Market Week in Review

S&P 500 1,112.81 -1.43%

U.S. indices finished lower last week as disappointing tech sector earnings, political worries, terrorism concerns and rising oil prices provided the negative catalysts. Stocks fell modestly on Tuesday after Veritas Software(VRTS) announced a substantial earnings shortfall and energy prices rose over the holiday-lengthened weekend. As well, investor concerns regarding the possibility of anti-business political rhetoric, increasing taxes and more regulations pressured shares from the open. Stocks saw further declines mid-week after it was reported that the FBI warned guards at the Canadian and Mexican borders last month that al-Qaeda agents may try to cross into the U.S. to launch terrorist attacks to disrupt the upcoming U.S. election. Moreover, weaker-than-expected reports from Yahoo!(YHOO), Beazer Homes(BZH) and Seibel Systems(SEBL) further prompted selling. The week ended on a more positive note after strong earnings reports from General Electric(GE) and SAP AG(SAP) resulted in bargain hunting.

There were several notable movers last week. Shares of Veritas Software(VRTS) plunged 30.3% after saying second-quarter sales and profit missed forecasts. JDA Software(JDAS) declined 14.5% after missing second-quarter estimates. Netease.com(NTES) fell 14.1% after warning of a second-quarter revenue shortfall due to competition in text messaging in China. Yahoo!(YHOO) dropped 11.3% after second-quarter earnings failed to meet optimistic expectations. Siebel Systems(SEBL) decreased 18.0% after second-quarter profits and sales failed to meet estimates. Checkfree(CKFR) gained 8.5% after saying it signed a five-year contract extension to provide electronic billing and payment services for Wachovia(WB). Beazer Homes(BZH) fell 7.5% after saying that orders for new homes in the third-quarter lagged estimates. BMC Software(BMC) dropped 16.7% after saying sales rose less than forecast as large customers in the U.S. delayed purchases. Finally, Tuesday Morning(TUES) rocketed 16.4% after reporting better-than-expected second-quarter results.

Bottom Line: Last week saw significant declines in the technology sector as a number of companies reported disappointing results. As discussed in the Economic Week in Review, it is apparent that some areas of technology, specifically software, are still ailing from the overcapacity generated by the mania of the late 90's. Too many companies are going after the same markets, thus any slight down-tick in demand results in outsized earnings shortfalls. Only an increase in demand or consolidation, in the form of takeovers or bankruptcies, will cure this problem. I continue to believe that oil has formed an intermediate-term top and will began to drop to the low-mid 30's at any time. Outside of technology, the earnings pre-announcement season has been pretty good. However, terrorism worries and anti-business political rhetoric will only increase until after the election. Overall, last week was a bad week for the bulls.