The markets had a choppy, holiday-shortened week marked by conflicting signals -- falling oil prices, evidence of wage inflation, more bad news from homebuilders and some last-minute

Fed

finagling. But perhaps the biggest theme for the week was low volume, which makes the week's moves hard for many traders to trust.

The market feels like participants are still on vacation, says James Paulsen, chief investment strategist at Wells Capital Management. "Volume all week has been holidaylike."

Despite finishing Friday near their highs of the day, the major averages took a breather from their late-summer rally this week. The

Dow Jones Industrial Average

gained 0.5% Friday, but lost 0.6% on the week, to close at 11,392.11. The

S&P 500

gained 0.4% Friday but fell 0.9% for the week. The

Nasdaq Composite

, which had rallied sharply through August, ended Friday up 0.5% but down 1.25% on the week.

The stock market continued to reveal its bet that the Fed will not raise rates again, regardless of relatively hawkish comments Thursday from the consummate dove, San Francisco Fed President Janet Yellen.

Strong performance among homebuilders and the autos this week suggests investors still buy the notion of a soft landing for the economy. Autos and homebuilders were the first to lead the market into the economic slowdown story when they began to slide in 2005. Their comeback suggests the stock market's discounting mechanism could be foretelling some better news for these industries six months down the road, says Paulsen.

The

case for a bottom in the homebuilders mounted, as the sector held up to negative news from several companies. On Friday,

Lennar

(LEN) - Get Report

was the latest in the week's string of earnings warnings or reports of weak new orders, including

KB Home

(KBH) - Get Report

,

Beazer

(BZH) - Get Report

, and

Hovnanian

(HOV) - Get Report

.

On the auto front,

Ford

(F) - Get Report

and

General Motors

(GM) - Get Report

had another strong week as the two companies make bold moves to boost sales and restructure their businesses.

Ford gained 2.21% Friday and 6% on the week after Tuesday's announcement that former

Boeing

(BA) - Get Report

executive Alan Mulally will replace Bill Ford as president and CEO. Meanwhile, GM added 1.46% Friday and 5.5% on the week after announcing an extension to the warranty it offers on its vehicles.

While some hoped the Labor Department's upward revision to second-quarter productivity Wednesday would boost the market, a higher-than-expected revision to unit labor costs spooked traders instead. Bond yields on the 10-year Treasury note edged up past 4.8% midweek, but came back down. The 10-year note ended Friday yielding 4.77%, after getting below the 4.75% mark last Friday.

Fed's Lips Are Moving

Treasuries saw minor selling Friday afternoon in response to an article by Fed-watcher Steven Beckner of

Market News International

. The article revealed Fed sources were surprised the bond market reacted to the Aug. 8 FOMC minutes by heralding them as dovish. Between Yellen's comments and the Beckner piece, bond traders might need to ease off the accelerator.

The bond market has been pricing in not only a weak economy, but a Fed ease sooner than any possible rate hike.

"What is being priced into the market is virtually irresponsible," says TJ Marta, fixed-income strategist at Royal Bank of Canada Capital Markets. Entering a week including retail sales figures and the August consumer price index data, the Fed is probably looking to even the odds a bit, says Marta.

Indeed, the Aug. 8 FOMC minutes were interpreted differently by economists and bond traders. "The Fed needs to explain why they paused and why they might hike again," says Ethan Harris, chief economist at Lehman Brothers. This is exactly what the Fed has been doing, he says, but the market takes each explanation of the pause as dovish.

The markets might be ignoring the Fed-speak because Bernanke isn't the man with the message. The Fed chairman has rejected every recent opportunity to signal the Fed's tightening bias. His

laissez-faire

attitude was outlined by

The Wall Street Journal's

Greg Ip on Friday morning. Ip described Bernanke's desire to run the FOMC by committee.

Bernanke doesn't want to join the cult of personality

a la

Alan Greenspan or America's chief executives. The new Fed chairman wants to reach the markets through the body's statements and documents, similar to The Bank of England's role.

"Bernanke is swimming against the tide on this one," says Harris. "The press and the public want faces attached to institutions. It is just much more interesting."

Indeed it is. And communicating through journalists at the last minute seems a bit too little, too late.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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