Stocks couldn't quite make it three in a row Friday, finishing modestly lower as investors took profits after a two-day rally. The quarterly expiration of options and futures drove volume higher and probably affected price direction, says Standard & Poor's Equity Research.
The Dow Jones industrial average edged down 0.64 point, or 0.01%, to 11,014.55, despite strength in Hewlett-Packard (HPQ), en route to a 1.1% gain on the week. The broader Standard & Poor's 500 index dipped 4.62 points, or 0.37%, to 1,251.54, finishing the week little changed. The tech-heavy Nasdaq composite shed 14.2 points, or 0.66%, to 2,129.95, a weekly decline of 0.2%.
Worries about inflation, economic growth, and rising interest rates globally continued to loom over stocks. Bulls speculate that the market has found a near-term bottom, but they're waiting for gains on heavy volume to be sure, says S&P.
The Fed is widely expected to hike interest rates at its June 28-29 meeting. With a rate increase and slowing economic growth likely priced in, some analysts say the market is unlikely to establish a trend in either direction until the subsequent Fed meeting, which will be held Aug. 8.
"Some people are questioning whether the market's gone a little too far in pricing in slow growth," says Brian Gendreau, investment strategist at ING Investment Management. "I don't think the market's going to go much of anywhere for the next couple of months. There's an unusual amount of uncertainty."
The latest comments from Federal Reserve members reflect the murky outlook. On Friday, a pair of speeches by Fed policymakers maintained a hawkish tone on inflation. Fed Governor Donald Kohn said containing inflation could be "difficult and costly," while St. Louis Fed President Bill Poole said the data may actually understate inflation's extent.
Another set of economic figures was in focus Friday. The preliminary June reading for University of Michigan consumer sentiment rose to 82.4 from 79.1, slightly more than expected. The first quarter current account deficit came in better than forecast, moderating to $208.7 billion from the fourth quarter's downwardly revised $223.1 billion.
Next week's calendar is light on economic data. Still, investors will be weighing reports on housing starts, leading indicators and durable goods. The releases shouldn't change Fed expectations, says Action Economics.
In corporate news Friday, Microsoft (MSFT) was modestly higher in choppy trading after Bill Gates announced a two-year transition period that will remove him from his day-to-day role at the company.
Also in software, Oracle (ORCL) was higher after the company guided its fourth-quarter earnings higher.
Shares in another software maker, Adobe(ADBE), rose after the company known for its Photoshop and Acrobat applications posted an 18% drop in earnings.
Homebuilder KB Home (KBH) was higher after the company announced a 14% rise in profits but reduced its earnings outlook for fiscal year 2006.
Among other stocks in the news, Winnebago Industries (WGO) was higher after the maker of motor homes and recreational vehicles posted earnings for its fiscal third quarter that topped analyst estimates.
In the energy markets Friday, July West Texas Intermediate crude oil futures closed up 38 cents at $69.88 a barrel. Short-covering offset early selling pressure on relatively upbeat Iran news, says Action Economics.
European markets finished lower. In London, the Financial Times-Stock Exchange 100 index slipped 21.9 points, or 0.39%, to 5,597.4. Germany's DAX index fell 46.21 points, or 0.85%, to 5,376.01. In Paris, the CAC 40 index dropped 29.69 points, or 0.63%, to 4,694.89.
Asian markets finished solidly higher. Japan's Nikkei 225 index climbed 408.58 points, or 2.82%, to 14,879.34. In Hong Kong, the Hang Seng index was up 407.57 points, or 2.64%, to 15,842.65. Korea's Kospi index rallied 42.79 points, or 3.51%, to 1,262.19.
The 10-year note fell to 100-00/32 for a yield of 5.12%, while the 30-year bond dropped to 89-29/32 for a yield of 5.17%. Bond bulls "have been few and far between since the inflation data earlier in the week," says Action Economics.