A big question ahead of Friday trading is whether the "halo" around Microsoft's first quarter and other strong earnings reports will provide enough momentum to overpower the dark fears stalking credit and the financial sector.
Thursday's market was driven by a certain amount of anxiety, despite some positive earnings news from the likes of Motorola and EMC . Once more, the market was highly volatile. The Dow, in a mostly down day, swung more than 200 points before closing down just three points. Nasdaq was down 23 points or 0.9% and the S&P 500 was off 1.48 points.
Adding to the volatility in stocks was a big spike in oil. Crude surged 3.86% or $3.36 to $90.46 per barrel, its biggest one day gain in nearly nine months. Some stock traders said there wasn't a lot of buzz around oil's rise, but still it certainly drove a lot of trades into oil stocks. The dollar fell to its lowest level against the yen since Sept. 10 and struck a new all-time low against the euro.
Merrill Lynch's surprisingly large writedown Wednesday spilled over into Thursday's trading, sparking concerns that other financial companies are harboring big problems. The rumor du jour centered on insurer AIG, which was down sharply until CNBC's David Faber knocked down the rumor in late afternoon.
Mortgage insurers stocks were under also pressure. MGIC slashed its dividend and reported a big loss as a result of rising homeowner defaults. After the bell, Radian , which invested with MGIC in a suprbrime venture, said it had a strong capital position and balance sheet. Radian shares recovered some of their losses on the comment.
Also, new monthly mortgage servicing data showed a surprisingly large number of mortgage delinquencies. That news hit the ABX mortgage index and drove down the stocks of companies like Washington Mutual . Speaking of mortgages, troubled Countrywide Financial is one of the companies reporting earnings Friday, and it is expected to report a loss of $1.26 per share.
Other earnings reports Friday will come from Fortune Brands, Baker Hughes, Brunswick Corp and ITT. There is little economic news. Consumer sentiment is released at 10 am.
Microsoft's after-the-bell earnings will be a feature ahead of the open. Profits increased 23% to $4.29 billion, its fastest quarterly growth since 1999. Revenues were a stunning $13.76 billion, up 27%. Sales of Windows and Office products rose to $8.2 billion on the back of strong PC sales and with help from its new Vista operating system. The new Halo 3 helped video game revenues double. Microsoft stock soared, adding 10% in late trading.
Microsoft's good news could spread to the rest of tech, but traders Thursday said they were beginning to see signs that fast-rising tech stocks could be ready to give back some gains.
Turning From Tech?
"We're getting close to a top in techs," said Peter Costa as he watched Microsoft soar. "That's a great move for that stock. That stock never moves like that. I don't like that deal with Facebook. It's typical of what they did in the late '90s. They're paying a lot for an idea -- even though this is a legitimate business." Microsoft has said it would pay $240 million for a 1.6% stake in face book, giving the social network web site a value of $15 billion.
Some profit taking in tech was apparent. The S&P technology sector was down 0.33%, while the best performer was the utilities sector, up 1.95%. Next best was energy, up 0.61%. It's never a happy market when investors run for cover in the high-yielding utility plays.
Costa, senior managing director at Eckhart, said he saw some rotation from techs into energy on the NYSE floor. He said the market's pattern Thursday was the same as the day before -- lots of volatility, movement on the downside and then a kind of lackluster close. "As far as investors go, they are kind of treading water and not going anywhere," he said from the NYSE.
Next Wednesday's Fed rate decision somehow finds its way into every conversation about stocks these days. Traders expect for the most part a 1/4% cut but some are holding out hope for more. "I do think once that gets out of the way, no matter what they do, trading patterns will develop once more," he said.
CNBC's Larry Kudlow will interview Vice President Dick Cheney Friday. Kudlow interviewed Rep. Charles Rangel, D-N.Y. Thursday. "As a big admirer of House tax chief Charles Rangel, I'm completely in his corner for a Reagan-Rostenkowski 1986 tax reform movement," Kudlow said. But, Kudlow says he believes the tax burden should NOT be put on individuals, small business or capital gains.