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Market Update 070205
http://biz.yahoo.com/mu/update.html

4:20 pm : The S&P 500 snapped a four-day winning streak Monday as M&A activity, a reversal in oil, and reassurance about the pace of economic growth weren't enough to completely sideline sellers questioning the sustainability of the market's recent gains. Last week, the Dow, S&P 500 and Nasdaq surged 1.6% on average.

With the broader market turning in its best weekly performance (+1.8%) since last August, it wasn't surprising to see investors exhibiting some sense of trepidation today. Several Fed officials slated to give speeches this week, with Fed Chairman Bernanke talking tomorrow afternoon, also played into the lack of conviction on the part of both buyers and sellers, especially with earnings season winding down and no big reports today to drive the market.

The Dow clung to a small gain, but that was due in large part to a nearly 2.0% surge in shares of Hewlett-Packard (HPQ 42.81 +0.74). Investors applauded H-P's decision to strengthen its competitive position with the acquisition of Bristol Technologies. Wal-Mart (WMT 48.52 +0.44) estimating that January same-store sales will be up 2.2%, above the high end of its 1-2% guidance, also helped to offset a 1.9% decline in Microsoft (MSFT 29.61 -0.58), the day's worst performing Dow component. Microsoft fell after Barron's said future Vista sales may not justify the stock price at current levels.

Nine out of 10 sectors closed lower, but the biggest disappointments coming from two of the least influential economic sectors also underscored why the S&P 500 and Nasdaq weren't down more. The day's best performing sector was Utilities; but its 1.0% gain merely spoke to the market's defensive stance since it too is among the lowest weighted sectors in the S&P 500.

On a positive note, some M&A activity making headlines played into our Overweight rating on Financials and our belief that stock valuations remain reasonable. Triad Hospitals (TRI 49.70 +6.43) agreed to a $6.4 bln private equity buyout, State Street (STT 67.30 -4.45) is buying Investors Financial (IFIN 59.80 +12.85) for $4.5 bln, and billionaire financier Carl Icahn made a $2.4 bln bid for Lear Corp (LEA 38.70 +4.03). Since none of today's deals were blockbusters by any means, investors continued to err on the side of caution.

Also, crude for March delivery came within a nickel of hitting $60/bbl early in the session but closed well off its highs (+1.6%) and below $59/bbl. Oil eclipsing such a psychological barrier will become a bearish factor for stocks and bring its inflationary potential back into focus among policy makers. Nonetheless, subsequent deterioration throughout the Energy sector acted as an offset as investors settled into a holding pattern until presented with more notable catalysts to set a definitive tone to a market that looked ripe for a pullback.

Separately, investors got some comforting news about the pace of economic growth from the services sector, especially after the weak 49.3 read on manufacturing conditions reported last week. The January ISM survey of national services companies came in with a reading of 59.0, the highest level since May. Nonetheless, since the services sector is so steady, the report did little to ease underlying concerns about the Fed cutting rates anytime soon. DJ30 +8.25 NASDAQ -5.28 SP500 -1.40 NASDAQ Dec/Adv/Vol 1739/1302/1.95 bln NYSE Dec/Adv/Vol 1808/1459/1.40 bln

10:30 am : Recent recovery efforts are short lived after economic data fail to lend the bulls enough conviction to extend recent gains... for now. At the top of the hour, the Institute of Supply Management said its services index rose to 59.0% in January from 56.7% in December. Even though the data provide further proof that the economy seems likely to expand at a "moderate" pace over coming quarters, along with easing inflationary pressures as reflected in the prices paid component falling to 55.2% from 59.&% a month earlier, the report also does little to renew optimism about a Fed rate cut anytime soon.DJ30 -6.65 NASDAQ -4.93 SP500 -3.14 NASDAQ Dec/Adv/Vol 1705/1018/444 mln NYSE Dec/Adv/Vol 1757/1150/234 mln

10:00 am : The major averages are now trading in split fashion, spearheaded by a turnaround in Technology. KLA-Tencor (KLAC 51.29 +1.29) issuing upside Q3 guidance has helped to renew optimism about the growth prospects throughout the beaten-down semiconductor space. Computer Hardware is also attracting buyers following an analyst upgrade on Dell (DELL 23.87 +0.35).

Energy is providing some leadership, but the sector's modest 0.4% is also coming at the expense of crude prices ($59.60/bbl) trading near session highs, which will become a bearish factor if oil breaches $60.DJ30 -3.12 NASDAQ +2.94 SOX +0.9% SP500 -1.33 NASDAQ Dec/Adv/Vol 1268/1246/218 mln NYSE Dec/Adv/Vol 1546/1162/78 mln

09:40 am : With the S&P 500 fresh off of its best weekly performance (+1.8%) since last August, it's not surprising to see stocks kick off a new week looking a bit lethargic. While some M&A activity and Wal-Mart (WMT 48.50 +0.42) guiding January same-store sales above the high end of its 1-2% guidance range are helping to minimize market losses, oil prices approaching $60/bbl (+1.1%) and uncertainty ahead of today's only scheduled economic report -- ISM Services (10:00 ET) -- are underpinning a sense of early nervousness.DJ30 -12.65 NASDAQ -4.30 SP500 -2.50 NASDAQ Vol 94 mln NYSE Vol 48 mln

09:15 am : S&P futures vs fair value: -1.5. Nasdaq futures vs fair value: -1.0.

09:00 am : S&P futures vs fair value: -1.5. Nasdaq futures vs fair value: -1.3. Futures indications continue to improve heading into the open bell, but still carry a slightly negative slant. A sense that stocks are overbought on a short-term basis remains the biggest constraint for the bulls while the absence of influential earnings reports to extend recent gains, as the Q4 season begins to wind down, also leaves sellers questioning the sustainability of market gains, especially amid worsening conditions on both the earnings and interest-rate fronts.