Market Week in Review

S&P 500 1,125.38 -.80%

U.S. indices finished modestly lower last week on weakness in technology and retail shares. Stocks fell slightly on Monday after the early handover of power to Iraq failed to generate buying enthusiasm ahead of the Fed rate-hike and employment report. Stocks rallied mid-week on a much stronger-than-expected consumer confidence report and diminishing inflation fears after the Fed raised rates. The week ended on a weaker note as rising energy prices, concerns over technology earnings and a weaker-than-expected jobs report spurred profit-taking.

There were several notable movers last week. Shares of Research in Motion(RIMM) gained 16.8% after the company raised its forecasts for profit and sales growth this quarter. Electro Scientific(ESIO) rose 23.8% after it said sales in the fourth quarter more than tripled from a year earlier. Washington Mutual(WM) fell 7.1% after the company slashed its 2004 profit forecast because customers are cutting back on home loans. Kmart(KMRT) increased 5.2% after saying it will sell as many as 54 store to Sears for about $621 million. Gtech Holdings(GTK) dropped 16.1% after the company cut its fiscal second-quarter and 2005 profit forecasts because a judge in Brazil withheld revenue. AutoZone(AZO) declined 12.2% after saying sales at stores open more than a year fell 1% in the first seven weeks of the fiscal fourth quarter and retail same-store sales fell 3%. Target Corporation(TGT) fell 6.1% after saying June sales will be "well below" its expectations. Shares of Cardinal Health(CAH) fell 24.9% after saying 2004 profit missed forecasts and its accounting is being probed by federal prosecutors. Emulex(ELX) plunged 48.2% after saying fiscal fourth-quarter profit and sales were less than forecast. Finally, Mamma.com(MAMA) dropped 15.9% after it was reported that Mark Cuban sold his 9.2% stake.

Bottom Line: Investor psychology, while improving, is still overly pessimistic. Just a week ago Thomson First Call said positive-to-negative earnings pre-announcements were running at a record high. However, a few bad reports last week sent entire sectors reeling. Moreover, technology investors continue to view the glass as half empty. However, I expect technology companies to exceed expectations for the third and fourth quarters. The continuing declines in the CRB Index and interest rates point to an abatement in inflation fears which is a very positive development. Higher interest rates and inflation have been the bears' main arguments for lower stock prices. While Target, Wal-Mart and some auto-makers recently reported disappointing sales forecasts, lower interest rates and higher consumer confidence should result in another strong sales spurt in the next few months. Unfortunately for the bulls, the handover of power to Iraq, a break-out in consumer confidence and lower interest rates could not push stocks higher. A failure by stocks to move higher in the coming week will likely result in a continuation of the current trading range for longer than I had anticipated.