Sunday, June 06, 2004

Market Week in Review

S&P 500 1,122.50 +.11%

U.S. stocks finished mixed last week as falling energy prices and rising interest rates led many investors to remain on the sidelines. Market volatility increased, investor complacency decreased and volume was light. The holiday-shortened week began with investor anxiety over terrorist attacks in Saudi Arabia sending oil prices higher and stocks lower. As well, Merrill Lynch made negative comments on Intel ahead of its mid-quarter update which weighed on technology shares early on. As OPEC began to make significant comments with respect to their determination to see lower oil prices, stocks began to rally. However, investor jitters resurfaced quickly ahead of Intel's update, President Bush's trip to Europe and the May jobs report. Finally, stocks finished the week on a modestly strong note as Intel strengthened its revenue guidance range and the U.S. jobs report exceeded expectations.

There were a few other positive developments during the week. Auto sales exceeded expectations as dealers said they were seeing no ill-effects from higher gas prices and interest rates. Same-store-sales for retailers were especially strong in May. Wal-Mart and J.C. Penney gained after the retailers said sales rose more-than-expected. Mandalay Resort Group announced earnings that significantly beat expectations. Finally, Comverse Technology reported earnings that exceeded forecasts and it raised forward guidance.

Bottom Line: Overall, last week was characterized by a cautiously positive tone. The fact that U.S. stocks rose in the face of a terrorist attack in Saudi Arabia and rising oil prices at the beginning of the week is very positive. As well, it is obvious that the American consumer is financially healthy and willing to spend as their record-high wealth levels, increasing incomes and better job opportunities more than offset higher interest rates and energy prices. However, volume was light throughout the week as an imminent interest rate hike by the Fed and the expectation of increased terrorist activity into Iraq's handover on June 30 continued to weigh on investors' minds. It was definitely disappointing that falling energy prices, an unexpectedly positive mid-quarter update by Intel and a very strong jobs report could not generate more enthusiasm.

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