A smattering of better-than-expected economic data and traders' fear of missing a rally could not fully overcome disappointing corporate news and rote anxieties about geopolitics this week. As a result, major averages ended in arrears.
For the week, the
Dow Jones Industrial Average
fell 1.6%, the
shed 0.8% and the
lost 0.9%. In February, the Dow fell 2% and the S&P 500 shed 1.7%, a third-straight monthly decline, while the Comp rose 1.3%.
The Comp's relative strength thus far in 2003 was challenged this week by the fallout from a revenue shortfall and downbeat guidance by
H-P's sheepish outlook dampened anticipation for a turnaround in the broader tech sector, as did
midquarter update Thursday and the tone of comments at a Goldman Sachs tech conference.
Nevertheless, hope springs eternal, and a variety of sell-side analysts issued positive comments about chip stocks this week. On Friday,
rose 3.2% after Lehman Brothers' Dan Niles raised his earning estimates for 2003 and 2004. For the week, the Philadelphia Stock Exchange Semiconductor Index rose 1.5%.
An accounting scandal at European retail giant
was the week's other major corporate news event. Disappointing results for
First Horizon Pharmaceuticals'
warning, lowered February sales by retailers such as
, and better-than-expected results from
were other corporate highlights (and lowlights).
The week's economic news was tilted more toward the upbeat, including Tuesday's record existing home sales report, Thursday's durable goods data and Friday's trio of reports: Fourth-quarter GDP was revised upward to 1.4% from 0.7% vs. expectations for 0.9%; the University of Michigan consumer confidence index was revised upward to 79.9 vs. fears of a big decline, and; the Chicago Purchasing Managers Index did not fall as much as expected, remaining well above levels indicating expansion.
On the downside, the Conference Board's consumer confidence index fell to a nine-year low, new home sales fell a sharp 15%, and initial jobless claims unexpectedly rose.
Meanwhile, the Economic Cycle Research Institute's weekly leading U.S. index fell to 118.7 for the week ended Feb. 21 from 119.5 the prior week. The index's six-month growth rate fell to negative 0.5% from flat.
"With WLI growth
rate once again dropping into negative territory, the recovery is becoming more vulnerable to shocks, and the oil price spike could be a problem," Anirvan Banerji, ECRI research director and
contributor said in a statement.
Fear Comes in All Sizes
In addition to all of the above, month-end considerations and widespread fear of missing a rally kept major averages' weekly declines contained.
Regarding the former, many portfolio managers try to goose their performance by buying more of their favorite names at the end of the month (or quarter or year). Regarding the latter, even many self-described bears concede they're worried about being caught short in the event of any "good" news event, as discussed
Meanwhile, those with an outwardly bullish bent were eager to buy on any apparent progress on the geopolitical front. For example, shares rebounded midday
Tuesday amid rumors Russia had brokered a peace deal with Saddam Hussein.
On Friday, shares rallied briefly on news Hussein agreed to destroy banned al-Samoud missiles, which chief weapons inspector Hans Blix called a "very significant" development, and France declared evidence the inspections are bearing fruit. Still, the Dow and S&P closed well below Friday's intraday highs, although the Comp rose 1.3% for the session.
Heading into the weekend, there was some chatter about the possible outbreak of war in the coming days, timed with a new moon on the Arabian Peninsula. But there seem to be a lot of reasons why war is unlikely to start this weekend, including the ongoing debate among U.N. Security Council members about the most prudent course of action. Also, gold prices were fairly subdued and slightly negative this week, which seems inconsistent with the imminent outbreak of hostilities. (Then again, anything is possible.)
Given all those crosscurrents, "longs lack conviction" and "shorts ... are glum," observed Rick Bensignor, chief technical analyst at Morgan Stanley. Short-sellers "keep covering on fears of an in-your-face rally, but volumes have dried up and so much of the trading is professionally based scalping."
In other words, the market was volatile, range-bound and frustrating, with below-average volume, which pretty well sums up this week.
Something else to contemplate about this week's action is the apparently
conflicting messages from various markets. The 10-year Treasury note ended the week yielding 3.69%, its lowest level since hitting an all-time low of 3.57% on Oct. 9. Meanwhile, crude futures rose as high as $39.99 per barrel intraday Thursday, their highest level since Oct. 12, 1990, before retreating, ending Friday at $36.60. Also, natural gas futures soared early in the week.
In contrast to those extreme levels in other markets, major stock proxies remained well above their October lows this week (save the Dow Jones Transportation Average, which breached its October low intraday Tuesday before reversing and closing higher.)
The relatively little drama in equities vs. other markets suggests either somebody knows "something" or the consensus expectation for a sharp rally "when the bombs start dropping" is keeping shares artificially elevated. Either way, some resolution of this uncertainty should be evident soon, perhaps even by Monday.
Unless, of course, war remains in the offing and this tortured state of limbo for financial markets resumes for another week, or more.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.