Stocks pulled off modest gains Friday as a drop in oil prices and enthusiasm for some better-than-expected economic reports outshined a warning from S&P of a possible downgrade on Fannie Mae and Freddie Mac.
But financial stocks declined as investors locked in profits from the sector's recent run.
The Dow Jones Industrial Average rose about 20 points, or 0.2 percent, while the S&P 500 index gained 0.4 percent and the Nasdaq advanced 1.3 percent.
For the week, major indexes finished mixed. The Nasdaq gained 1.2 percent, boosted by Qualcomm , which jumped more than 20 percent. The Dow shed 1.1 percent, dragged down by American Express , which lost more than 13 percent. The S&P 500 index fell 0.2 percent, anchored down by Merck , which dropped 13 percent.
Airlines and health-care stocks were some of the week's best performers, climbing 16 percent and 13 percent, respectively. Gold and semiconductors were among the worst, sliding 8 percent each.
Crude oil dropped more than $2 a barrel to settle at $123.26 a barrel. Oil prices have fallen for three weeks in a row and are now down 15 percent from the record close of $145.29 set on July 3.
The sharp drop in oil prices isn't based on fundamentals but highlights the level of speculation that's in the market, said Paul Nolte, director of investments at Hinsdale Associates. It "points to the fact that the market is still very much on tenterhooks--still very volatile--and will move violently with very little news," he said.
In today's economic news, consumer sentiment improved in July from the prior month, when sentiment was at the lowest since the early 1980s, helped by the tax-rebate checks. Durable-goods orders rose 0.8 percent in June, topping expectations of a 0.3-percent drop.
Friday also brought some new insight on the housing market: New-home sales fell 0.6 percent in June, the seventh decline in the past eight months, but it was a smaller-than-expected drop.
“New home sales look to be reaching a bottom and that is good news for everyone,” Joel Naroff of Naroff Economic Advisors, wrote in a note to clients. "We have moved up from the truly awful March number and seem to be settling on a somewhat higher base," he said, noting that the prior two months were revised up sharply.
Shares of homebuilders got a boost from the report, with Pulte Homes and KB Homes gaining 2.5 percent.
Fannie Mae fell 3.9 percent and Freddie Mac lost 6.1 percent Friday after Standard & Poor's warned it may cut its ratings on the companies' subordinated debt and preferred stock.
Financial stocks tumbled as some investors cashed in on the recent rally and some are "looking at the recent rally ... as a false start," Nolte said.
"If history is any guide, we may lose a few more banks -- there are a few on oxygen right now," Nolte said -- he's not as impressed with today's housing numbers and is worried about the high level of inventory.
Washington Mutual shares lost 4.7 percent on the New York Stock Exchange after an analyst note suggested that creditors are pulling funds from the company. The stock has taken a beating this week, losing more than a third of its value.
Shares of Wachovia fell 7.6 percent after Morgan Keegan cut its rating on the bank's stock to "underperform." Still, the stock's rally earlier in the week was enough that the stock finished up 10 percent for the week.
Bank of America was one of the biggest drags on the Dow and S&P Friday, falling 3.5 percent, though is still up about 6 percent for the week.
General Motors was the day's biggest decliner on the Dow, dropping 8.5 percent.
Qualcomm advanced after several brokerages raised their price targets on the chip maker's stock.
Juniper Networks shares jumped 18 percent after the company raised its full-year outlook amid strong demand for network equipment. Shares of rival Cisco Systems gained 3.1 percent.
Shares of Abercrombie & Fitch skidded after the teen apparel retailer's CFO resigned.
Next week is going to be a big week on the economic front. We've got the Case-Shiller home-price index on Tuesday, which will shed some more light on the housing situation. Thursday brings the first read on second-quarter GDP -- economists' estimates range from 1 percent to 2.5 percent, according to Reuters.
"This may be the big GDP number for the year," Nolte said, citing the bump from the tax-rebate checks. "We don't think the economy is growing that strongly," he added.
The Fed's next monetary-policy meeting is on August 5.
Friday is the big finish with a double whammy of the July jobs report and the ISM manufacturing report.
Analysts expect to see nonfarm payrolls shed about 75,000 jobs, according to Reuters. But Nolte said we should also be paying attention to the revisions to prior months, which give a better overall picture of the employment situation.
To put it in perspective, Nolte points out that the payrolls number has been negative all year, leaving the current 12-month average at roughly zero. "Before we get to the bottom of this recession, expect to see the 12-month average drop to minus-100,000," he said.
Next Week's Roster:
MONDAY: Dallas Fed branch reports on manufacturing; Fed's Mishkin speaks; Earnings from Kraft, Verizon
TUESDAY: Case-Shiller home-price index; consumer confidence; Earnings from Colgate-Palmolive, Electronic Arts, Northrop Grumman, Sony, US Steel and Viacom
WEDNESDAY: Mortgage applications; crude inventories; Earnings from Comcast, Disney, Interpublic, Starbucks and Visa
THURSDAY: Q2 GDP; Chicago and Kansas City Fed branches report on manufacturing; Earnings from Aetna, Altria, ExxonMobil and Motorola
FRIDAY: Auto sales; Jobs report; construction spending; ISM manufacturing report; Earnings from Chevron
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