Nasdaq. Advancers beat decliners by about 5 to 4 on the Nasdaq, and were close to even on the NYSE.

"There has been some profit-taking on earnings announcements and the late-day selloff in bonds is going to bother anything financial or interest rate sensitive," said Sean Martin, head trader at A. Gary Shilling. "We've had some good gains, so people are taking some money off the table."

"With no big economic news due for release today, traders and investors are left to read earnings press releases and ruminate about just how long the Fed will keep interest rates low," said Ken Tower, chief market strategist at CyberTrader.

Other Markets

Bonds came under pressure after the Treasury said it was considering issuing a 20-year inflation indexed security; the 10-year Treasury note fell 31/32, yielding 4.07%, erasing early gains.

The dollar was stronger against the euro, on concerns the rapidly appreciating European currency would hurt that region's economy. The dollar was also stronger against the Japanese yen. The euro was worth about $1.2588 while the dollar was fetching 106.66 yen.

Markets overseas finished mostly higher, with Germany's Xetra DAX up 0.3% at 4152 and London's FTSE 100 down 0.4% at 4461. In Asia, Japan's Nikkei added 0.6% at 11,069 and Hong Kong's Hang Seng was closed for the Chinese New Year.

Sector Scorecard

In general, companies have had little trouble beating analyst expectations, but with fourth-quarter earnings season almost halfway done, there have been few surprises on a sector basis. Economically-sensitive sectors have had the best quarters thus far, while more stable areas posted less impressive results.

Big winners include telecommunications, information technology and financials. Telecommunication stocks have outperformed the pack by a landslide; earnings have risen by over 1,200% from the same quarter last year, a tremendous turnaround considering last year's 4.5% decline in the fourth quarter, according to Bloomberg. Coming in a distant second, IT profits have improved about 62%, a dramatic recovery from last year's 7.8% increase. Finally, financials improved 33.8% from 5.5%.

Laggards include consumer staples, energy and utilities. Earnings in the consumer staple sector grew by only 9%, energy rose by 19.3% and utilities increased by 20%.

Although he wasn't surprised by the results, Daniel Morgan, fund manager at Noble Financial Group, expressed relief that earnings have met expectations. "We got what the Street was banking on, but I am very pleased because it has been three years of pain."

Looking ahead, investors may need to dig a little deeper to find value as the economic recovery continues, said Arthur Hogan, chief market analyst at Jefferies.

"As the recovery matures, we should see shifts to software from semiconductors and to consumer durables from consumer staples," Hogan said. Consumers and corporations "will buy more of what they want, rather than just what they need," he said.

Hogan also expects investors to focus on areas with higher quality earnings. "During the first year of the bull market, investors poured money into businesses that had been struggling but managed not to go out of business, like AT&T Wireless (AWE Quote) and Lucent (LU Quote)," noted Hogan. "In the second year of a bull market, it is typical for people to shift money to names that make money year after year, like Intel (INTC Quote) and Microsoft (MSFT Quote)."

Movers

In earnings, Weyerhaeuser (WY Quote) announced a quarterly profit of 47 cents a share, which missed analyst expectations by 5 cents. The company had earned 41 cents in the same quarter last year. The stock lost $3.38, or 5.1%, to $63.21.

Northwest Air (NWAC Quote) remained in the red, losing $1.49 a share compared with last year's $2.08 loss. However, the loss was smaller than expected; analysts had forecast the company to lose $1.60 a share. The shares tumbled 63 cents, or 4.5%, to $13.36.

Schlumberger(SLB Quote) said Friday that it earned 50 cents a share in its fourth quarter, excluding certain items, surpassing analysts' consensus for 43 cents a share. Total sales were up about 11%. Merrill Lynch tagged the stock with an upgrade following the announcement, lifting it to buy from neutral. The shares rallied $4.27, or 7.7%, to $59.85.

And Alltel(AT Quote) reported quarterly earnings, excluding items, of 77 cents a share, matching analysts' projections, on a 4.7% increase in sales. The company's stock lost 50 cents, or 1%, to $49.31.

In research calls, Morgan Stanley upgraded Flextronics(FLEX Quote) to overweight from equal weight while also upgrading shares of Automatic Data(ADP Quote) to equal weight from underweight. Flextronics improved 30 cents, or 1.7%, to $17.80, while Automatic Data gained 26 cents, or 0.6%, to $42.22.

One day after topping earnings expectations, Pfizer (PFE Quote) was upgraded by CIBC World Markets to sector outperform from sector perform. The stock fell fractionally to $36.15.

Amgen (AMGN Quote) was downgraded by Thomas Weisel Partners to peer perform form outperform; the broker also lowered the price target to $70 from $80 a share. The company triggered a late-day slide in technology shares Thursday after it accidentally reported its earnings before the close. The shares added $2.46, or 4%, to $63.93.

Looking ahead, existing home sales will be released Monday morning and are expected to increase slightly to 6.10 million units in December from 6.06 million in the month prior.

Investors will also be awaiting the Federal Open Market Committee's first meeting of the year on Tuesday. The Fed's latest take on monetary policy will be released Wednesday at 2:15 p.m., at the conclusion of the two-day meeting.

In earnings, Tyson Foods (TSN Quote) and Schering-Plough (SGP Quote) will report before the open Monday. American Express (AXP Quote) will report during trading hours. After the close, look for results from McDonald's (MCD Quote) and Texas Instruments (TXN Quote).