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Stocks Post First Weekly Slump in July

NEW YORK (TheStreet) -- U.S. stock markets posted their first weekly decline in July as investors balked at surpassing the 1,700 level on the S&P 500, unsure about the strength of the U.S. economic recovery and the Federal Reserve's commitment to maintain its stimulus program.

The S&P 500 turned positive in the final minutes of Friday's trading as it increased 0.08% to 1,691.65 but slipped 0.03% for the week. The Dow Jones Industrial Average added 0.02% to 15,559.20, and added 0.1% for the week. The Nasdaq finished up 0.22% at 3,613.16 and up 0.22% for the five-day trading period.

"For me, it has been and will continue to be all about the Fed and its willingness to continue $85 billion per month of MBS [mortgage-backed security] and Treasury purchases," said Michael Pento, president of Pento Portfolio Strategies based in Holmdel, N.J.. "If there is a tapering commenced in September, the equity market will react negatively and interest rates will spike towards 4% on the ten-year note."

Expedia ( EXPE ) posted the biggest percentage loss in the S&P, dropping 27% to $47.20 after the online travel service company missed second-quarter estimates by 15 cents at 64 cents a share, a result of poor performance at its Hotwire unit.

Starbucks ( SBUX ) was a clear winner, jumping 7.6% to $73.36 after the coffee chain posted fiscal third-quarter results that surpassed Wall Street expectations. Starbucks' Americas segment is "firing on all cylinder," Starbucks CEO Howard Schultz said on the conference call.

Cliffs Natural Resources ( CLF ) advanced 7.2% to $19.71 after the coal producer booked second-quarter earnings of 82 cents a share on revenue of $1.49 billion, surpassing the average analyst earnings estimate of 61 cents a share on revenue of $1.41 billion.

Tesla Motors ( TSLA ) popped 4.3% to $129.39 after one of the stock's biggest bears upgraded the stock, saying the stock could more than double in the next three or four years.

Next week, the Federal Reserve begins a two-day policy meeting as investors await the widely-watched U.S. government non-farm payrolls report for July, scheduled to be published on Friday. The government will also released its advance estimate of second-quarter U.S. gross domestic product on Wednesday.

Pento added that there's a potential for downside risks no matter the outcome of key U.S. data next week and therefore advises investors to sell into the resumption of a rally.

"A negative surprise [on the job report] to the downside would keep the Fed on hold but will send shares lower because investors need rising GDP and revenue growth to justify current stock prices," said Pento. "However, a reading much above 200,000 may boost the equity market in the short term but would lock in a tapering in September. Therefore, I would fade any rally."

Economists on average are expecting nonfarm payrolls to reach 184,000 for July and the jobless rate to come in at 7.5%, according to a Thomson Reuters poll of economists. Pento is predicting the job report to show a decline to 185,000 with the unemployment rate at 7.6%.

According to Thomson Reuters, the blended estimate for the second quarter, which reflects reported results and analyst expectations, is for year-over-year earnings growth of 3.9% from the S&P 500, down from 5.4% in the first quarter. So far 39% of S&P 500 companies have reported their earnings results.

The benchmark 10-year Treasury was rising 3/32, diluting the yield to 2.565%.

Written by Andrea Tse and Joe Deaux in New York

>To contact the writer of this article, click here: Andrea Tse.>

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