Updated from 4:10 p.m. EDTStocks ended a choppy session with modest gains Friday, snapping a streak in which all three major indices fell together for four weeks in a row, despite a disappointing report on second-quarter economic growth, soaring oil prices and reports of terrorist attacks at the American and Israeli embassies in Uzbekistan. The Dow Jones Industrial Average closed up 10.39, or 0.10%, to 10,139.63; the S&P 500 added 1.38 points, or 0.13%, to 1101.81; and the Nasdaq Composite was up 6.31 points, or 0.34%, to 1887.37. The 10-year Treasury note was trading up 26/32 to yield 4.47%, while the dollar was lower against the yen and slightly higher than the euro. Volume stayed typically light for a midsummer Friday, approaching 1.3 billion shares on the New York Stock Exchange, where advancers outnumbered decliners by about 3 to 2. On the Nasdaq, almost 1.5 billion shares changed hands, and advancers held close to a 5-to-4 majority. Semiconductor and biotechnology stocks showed particular strength, with the Philadelphia Semiconductor Index adding 1.3% and the American Stock Exchange Biotech Index up 0.8%. "Our opinion has been that if tech bounces, don't buy it. Sell it," said Doug Sandler, chief equity strategist with Wachovia Securities. "Some significant damage has been done on tech stocks, so it's going to be a while before they recover. But before every weekend, we seem to see caution on stocks and bullishness on oil. Nobody wants to be on the wrong side over the weekend." On the week, the Dow gained 1.8%, ending a five-week losing streak. The S&P added 1.4%, ending a six-week downturn, and the Nasdaq was up 2.1% after dropping four weeks in a row. All the indices remain below their starting point for 2004. The government said its advanced reading on second-quarter GDP-growth came in lower than expected at 3.0%, below the consensus estimate of 3.7%, but the first quarter's figure was revised up to 4.5% from the previously reported 3.9%. A steep drop-off in consumer spending accounted for most of the second-quarter weakness, slowing to an increase of only 1%, its lowest reading since 2001. In the first quarter, consumer spending rose by 4.1%.
Ken Tower, chief market strategist with CyberTrader, said that, while the headline number was disappointing, the first-quarter revision was so strong that the whole report was basically "a wash" in the eyes of investors, and he observes a pattern of early strength in sessions falling on the last Friday of the month going back four years. "There is a recurring pattern on these Fridays for whatever reason that shows a rally early in the day followed by a sell-off in the afternoon," he said. Paul Mendelsohn, chief investment strategist with Windham Financial, was surprised that the report was not inspiring more selling. "The biggest concern here is the decline in consumer spending, which suggests that the consumer is really slowing down here and this economy will have to depend on business investment to keep it going." In a more upbeat gauge of consumer trends, the University of Michigan said its revised reading of its consumer sentiment index for July beat estimates, rising to 96.7 after economists predicted a reading of 96.2. The preliminary figure was 96.0, up from June's final of 95.6. Also on the economic front, the National Association of Purchasing Management said its Chicago Purchasing Managers' Index rose more than expected in July, up to 64.7 from 56.4 in June. Economists expected the index to reach 60. In New York, crude futures for September delivery settled up $1.07, or 2.5%, to $43.82 a barrel, the highest close in the two-decade history of the contract. Traders continue to react to worldwide supply concerns, exacerbated by the dicey situation in Russia and inventory reports showing that gasoline supplies fell in the U.S. this week. A separate survey by the International Energy Agency predicts that worldwide oil demand will rise by about 2.5 million barrels a day this year over 2003, led by the U.S. and China.
Suicide bombers recently struck the U.S. and Israeli embassies and the prosecutor's office in the Uzbek capital Tashkent , causing a number of casualties, according to a report from Reuters. In other geopolitical turmoil, fighting raged between U.S. soldiers and insurgents in the Iraqi city of Fallujah, according the Associated Press. Small arms fire and mortar explosions reportedly killed 13 Iraqis and wounded 14 others. Back home, Democrat John Kerry's nomination speech Thursday night held some clues about what his presidential bid could potentially have in store for the investment climate. While the Massachusetts senator concentrated most of the address on foreign policy issues, he repeated vows to end "corporate welfare" and to roll back tax cuts for Americans earning more than $200,000 a year. The stock market has generally reacted badly to indications the sitting administration is vulnerable, ostensibly out of concern a Democratic president would target the dividend tax cuts enacted by President Bush in 2003. According to a handful of polls, the race remains a statistical dead heat. With no companies scheduled to release earnings after Friday's close, the week will end with 406 companies from the S&P 500 having reported second-quarter results. The blockbuster days of the earnings season have come and gone, and a quick survey shows that results lived up to their billing. So far, 69% of the companies on the books have beat estimates, above the historical average of 58%, and 14% of them have missed estimates, below the historical average of 20%. Companies beat estimates by an average 4.3%. That figure came down from 7% in the first quarter but remained well above the historical average of 2.9%. On a year-over-year basis, earnings for the quarter grew by 25.9%, well above the historical average of around 7%. The third-quarter is expected to slow to 14.7% growth while the fourth quarter is expected to tick back up to 15.6%.
"This is the first time we've seen four consecutive quarters of over 20% growth year-over-year since 1999-2000," said John Butters, a research analyst with Thomson First Call. "Before that, you'd have to go back to the 1970's to find four consecutive quarters at that level. We've never seen five in a row, so it's really not surprising that we're cooling off a bit later in the year." The leading sectors in year-over-year earnings growth were basic materials, up 85%, technology, up 62%, and energy companies, up 60%. In corporate news out Friday, ChevronTexaco ( CVX) reported that its second-quarter earnings doubled thanks to high oil and gas prices, echoing Thursday's report from Exxon Mobil ( XOM). Shares of Chevron closed up 17 cents, or 0.2%, to $95.65, while Exxon's stock gained 27 cents, or 0.6%, to $46.30. Chip-equipment giant KLA-Tencor ( KLAC) was trading higher Friday morning after beating earnings estimates in the fourth quarter and saying bookings should grow in the year's second half. On a per-share basis, net income totaled 48 cents, 3 cents ahead of expectations and far above last year's fourth-quarter EPS of 15 cents. The stock closed up $2.42, or 6.2%, to $41.23. In a potentially bullish report for tech investors, reseller Ingram Micro ( IM) said after the bell that second-quarter earnings rose 123% from a year ago amid "stable markets" that should help it match estimates in the current period. The Santa Ana, Calif., marketer and outsourcer earned $25.9 million, or 16 cents a share, in the three months ending June 30, compared with earnings of $11.5 million, or 8 cents a share, last year. Revenue rose 11% to $5.72 billion. Ingram expects to earn 16 cents to 19 cents a share on revenue of $5.7 billion to $5.9 billion in the third quarter. Analysts surveyed by Thomson First Call had been forecasting earnings of 18 cents a share on revenue of $5.84 billion. "Demand has been generally stable in all of our regions. We expect competition in North America to remain intense in the short term, yet we're confident that our new customer programs and growth initiatives will give us a market advantage when fully implemented." Its stock closed up 53 cents, or 3.9%, to $14.25.
Intel ( INTC) was falling after saying it will miss a deadline for shipping its 4-gigahertz version of the Pentium 4, marking yet another delay for the chipmaking giant. The Santa Clara, Calif.-based company now expects to ship the chip, originally slated for the fourth quarter of 2004, in the first quarter of next year. The stock ended up 14 cents, or 0.6%, to $24.38. Overseas markets were mixed, with the FTSE in London closing down 0.1%, and Germany's Xetra DAX added 0.1% to 3896. In Asia, Japan's Nikkei ended up 1.9% to 11,326, and the Hang Seng in Hong Kong was up 0.4% to 12,328. Next week will likely be dominated by anticipation of the government's monthly employment report, due out Friday. The job market is a sensitive area for workers, investors, economists and politicians alike, especially after the disappointing slowdown reported for June. In July, the economy is expected to have added 233,000 jobs, up from June's 112,000. The unemployment rate is expected to hold steady at 5.6%. A gradual easing of quarterly earnings reports this week will kick off with earnings due out before Monday's open from companies including Proctor & Gamble ( PG), R.J. Reynolds ( RJR) and SPX ( SPW). At 10 a.m. EDT, the Institute for Supply Management is expected to say its regional manufacturing index jumped to 62 in July from 61.1 in June. Also, the government is expected to report that construction spending declined by 0.1% in June, down from an increase of 0.3% in May. In addition, auto companies will release their sales results for July during Monday's session.