Market Week in Review

S&P 500 1,135.02 -.13%

U.S. stocks finished mixed last week on a slight pick-up in volume as violence in the Middle East offset strong economic reports and falling interest rates. Commodity-related stocks showed relative strength and technology shares lagged throughout the week. Stocks fell on Monday as interest rates rose ahead of key inflation reports. However, bonds rallied sharply on the release of these reports as they showed core inflation remained subdued and expectations for future inflation diminished. A much higher-than-expected reading on consumer confidence and positive comments from Alan Greenspan with respect to inflation also buoyed stocks mid-week. The week ended on a mixed note as rising oil prices and fears over a technology sector slowdown pressured shares on Thursday. However, by Friday investors once again focused on falling interest rates as U.S. stocks ended the week on a positive note.

There were several notable movers last week. Microsoft(MSFT) rose 5.9% on speculation over a massive share buyback and improving fundamentals. General Electric(GE) rose 3.6% on strong economic reports and falling interest rates. Cyberonics(CYBX) rose 101.5% after the FDA recommended approval of the company's brain-stimulation device for severe depression and speculation of a Boston Scientific takeover. Red Hat(RHAT) fell 21.7% after the company reported disappointing 1Q sales and lowered its 2Q forecast. Jabil Circuit(JBL) fell 12.7% after reducing its 04 forecast. Yellow Roadway(YELL) gained 2.3% after raising 2Q estimates on broad-based economic strength. Nucor(NUE) rose 6.7% after boosting its 2Q forecast. Solectron gained 10.6% after beating 3Q estimates and raising 4Q guidance. Finally, Symantec(SYMC) fell 9.5% over concerns of increasing future competition from Microsoft.

Bottom Line: Overall, last week was mildly positive for the bulls. Fundamentals continued to improve and interest rates seem to have stabilized. It is also very positive that market bell-weathers General Electric and Microsoft are acting much better. However, the anxiety in the tech sector in the face of improving business conditions is somewhat concerning. This skepticism is positive for the longer-term health of the sector. I continue to believe tech stocks will outperform in the second half as valuations continue to fall and corporate tech spending accelerates. Oil appears to be headed lower in the intermediate-term as last week's attacks could not move prices up significantly. The outperformance by commodity-related stocks last week tells me that investors are not as concerned about inflation as in recent weeks. This counterintuitive logic is based on the belief that the Fed will not raise rates excessively, thus killing the economic recovery, resulting in a crash in commodity prices. Volume continues to remain light ahead of the Iraqi handover of power, end of the quarter repositioning, Russell rebalancing and Fed rate hike. More pundits and analysts are anticipating an upward move in U.S. stocks at the first of July, which means it is likely a move will begin imminently or later than I currently anticipate. I continue to believe long-term investors should use any excessive weakness over the next few weeks to accumulate shares in favorite stocks.