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After The Close - Stocks turned in a lackluster performance on Friday, although the major averages finished off their session lows after two days of heavy selling pressure. At the close, the Dow Jones Industrial Average was down 31 points and the NASDAQ was off a few points. 

Over the course of the session, stocks were hampered as interest rates rose. The yield on the 10-year Treasury note topped 2.85% today, up from 2.76% on Thursday. That particularly hurt interest-rate sensitive sectors, such as telecoms and utilities. Big-name stocks, such as Dow-30 component Verizon (VZ - Free Verzon Stock Report) and Con Edison (ED) felt the pressure more than most as a result.

The move higher in rates came despite the release of mixed economic data this morning. One report where investors seemed to see the glass as half full was on housing starts and building permits. That helped to lift the stocks of homebuilders, including Pulte (PHM) and Lennar (LEN).

Not as uplifting was word that consumer sentiment fell in July, and a number of consumer-related stocks that rely on discretionary spending continued to be looked at in a dimmer light. Shares of Nordstrom (JWN) dropped after the retailer suggested after last night’s closing bell that the outlook ahead was not as rosy. Similarly, Joseph A. Bank (JOS) stock eased after the clothier indicated prospects were not as promising as before.

More broadly, many on Wall Street are wondering if the stock market’s weakness over the past few sessions is part of a routine correction or something worse, such as the start of a bear market. For now, indications are that this past week’s pullback was driven by normal profit-taking, in light of rising interest rates and uncertainty about the degree of possible change in the Federal Reserve’s posture regarding its massive monetary stimulus program.

It would seem premature to assume a bear market, normally considered to be a 20% downturn in stock prices, was getting started, given that economic growth, slow as it may be, is still under way in the United States. Encouraging, too, is that Europe has emerged from recession, if tentatively, and Japan’s economy is showing signs of vigor following its long slumber.

But with little in the way of economic news early next week, the focus may continue to be on the expected pullback in stimulus by the Fed   - Robert Mitkowski

At the time of this writing, the author did not have a position in any of the companies mentioned.

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12:15 PM EST - The U.S. stock market opened a bit lower this morning, but has since reversed course, and is now making a modest push into positive territory. At just past noon in New York, the Dow Jones Industrial Average is up seven points; the broader S&P 500 Index is ahead by half a point; and the NASDAQ, which is once again showing some leadership, is up 11 points. Meanwhile, market breadth is also unimposing, with advancing and declining stocks just about even on the NYSE.

The market sectors are also largely divided. There is some strength in the technology group today, which is encouraging. Notably, the semiconductor issues are making some headway. The consumer cyclical issues are also doing well. In contrast, the basic materials stocks are quite weak, with moderate losses in the metals and mining names. Furthermore, the utilities are not finding much support today, most likely on interest-rate fears.

Technically, yesterday’s selloff the past two days was accompanied by relatively heavy trading volumes, which suggests that the bears are still in there plugging away. Furthermore, the bulls, having come to the rescue so often in the past, seemingly decided to sit on the sidelines during the decline, and that is also worth noting.  Hopefully, the bulls can mount a stronger buying campaign this afternoon. For now, the S&P 500 Index is still above its 50-day moving average, located at about 1,655, and it may well find support at this area. Sentiment seems to be improving, as the VIX, now at 13.90, is retreating today.

Meanwhile, the economic reports released this morning were largely mixed, and likely offered limited help to bulls. Specifically, housing starts for July came in at 896,000 units annualized, which was higher than the upwardly revised 846,000 figure logged in June, but a bit below the consensus. This reading, nonetheless, confirms that the housing market recovery is still intact. The homebuilding stocks are up on the news, which is good to see. However, the consumer may be slowing down a bit. According to the University of Michigan consumer confidence was a bit weaker in August.

There were a few disappointing corporate reports out today, as well. Jos. A. Bank (JOSB) stock is lower, on a weaker-than-expected outlook. Also, Applied Materials (AMAT) shares are up, despite a mixed quarterly release.   - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Stocks to Watch from The SurveyEarnings news continues to be rather light, though there are a few quarterly reports out from high-profile companies. For example, Dell (DELL) has reported July-period earnings that were down sharply from a year earlier, but a bit above our estimates. The stock is little changed ahead of the bell, however, due to the competing buyout offers that are on the table for the computer maker. Elsewhere, investors appeared unimpressed with July-quarter results from semiconductor equipment company Applied Materials (AMAT), and the stock is down slightly in pre-market trading in response.

News from the retail sector wasn’t any better. Department store operator Nordstrom (JWN) has reported solid July-quarter results, but management offered a disappointing forward looking outlook. The stock is trading moderately lower in the premarket as a result. Likewise, menswear retailer Jos. A. Bank (JOSB) has announced preliminary July-interim earnings that fell well short of investors’ expectations. Consequently, the stock is indicating a sharply lower opening this morning. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

Before The Bell - Some half-hearted profit taking, which had begun on Wednesday, came on in earnest yesterday, as the stock market opened lower and continued to falter over the course of the day. In part, the selloff was occasioned by a pair of disappointing earnings reports and forecasts from Dow giants Cisco Systems (CSCO - Free Cisco Stock Report) and Wal-Mart Stores (WMT - Free Wal-Mart Stock Report), as well as slightly disappointing data on industrial production and factory usage for July. In the case of industrial output, it was unchanged last month, while capacity utilization at the nation's factories, mines, and utilities eased back slightly. Both series had been expected to show small increases.

However, the real inducement to sell, we think, was growing concerns that the Federal Reserve will shortly--perhaps as early as next month--begin to taper its popular bond-buying program. That effort, which has helped push long-term interest rates down modestly, thereby providing welcome assistance to the critical housing market, is likely to slow down shortly, and then come to an end by the middle of next year. The concerns engendered by that likely timetable has the stock market on edge.

Not only is the market worried by this prospect, but there are also concerns evolving as interest rates are starting to rise. To wit, the yield on the 10-year Treasury note ended yesterday at 2.76%, after briefly reaching 2.82%, amid speculation that this rate may soon push above 3.00%. At the same time, the yield on the 30-year Treasury bond has climbed to just shy of 3.80%--a 12-month high. In addition to the sense that the Fed will soon start to be less generous, the bond market also may be reacting to yesterday's news that first-time jobless claims had fallen to a six-year low. A notably better jobs market could well ramp rate up further and start to provide competition for equities. That competition has been absent for several years now.             

Given these disparate concerns, plus the fact that stocks are by no means cheap, it was not all that surprising that the market sold off sharply yesterday, with the Dow Jones Industrial Averages tumbling 225 points. Also sharply lower were the Standard and Poor's 500 Index, which was off 24 points, and the NASDAQ, which fell 63 points. Sizable losses also were sustained by the S&P Mid-Cap 400 (off 21 points) and the small-cap Russell 2000 (down 20 points). Losing issues swamped winning stocks on the Big Board and the NASDAQ to the tune of better than four-to-one. It was not pretty, but the market has been overbought for some time, and this selling could well prove to be constructive as a way of starting to get valuations better into line.   

The big question now is just where do we go from here? The Fed is still weeks away from its next FOMC meeting, so rumors will be flying all over the place about just what it will opt to do with its bond-buying program at that time. Also, there will be speculation on just who will be tapped to succeed Ben S. Bernanke as Chairman of the central bank. 

In the meantime, there still is the economy to deal with, and this morning we have just received word that U.S. housing starts rose in July, as did building permits, neither of which was a surprise. Later on this morning, the University of Michigan will issue its latest data on consumer sentiment. A small increase is the expectation there. Of course, all of the news on the economy isn't good, as yesterday also saw the release of data showing no increase in industrial production in July and a slight decrease in factory utilization. On the whole, however, the economic news remains largely constructive.

Finally, we have the day at hand, and stocks in Asia were generally lower overnight, as they are now in the Europe, as the global markets, no doubt, react to our selloff yesterday. As to our futures, they are up modestly thus far in the pre-market suggesting that we could have an attempt at an early rally today. We note, though, that this is a Friday in August, and volume is normally light in such a setting, so that we could see some wide swings over the course of the session.   - Harvey S. Katz 

At the time of this article's writing, the author had positions in CSCO.