What a Week: Minor Tremors

The major averages had a strong start this week with a boost from a slew of M&A and private equity deals, including private-equity buyouts of Four Seasons Hotels(FS Quote) and OSI Restaurants (OSI Quote). But the market floundered through the remaining days with barely any economic data and a yawn-inducing election in terms of implications for companies, save the pharmaceuticals.

Stock investors had priced in Democratic control of the House of Representatives, but they hadn't expected the Senate to change hands as well. When it did Thursday, selling activity picked up, particularly in pharmaceutical and health care stocks.

The pharmaceutical sector fared poorly this week, as investors heeded lawmakers' warnings that the Democrats will revisit the high cost of prescription drugs for Medicare recipients. Shares of Pfizer(PFE Quote), Merck(MRK Quote) and GlaxoSmithLline(GSK Quote) dropped between 2.5% and 4.4% on the week. The Amex Pharmaceutical Index declined 2.6% this week.

Other sectors that might have been impacted by the change of control in Congress were largely untouched, as the notion of gridlock quelled investors' nerves. Indeed, the last major piece of legislation that meant much to the market was the tax cuts three years ago, and those are not an issue until at least 2008 as President Bush is unlikely to allow a repeal to pass his desk, if it were ever proposed.

"The one piece of unambiguously good news is that the election is over," writes Ethan Harris, chief economist at Lehman Brothers. No more negative campaigning or "cartoon-quality analysis," he writes.

The consumer came back into focus this week as the University of Michigan sentiment survey showed consumers scaled back their enthusiasm in November after it surged in September and October.

But Friday brought another view, as Kohl's(KSS Quote) posted blowout earnings and increased its forecast for the year. The company's shares gained 1.03% on the day. The S&P Retail Index gained 0.98% on the day and 1.9% on the week.

Economists will be watching the inflation data next week watching for increases in the price of food, as the average consumer's savings on the price of gasoline could easily shift to the grocery store. The price of food commodities are hitting highs -- orange juice is at a 17-year high, corn and wheat are hitting 10-year highs and soybeans are the highest they've been in a year.

Inflation in the grocery story could further the notion of Fed rate hikes. This week brought more hawkish Fedspeak and concerns about a falling dollar as foreign central banks warned of diversifying out of U.S. dollar assets.

The bond market ended the week with yields reflecting the pessimistic view of the economy. The 10-year note yielded 4.59% Friday, while the 30-year note yielded 4.69%.

So, with the election out of the way, angst over the data comes roaring back. The bond market seems to run with the bad news, but stocks are likely to be choppy as investors sort out their bets on the fourth quarter and the holiday season.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting