The Sound and the Fury: Stocks Flip-Flop, End Week Near Where They Started

(Updated from 4:14 p.m.)

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It sounds so 1999, but this was a good week for daytrading.

The equity market completed a perverse quintuplet of trading this week, alternating each up day with a down day. A poor earnings release out of Microsoft (MSFT Quote) was the impetus for today's decline.

Today was a down day, as major U.S. equity indices finished the day down, but considering the gravity of today's news out of Microsoft, the stock market held up reasonably well. The Dow Jones Industrial Average ended down 33 to 10,577, with 23 points of that decline attributable to Microsoft; the S&P 500 lost 4 to 1211 and the Nasdaq Composite Index dropped 17 to 2029. Advancers ended up beating out decliners 1,544 to 1,489 on the New York Stock Exchange .

In terms of long-term sentiment, however, nothing of consequence happened this week. The earnings reports and company announcements this week provided a few tentative reasons to be optimistic -- such as Dell -- while others -- like Microsoft -- didn't give anyone any solace. Microsoft said the second-half environment looks tough, and the stock ended the day off $3.39 to $69.18.

For the week, the charts nearly flatlined. The Dow ended the week just 38 points higher than where it started; the Nasdaq is 55 points lower, and the S&P 500 is just 5 points away from its original starting point Monday morning.

"If an investors knows how to use trading tools, this is the environment for that," said Paul Rabbitt, president of Rabbitt Analytics. "Stocks get overbought and oversold, and since there's no direction for probably another 90 days of any particular consequence, you can sell rallies and buy dips and be in pretty good shape."

The vacillating activity in the market this week wasn't the result of any kind of daily rethinking on the part of the market; it was generally a direct reaction to the most immediate set of earnings releases. In that way, the equity market served as kind of a bad politician, generally following the directive of the last person spoken to on a given day. Today, the man whispering in the market's ear was Bill Gates, and he was talking about Microsoft's tough outlook.

Other earnings reports helped offset Microsoft's woes today, at least in terms of trading. Unix server maker Sun Microsystems (SUNW Quote) met analyst expectations of 4 cents a share, but didn't say anything about the future. Regardless, Wall Street seems to be growing more and more accustomed to that as the months wear on. Sun ended up 59 cents to $15.03.

Pharmaceutical giant Merck (MRK Quote) met earnings estimates, but profits only rose 5% for the second quarter, slower than previous growth rates. The stock ended the day down 87 cents to $66.43. The American Stock Exchange Pharmaceutical Index ended the day up 0.6%.

PMC-Sierra (PMCS Quote) was shelled today after its earnings release, dropping 13% to $27.24. One of the day's worst performers on the New York Stock Exchange was Scientific Atlanta (SFA Quote). The communications company finished down 35% to $22.80 after reporting earnings following the Thursday close.

The Internet sector was strong following eBay's (EBAY Quote) earnings release. The online bazaar, one of the few profitable Internet companies, raised earnings estimates for the remainder of the year. The stock ended up 3.7% to $66.80.

Sundered And Undone

That the market can get more comfortable with no guidance is something; it at least suggests the market isn't going to explode the next time a couple comes out and says the environment is tough. In a sense, the collective wisdom of the equity market is asking for something new.

In order for things to get worse, something dreadful has to happen, and the recent economic data doesn't foretell of anything of that nature. In order for a dramatic improvement in stocks, increased expectations that the hoped-for improvement in profits and business spending has to start to become a reality, rather than just a pipe dream.

Until then, the market's going to have to enjoy stability in what's expected to be a long transition period. That period may go on longer than many want or believe, however. Early in the year, the "second half" recovery was the mantra. That eventually got put off, and it's getting further and further put off.

Perhaps Bush Administration official Larry Lindsay was right yesterday -- the impact of Fed easings may not cause dramatic improvement in the economic situation until perhaps the middle of 2002. The market may not be ready to accept that yet, although some analysts believe it's starting to concede a recovery later in the year.

"I think we're bumping along the bottom here," said Jim Russell, director of equity research at Fifth Third Bank in Cincinnati. "The market is wringing out expectations for a third quarter rebound. Earnings expectations are being lowered, not considerably, but moderately, but the earnings recovery appears to be pushed out a bit."

Market Internals

Market Internals
Exchange	Advancers	Decliners	New Highs	New Lows	Volume
New York Stock Exchange	1,544	1,489	88	40	1.15 billion
Nasdaq Stock Market	1,689	1,877	124	100	1.6 billion

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Most Active Stocks

NYSE Most Actives
Company	Shares Traded
Cendant (CD Quote)	39.5 million shares
Lucent (LU Quote)	30.2 million shares
Scientific Atlanta (SFA Quote)	27.2 million shares

Nasdaq Most Actives
Company	Shares Traded
Sun Microsystems (SUNW Quote)	75.3 million shares
Microsoft (MSFT Quote)	61.2 million shares
Intel (INTC Quote)	48.6 million shares

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Bonds/Economy

The 10-year benchmark Treasury note was lately down 4/32 to 99 1/32, yielding 5.129%. The 30-year bond was lately off 5/32 to 97 17/32, yielding 5.547%.

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International

European markets dabbled in red as investors sold off tech and telecom stocks in reaction to the ongoing profit woes in these sectors. London's FTSE 100 recently shed 50.30 points to 5387.1, while the Paris-based CAC-40 fell 49.69 points to 4880.70. Frankfurt's Xetra Dax gave up 65.53 points to 5764.06.

Stock markets in Asia fared slightly better, fueled by Thursday's rally in the U.S. stock market. Tokyo's Nikkei 225 gained 0.13%, or 15.81 points, to 11,908.39, and Hong Kong's Hang Seng rose 0.18%, or 21.86, to 12,301.68.

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