Holiday-Mode Market Shops for Window Dress

With traders (and reporters) wistfully eyeing the forthcoming holiday weekend, stocks fell early, then rallied midday before lurching into the close.

The Dow Jones Industrial Average closed off 0.3% to 8670.99, after trading as low as 8558.02 in the early going and as high as 8742.01 at midday. The S&P 500 finished down a fraction to 917.80 vs. its apex of 924.59 and nadir of 903.33. The Nasdaq Composite, the relatively strongest performer throughout the session, finished up 1.6% to 1335.77 after having traded as low as 1295.79 and as high as 1345.47.

A number of stock-specific issues weighed on sentiment early in the day, including:

  • Lehman Brothers' estimate cut of General Electric (GE), which finished down 3% and was the second-biggest drag on the Dow, behind Procter & Gamble (PG).
  • Morgan Stanley's downgrade of Micron Technology (MU), which slid 3.3%.
  • J.P. Morgan's downgrade of Kroger (KR), which fell 5.9%.
  • A profit warning by Roadway (ROAD), which fell 14.2% and helped drag the Dow Jones Transportation Average down 2.9%.
  • On the macro front, the government reported that weekly jobless claims rose to 403,000, the highest level since the week of July 6 and well above expectations of a dip to 387,000. Separately, the Commerce Department did not revise its initial report that second-quarter GDP rose 1.1%.

    Those developments helped push major averages down early in the session, and that in turn weighed on the dollar. The Dollar Index fell 0.49, to 106.73, but above its intraday low of 106.32.

    The stock market's recovery from its early decline -- the final-hour swoon notwithstanding -- was attributed to a combination of month-end "window dressing" by mutual funds and the thinness of trading in a preholiday atmosphere. About 1.16 billion shares traded on the NYSE, or 26% below the three-month daily average, according to Bloomberg. Just over 1.2 billion shares traded over the counter.

    There was also (dare I say it?) bargain hunting, an overworn phrase I'm loath to use. But it certainly seemed as if speculators were interested in shares of some previously beaten-down names today, especially in technology.

    Notably, the Philadelphia Stock Exchange Semiconductor Index closed up 0.2% to 304.33 after having traded as low as 293.17. The SOX, which had fallen more than 16% from Aug. 19 through yesterday, overcame not only Micron's fall but a UBS Warburg downgrade of chip-equipment makers, including Novellus ( NVLS), which rose 0.5% to $24.29 after trading as low as $23.14, and Lam Research ( LRCX), which ended up 0.3% to $11.95 vs. its low of $11.04. (After the close Sun Microsystems ( SUNW) issued some cautious comments about its quarter. So did Novellus, which issued a warning about its third-quarter results, raising questions about the wisdom of today's buyers.)

    Separately, Microsoft ( MSFT) rose 2.4% to $50.58 after trading as low as $48.50 despite Goldman Sachs lowering its price target to $60 from $70. Goldman also eliminated its targets on Oracle ( ORCL) and Siebel Systems ( SEBL), but shares of each ended higher.

    The Comp's climb was also aided by a Merrill Lynch upgrade of Yahoo! ( YHOO), which rose 11.9%. The Nasdaq 100 gained 1.8% to 961.69 after trading as low as 926.61.

    A Balm for Markets, a Pox on Homebuilders

    A more optimistic explanation for the market's performance comes from Steve Massocca, president of Pacific Growth Equities in San Francisco.

    "One of things that's happened quietly is concerns about corporate malfeasance have been pushed to the back burner," Massocca said. "The market is taking some solace from that."

    The passage of Aug. 14 without a slew of major revelations of wrongdoing or restatements "seemed like a balm," Massocca said, acknowledging that he was skeptical about the significance of the certification date in the weeks prior to its occurrence.

    He argued that stories this week about Citigroup's ( C) allocations of IPOs to former WorldCom executives, and the indictments of many of the same, are "not new news."

    Today, the outlook for the economy is the "burning issue" on Wall Street, he said, agreeing with the majority opinion that there will be no double-dip recession. While acknowledging there won't be a "rip-roaring recovery," he suggested positive growth will "translate into higher corporate profits," which are "the building blocks of a rally." (The government did reiterate in today's GDP report that after-tax corporate profits rose 1.7% in the second quarter.)

    "The market will be very reactive" to various pieces of economic data, Massocca said, but "I think we put in a bottom" in late July. He forecast the market will be "in a trading range with a bias to the upside" going forward.

    The strategist, who playfully admitted his optimistic outlook "could be wrong," also cited recent reports of increased buying by corporate insiders and share buybacks by firms. "That's a sign people in the know are putting money to work," he said.

    Insider buying has been on the upswing in general, but the S&P Homebuilding Index (symbol HMBLD on most services, for those who've inquired) fell 2.6% today in part because of a story in The Financial Times that reported homebuilding insiders sold a record $258 million more shares then they bought in the second quarter.

    That is the largest net quarterly sale of stock in the industry since 1996, the paper reported, and it runs counter to the overall trend of insider buying in other industries.

    Insider selling is one of the things homebuilding bears have been talking about for some time now. "Watch what they do, not what they say" is one of the favorite sayings of Seabreeze Partners' and's Doug Kass.

    Insider activity being one of those things that doesn't matter until it matters.

    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.

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