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From Briefing.com: 4:17 pm Weekly Wrap

The week started quietly. The focus was, as in recent weeks, on mergers and acquisitions.

Deals this past week included Alltel going private for $27.5 billion, General Electric selling its plastics unit for $11.6 billion, Hologic buying Cytyc for $6.2 billion, a unit of Morgan Stanley buying Crescent Real Estate for $6.5 billion, Payless ShoeSource buying Stride Rite for $800 million, Coca-Cola buying Glaceau for $4.1 billion, and Nasdaq buying Nordic exchange OMX for $3.7 billion.

In addition, Tracinda Corp. expressed an interest in buying the Bellagio from MGM Mirage, China invested $3 billion in private equity fund Blackstone, and Alcan rejected Alcoa's takeover offer attempt amidst talk of a higher bid from BHP Billiton.

The liquidity theme topped the headlines and kept the gains from the recent rally intact. The S&P was up 2 points on Monday, down 1 point on Tuesday, and down 2 points on Wednesday.

Then the focus shifted abruptly on Thursday.

April new home sales were reported to have surged 16.2%. Suddenly, the talk was that the Fed would not be easing policy any time soon. That provided enough of an excuse for selling that caused the S&P to lose 15 points in a steady slide on Thursday.

The action reflected underlying nervousness as much as a rational reaction to the data. The data was not all that convincing. First of all, sales were sparked by a 10.9% drop in prices from a year ago. Demand was fueled by fire sales. Secondly, sales were boosted by a huge surge in the South. Sales across the rest of the country were near flat. This one piece of data is not proof of a housing recovery.

The over-reaction to housing data was repeated on Friday. April existing home sales fell 2.6% to the lowest level in four years. Home prices were down 0.8% from a year ago. Apparently, the housing market is still in a slump. The view on Fed policy reversed. Hopes of a Fed easing by the end of the year were bolstered, and the S&P gained 8 points.

The reality is that the Fed is not obsessed with the housing sector. They are concerned about the problems, but not overly so. The sector is now stabilizing or at least declining at a much slower rate. Whether the Fed eases this year will depend on overall GDP growth, inflation, and liquidity issues. The monthly homes sales are only one small component of the overall picture.

The focus on the Fed proved an ample opportunity to spark some selling on Thursday, but the market also recovered reasonably well the next day.

The only other economic release this week of note was April durable goods new orders. Orders rose 0.6% after an upwardly revised 5.0% March gain. The component breakdown showed that business investment trends are picking up a bit.

The earnings calendar was light this past week. Most of the reports were from retailers. Target reported profits above expectations, but Lowe's, Dillard’s, Gap Inc., and American Eagle all disappointed. The retail sector stock index lost about one-half a percent for the week. Medtronic was the only other noteworthy report and the company beat estimates.

Bond yields continued to rise, with the 10-year pushing up to 4.86% from 4.80% last week. The bond market shares the stock market's optimistic view of the economy and reduced risks in the housing and other sectors. Oil prices closed near $65 a barrel, little changed for the week.

The stock market remains obsessed with liquidity issues. Corporations and private equity are assumed to be flooded with cash, and ready to do deals at any price. There has been virtually no talk about the earnings outlook, which remains decidedly mixed. The earnings and economic calendars remain light next week. Any merger and acquisitions activity will attract a lot of attention.

 
 Index      Started Week Ended Week  Change % Change YTD  
 DJIA         13556.53    13507.28  -49.25    -0.4 % 8.4 %  
 Nasdaq        2558.42     2557.19   -1.23     0.0 % 5.9 %  
 S&P 500       1522.57     1515.73   -6.84    -0.4 % 6.9 %  
 Russell 2000   823.88      829.93    6.05     0.7 % 5.4 %

4:09PM Market View: Dow breaks weekly win streak but losses minor (TECHX) : The stock market ended the week on a positive note but the inevitable finally took place as the Dow broke its seven week winning streak. It didn't exactly end with a thud, however, as the index finished near the midpoint of the weekly range for a minuscule loss of 49 points after running as much as 1202 points during the winning streak. There was some technical deterioration on a daily charts given the relatively aggressive pressure noted off Wednesday/Thursday highs. Friday's action keeps the door open to further sideways to higher trade early next week but need to see a stronger higher high/higher low push through retracements of the slide to reduce the odds for a retest/breach of the low for the week. From a weekly perspective we have doji patterns across the board but this simply implies a loss of momentum not a reversal. On this time frame it takes a close under this week's low to argue for further correction trade. Helping the market bounce today were: Steel +2.7%, Coal +2.1%, Oil +1.6%, Oil Service +1.5%, Software +1.5%, Paper +1.4%, Commodity Index +1.3%. The weaker groups included: Home Construction -0.6%, Disk Drive -0.3% and Airline -0.3%.

09:40 am Hewlett-Packard: Friedman Billings initiates Outperform. Target $53. Friedman Billings initiates HPQ with an Outperform and a $53 tgt saying they believe that consensus is beginning to shift to the view that HPQ has achieved most of its upside potential at this point, and that Dell's coming move into indirect P.C distribution may significantly curtail HP's strong PC growth and profits. However, the firm believes that HPQ has changed its P.C distribution strategy in a way that dramatically reduces its inventory obsolescence risks/costs and optimizes HPQ's key strength of having the broadest array of PC-related products.

09:38 am Apple: Prudential reiterates Overweight. Target $115 to $125. Prudential raises their tgt on AAPL to $125 from $115 following meetings with mgmt. The firm says mgmt appeared confident on a number of fronts including 1) its prospects for Mac share growth over time, 2) the potential for iPhone success, and 3) the viability of the iPod platform despite the impending launch of iPhone. The firm says their checks suggest 1) continued momentum for Mac sales, 2) a timely launch of iPhone, and 3) series of new iPod launches beginning as early as June, extending through September.