Dow snaps five-week winning streak


But S&P gets first monthly gain since March





By Julie Rannazzisi, CBS.MarketWatch.com


Last Update: 5:22 AM ET Aug. 31, 2002













NEW YORK (CBS.MW) -- The Dow industrials and the S&P ended the week with losses, snapping a five-week winning streak as buyers took a break and worries over profit growth superseded a string of positive economic reports.




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the Nasdaq also finished the week on a down note after three straight weeks of gains. Checking the actual numbers, the Dow fell 2.4 percent on the week, the Nasdaq 4.8 percent and the S&P 2.6 percent.




Meanwhile, the Dow and Nasdaq saw their fifth consecutive monthly declines while the broad S&P 500 recorded its first monthly increase since March. The Dow ended down 0.8 percent in August and the Nasdaq lost 1 percent while the S&P gained 0.5 percent.




John Waterman, managing director of investments at Rittenhouse Financial, said this week's dip was unavoidable and healthy consolidation.




Still, he expects lots of back and forth action in the coming weeks as investors are likely to get mixed signals on the economy and on corporate profits.




"Corporate and economic news will be mixed. The trend is up, but it will be choppy."




Another analyst concurred.




"We're at reasonable valuations vs. forward earnings-per-share [but I think] we're due for sideways action till the third-quarter reporting season. A lot will be dependant on [the tone] of third-quarter pre-announcements," said Steve Young, senior market strategist at Banc of America Capital Management.




If warnings accelerate, Young said stocks could retest their July 23 lows.




The market is also entering a seasonally unfriendly period of the year, with September and October notoriously unkind months for stocks.




Mark Arbeter, chief technical analyst at Standard & Poor's, said the market showed "some serious cracks" over the past week, but did not break.




But even as prices did not breach important support this week, there were some very disturbing signs, he added.




He expects the averages to retest their July lows before the end of the year.




"The recent leaders -- or stocks that have broken out to new highs during the latest rally -- have for the most part failed and fallen back into their bases. This is almost always negative and a clear sign of market weakness. Often this type of action precedes another down leg for the market. Chart patterns of many stocks remain in very poor shape and in no condition to march higher in a sustainable fashion," the technical strategist noted.




Arbeter also points out that the recent rebound off the lows lacked the verve typical of new bull markets.




"The beginnings of many bull markets are very powerful from a price perspective and are accompanied by a surge in volume. These conditions have not occurred yet and this failure brings in the possibility that new lows in the indexes could happen before the end of the year," he concluded.




Next week's data crucial




Next week's economic reports -- including a key gauge of the manufacturing sector and the employment report -- will certainly hold a lot of sway.




"The market is in a show me state. It will likely remain very volatile, reacting to each piece of news until there is enough consistency in the data supporting either a meaningful recovery or a slowdown," commented Thomson Financial/First Call's director of research Charles Hill.




Lynn Reaser, chief economist at Banc of America Capital Management, said soft economic numbers next week could quickly end the market's ability to score further and discourage many players.




The reports on tap next week include: the August Institute of Supply Management Index, July construction spending, July factory orders, the revision to second-quarter productivity, the August non-manufacturing ISM index and the August jobs report. Check economic calendar and forecasts.




Earnings watch




Only three S&P 500 companies must still report second-quarter results -- and they will do so next week, according to First Call. And National Semi will be the first S&P 500 company with an August ending quarter to unveil its results next week.




Among the few reports on tap next week: National Semiconductor, Elizabeth Arden, Hovnanian Enterprises, Albertson's, Campbell Soup, Pall and Edison Schools.




First Call notes that while the downward trend in the ratio of negative to positive pre-announcements had been dropping for three quarters, it has now turned up.




Third-quarter negative pre-announcements are, in fact, running more negative vs. recent quarters. In the tech sector, investors waded through warnings from the likes of Nortel Networks, Novellus Systems and BellSouth this week.




Since the beginning of the quarter, First Call said third-quarter earnings growth expectations have been pared from 16.6 percent to 11.2 percent.




The pre-announcement season, meanwhile, has yet to heat up. When analysts come back from their vacations, the chopping of estimates could begin in earnest, First Call analysts said.




Friday's trading activity




After repeated attempts to go positive, the Nasdaq faltered on Friday, weighed down by somber comments from tech companies such as Sun Micro and Novellus. The Dow's triple-digit gain also fizzled by day's end and the blue-chip index closed lower for a fourth consecutive session.




Though corporate news had a negative tilt, the market received some good news on the economic front: consumer spending spiked in July, dispelling at least some fears that purse strings were being tightened, and a regional manufacturing index showed that factory activity continues to expand.




In sector action, techs showed the most weakness, with the networking, hardware and software sectors pacing declines. In the broad market, oil, oil service, retail, bank and paper issues notched modest gains while biotech, gold and utility issues lagged. Check market stats and latest sector performance.




The Dow Jones Industrial Average ($INDU: news, chart, profile) dipped 7.49 points, or 0.1 percent, to 8,663.50, after rallying as much as 113 points. SBC Communications, Hewlett-Packard, Intel, IBM and Microsoft took the biggest blows while Honeywell, Alcoa, Coca-Cola, Philip Morris and United Technologies advanced.




The Nasdaq Composite ($COMPQ: news, chart, profile) lost 20.86 points, or 1.6 percent, to 1,314.91 and the Nasdaq 100 Index ($NDX: news, chart, profile) shed 19.37 points, or 2 percent, to 942.38.




The Standard & Poor's 500 Index ($SPX: news, chart, profile) edged down 0.2 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks erased 0.9 percent.




It was one of the lightest trading days of the year, with volume dismal at 900 million on the NYSE and at 1.09 billion on the Nasdaq Stock Market. Market breadth ended mixed, with advancers outpacing decliners by 18 to 14 on the NYSE while losers took out winners by 17 to 15 on the Nasdaq.




Long-dated government bonds ended with heady gains after flip-flopping throughout most of the morning as the data hit the tape.




The 10-year Treasury note was up 3/32 to yield ($TNX: news, chart, profile) 4.13 percent while the 30-year government bond advanced 17/32 to yield ($TYX: news, chart, profile) 4.93 percent. See Bond Report.




The bond market observed an early 2 p.m. close ahead of the Labor Day weekend.




In the currency sector, the dollar edged up 0.1 percent to 118.39 yen while the euro shed 0.1 percent to 98.19 cents.




Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York.