Market's Ability to Extend Gains May Hinge on Tech
Wall Street could extend gains this week if financial results from market bellwethers such as Cisco Systems and data suggest the U.S economic slowdown is not as dire as once feared.
Besides news from Cisco, the largest network equipment maker, the technology sector will be on the front burner because of Saturday's decision by Microsoft to end its bid to buy Yahoo after the Internet company turned down its offer to raise the price by $5 billion to $47.5 billion.
Analysts say Yahoo has overplayed its hand and they expect the Web pioneer's shares to fall as much as 30 percent to $20 levels when Nasdaq trading resumes Monday. The stock rose nearly 7 percent to $28.67 Friday on hopes of an agreement between Microsoft and Yahoo.
"Overall, it's a modest positive for the market, because of Microsoft's weighting in the Nasdaq composite and the S&P," said Fred Dickson, market strategist, director of retail research, D.A. Davidson & Co. Lake Oswego, Oregon.
"There are enough skeptics out in Wall Street land that were really questioning Microsoft's strategy, and they will applaud Microsoft for basically holding firm to fact they had a price in mind, and they're not going to overpay."
Economic reports this week are expected to shed light on the vast services sector, housing and productivity.
Also high on the agenda will be a speech Monday by Federal Reserve Chairman Ben Bernanke on mortgage delinquencies and foreclosures.
Investors will have a batch of earnings reports to sift through as they also gauge the outlook for an economy battered by a housing slump and record oil prices.
"There needs to be more proof, either in economic data or continued strong earnings reports, to be able to move us significantly higher," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
Recent reports, including Friday's government release on April payrolls, helped calm worries about the economy's slump, sending major indexes to levels last seen in January.
The market also moved upward on another rate cut by the Fed on Wednesday, a pullback in commodity prices and a rebound by the dollar. But how long this bullish scenario will play is unclear.
"We may get a focus toward earnings. We've seen a little relief there, but we'll probably need some other events to get us above the 200-day moving average on the S&P," said Michael Strauss, chief operating officer and chief economist at Commonfund, based in Wilton, Connecticut.
"Some of what may be under way is the unwinding of the materials stocks. There's some cashing in of the chips."
This week the S&P 500 rose above the psychologically important 1,400 and the Dow surpassed 13,000 as investors snapped up financial and technology shares, two of the worst-hit areas previously.
In a sign of investors' skittishness, Friday's trading started with big gains that later faded on a slide in shares of Sun Microsystems . The business computer maker posted a surprise net loss, sparking downgrades of its stock.
On the week, however, the Dow ended 1.3 percent higher, the Nasdaq advanced 2.2 percent and the S&P 500 rose 1.2 percent.
Cisco, whose routers and other networking gear form the backbone of many corporate networks, is due to post results on Tuesday. Fannie Mae , the largest U.S. home funding company, and D.R. Horton , the largest U.S. home builder, also will announce results on Tuesday.
Other key company earnings later in the week include Walt Disneyand American International Group , the world's largest insurer.
The week's economic calendar will begin on Monday with the Institute for Supply Management's non-manufacturing index for April. Other reports during the week include first-quarter productivity and costs, March pending home sales and March international trade.
The Fed's Bernanke is scheduled to speak on Monday evening in New York. On Tuesday, Federal Reserve Bank of Kansas City President Thomas Hoenig will speak in Denver.
On Wednesday, Fed Governor Randall Kroszner is scheduled to speak in Cincinnati, Ohio.