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SAN FRANCISCO -- Disjointed pretty much sums up the past week on Wall Street, as reflected by returns for the major averages. For the week, the

Dow Jones Industrial Average

rose 0.2% while the

S&P 500

shed 1% and the

Nasdaq Composite

lost 1.9%.

Following Friday's tumble, you could throw disillusioning and disappointing into the mix to describe this week.

On Monday, stocks rose with blue-chips moving significantly higher while techs enjoyed a tepid advance. The gains dissipated Tuesday, with growth names at the vanguard of the decline. Techs snapped back Wednesday with a big advance while blue-chips stumbled. On Thursday, growth and value stocks rose in tandem amid talk a new, sustainable rally phase had begun.

But such chatter quickly evaporated following news

Thursday night from






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, and



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Friday morning, reminded investors of the difficult environment for corporate profits and saw its shares summarily slammed.


reports on the

Producer Price Index

and housing starts Friday added to concerns about the fundamentals, leading to a broad selloff. A mid-afternoon spike in oil prices following reports of U.S. air strikes vs. Iraq didn't help, although major averages did close above their worst levels of the session.

The Dow shed 0.8%, the S&P slid 1.9% and the Nasdaq tumbled 5% Friday as declining stocks bested advancers 19 to 11 in Big Board trading and by 13 to 5 in over-the-counter action.


prospects for a


ease is starting to lose its weight, there's so much bad news out there and confidence is so low," said Gregg Schreiber, vice president of institutional futures sales at

Bear Stearns

. "Whether the Fed lowers

interest rates another 25 or 50 basis points is not going to really change the reality -- the stock market is dealing with all the bad news."

Friday afternoon, Fed funds futures were pricing in a 70% chance of a 50-basis-point ease at the Federal Reserve's March 20 meeting but that's vs. a near certainty at the beginning of the week.

Like Schreiber, the Fed funds market and most traders shrugged off the PPI numbers as an aberration. Indeed, Treasury bonds recovered from their post-PPI swoon to finish higher Friday after weak reports on consumer sentiment and industrial production/capacity utilization. Funds flowing from equities also aided fixed-income securities.

The PPI number "was an exaggeration, but the point is we're building this in," countered Paul Karisel, chief economist at

Northern Trust

in Chicago. "We're gradually ratcheting up the inflation rate."

Kasriel, who has long argued

recession obsession overshadows the risk of inflation's return, believes higher energy prices and capacity constraints are going to limit economic growth going forward. But higher energy prices are filtering through to other aspects of the economy, such as food. That could lead to stagflation, he said, referring to the term coined in the 1970s to describe a period of weak economic growth and higher unemployment accompanied by higher prices.

"It's not as bad as the 1970s, but we've got a lot of problems in this economy," the economist argued. "We're seeing a weaker economy, some increase in unemployment, and the Fed is going to try and print more money to alleviate the situation. But at some point you're not going to have the policy latitude to do that because inflation can't be ignored or the dollar will weaken."

Kasriel does believe the Fed will ease at its March 20 meeting, but more likely by 25 basis points than 50.

How Did We Get Here?

That the inflation-deflation-stagflation debate was happening at week's end (and raging in's

columnist conversation) reflects how far and wide sentiment and investors' focus swung this week.

After witnessing an implosion at



and related stocks Monday, investors were whipsawed by Fed chairman

Alan Greenspan's

testimony Tuesday.

Greenspan essentially confirmed the economy had rebounded in January, raising the question of how aggressive additional easing will be. The chairman also conceded that central bankers are struggling to assess the economy given the "faster adjustments" of business cycles in the information age. The conflicting signals coming from corporate America and the economic data this week evoked the difficulty.

"Economic data is volatile -- today it tells you one thing, next week something else," Bob Basel, director of listed trading at

Salomon Smith Barney

quipped Friday afternoon. "Still, I'm positive on the market. I'm in the camp rates are going lower and there will be better earnings in the second half."

On Wednesday, similarly inclined investors took solace that the Nasdaq held above key technical support levels (where the index ended the week as well). The optimists chose to focus on the sliver of positive news from

Applied Materials

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while ignoring the negatives from

JDS Uniphase


. That hope was extended Thursday after some positive comments from


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Then came Friday's dizzying session, which had many market participants begging for the onset of the long weekend. (U.S. financial markets are closed Monday in observance of President's Day.)

Despite a week of what he called "the rotation game," Salomon's Basel said he didn't feel particularly gloomy or negative heading into the weekend.

"I feel like I normally do on Friday -- hung over from the week," he said.

Amazing what the human body -- and investors -- can tolerate and absorb as normal, isn't it?

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.