Stocks finished the week on a down note as investors digested a mixed bag of earnings reports from the likes of Microsoft (MSFT ) and Sun Microsystems (SUNW ), effectively ending the recent Fed-fueled rally.
The latest quarterly results, many of which met or beat expectations, sparked a sell-off after two days of significant market gains caused by the Federal Reserve's surprise 50 basis-point inter-meeting interest rate cut Wednesday. Analysts pointed to profit-taking from the week's rally. Over the last five sessions, the Dow is up 3% while the Nasdaq Composite rose 12%.
"It's been an incredible week for the market especially the Nasdaq. We saw the double punch of earnings that were at or better than lowered expectations and the Fed cutting rates," says Peter Coolidge, head trader at Brean Murray & Co. The possibility of the economy stabilizing sent the market much higher, "but now we see the market take a breather as it got ahead of itself on a short-term basis," Coolidge says. The economy is still struggling and investors will continue to look to the Fed for additional short-term rate cuts at its next policy-setting meeting on May 15.
Recent tech strength could falter beyond Friday. "I think we'll get a little more profit-taking next week because the Nasdaq has basically gone up 33% since the low Apr. 4 and I wouldn't be surpised if we retraced just beneath 2,000," says Peter Green, a technical analyst at Gerard Klauer Mattison. Green says the recent strength in technology stocks is owed to technical strength and could fall back to the mid 1,900 range next week.
After the market close Thursday, Microsoft, a component of the Dow Jones Industrial Average, posted third-quarter results that beat Wall Street estimates. Strong sales of its Windows 2000 operating system and other corporate software drove growth at the world's biggest software maker.
Among today's other market moving stocks, eBay Inc. (EBAY ) also provided the Street with good news. The Internet auction site posted sharply higher first-quarter sales and earnings and projected continued strong growth.
Meanwhile, network computer maker Sun Microsystems disappointed as it missed a lowered sales target in the third quarter. The company said it was not clear if the economic downturn would reverse anytime soon.
PMC-Sierra Inc. (PMCS ) posted a first quarter EPS of $0.02 compared with $0.15 as narrowed gross profits offset a 5% revenue rise. Robertson Stephens upgraded the chip-networking company, which was trading higher.
The Dow was pinned down by Merck & Co. Inc.(MRK ), the world's No. 3 seller of prescription drugs. Merck shares weakened after it posted an 11% rise in first-quarter profits, in line with analysts' expectations. Another Dow stock, Boeing Co. (BA ) put a lid on losses in the blue-chip index. The world's largest aircraft maker posted profits that easily beat Wall Street estimates.
The Dow finished down 114.38 points, or 1.07%, at 10,579.33. The Nasdaq Composite index fell 19.05 points, or 0.87%, to 2,163.09. The broader S&P 500 ended off 11.09 points, or 0.88%, to 1,242.61.
U.S. Treasuries finishd mixed. Investors had no economic data to look to on Friday. Treasury gains have been capped by a strong stock market this week and the view that the Fed's easing policy will lead to improved economic growth.
Stock markets in Europe ended lower after U.S. Treasury Secretary Paul O'Neill said on Thursday he was mystified that Europeans believe their growth will not be affected by the U.S. economy. London's Financial Times-Stock Exchange 100 index finished up 8.20 points, or 0.14%, to 5,879.80. In Germany, the DAX Index ended off 53.94 points, or 0.87%, at 6,127.97. In France, the CAC 40 finished down 30.71 points, or 0.56%, to 5,449.34.
Asian markets ended lower. In Tokyo, the Nikkei fell 102.61 points, or 0.74%, to 102.61. Meanwhile, in Hong Kong, the Hang Seng lost 100.82 points, or 0.74%, to end at 13,448.13.
By Amy Tsao in New York