By Kate Gibson
The U.S. stock market will be on the prowl in the days ahead for
an impetus to propel it through its recent trading range if Wall
Street is to manage a fourth consecutive week of gains.
"We need a catalyst to get over levels that we haven't seen
since early April. The M&A front will be very relevant, and
could be a negative if that momentum doesn't continue," said Alan
Lancz, director of research at LanczGlobal.com.
The recent burst of deal making had health-care products giant
Johnson & Johnson (JNJ) on Friday announcing it was in
late-stage talks to purchase Dutch biotech company Crucell NV
(CRXL) for $2.29 billion.
"The corporate cash coffers have been building incredibly as
many of these companies are running leaner and meaner. And, with
the cash they have earning little to no interest, they are better
off buying a company as a strategic acquisition," said Lancz.
"We see it as a positive sign," he added.
On Friday, the major indexes notched a third week of gains, with
the technology sector leading the rise after two of technology's
bigger names, Oracle Corp. (ORCL) and Research In Motion Ltd.
(RIMM) late Thursday reported robust results.
"Technology was a key this week, and next week we'll hear from
Adobe (Systems Inc.) (ADBE) and some of the retail bellwethers,"
said Lancz.
On Friday, the Dow Jones Industrial Average (DJI) rose 13.02
points, or 0.1%, to end at 10,607.85, leaving the blue-chip index
with a weekly gain of 1.4%.
Up 1.4% from the week-ago close, the S&P 500 Index (SPX)
added nearly 1 point, or less than 0.1%, to end at 1,125.59. During
Friday session, the index rose as high as 1,131.47, but did not
manage to clear the technical hurdle in a meaningful way.
"The 1,132-level is significant, we've been kind of touching on
that today, but you have to have a significant sustainable advance
through that to bring on a new round of buyers," said Lancz.
Up for an eighth consecutive session, the Nasdaq Composite Index
(RIXF) climbed 12.36 points, or 0.5%, to 2,315.61, marking its
longest winning-streak so far this year by surpassing a seven-day
climb that ended June 18. It ended with a weekly rise of 3.3%.
The Nasdaq tracks all securities traded on the Nasdaq Stock
Market, but is mostly used to track technology stocks, given the
many computer, biotechnology and telecommunications companies
listed on it.
And technology, the largest industry group among the S&P
500's 10 major sectors with an 18% weighting, has risen the most in
recent weeks, and is up 9.6% month-to-date. But the sector remains
among the laggards for 2010 so far, the third-worst performing
sector after energy and health care.
And, the top four holders of cash among the 500 companies on the
S&P are technology companies, and three do not pay a dividend,
according to Howard Silverblatt, senior index analyst at S&P
Indices.
"IT pays the least as a sector, with only 41% of the issues
paying versus 79% for the rest of the index. That said, they are
under increasing pressure to use their cash for M&A and
buybacks, with dividends now on the list," said Silverblatt.
The three non-dividend payers include Cisco Systems Inc.(CSCO),
which at the end of the second quarter, held the largest horde of
cash and equivalents, with $39.9 billion, which represents 33.8% of
its market value, Silverblatt said.
The next three weeks bring the first few companies reporting
third-quarter earnings for 2010, with 13 S&P 500 companies on
tap in the week ahead.
"Corporate guidance is expected to pick up, an event that could
spark sharp price movement in stock groups," offered S&P's
Silverblatt.
Discover Financial Services (DFS) , which is taking over the
ongoing business of Student Loan Corp. (SLM) from Citigroup, is
among the companies scheduled to report results on Monday, along
with home builder Lennar Corp. (LEN)
Retailers including Bed Bath & Beyond Inc. (BBBY) and Nike
Inc. (NKE) report later in the week, the former coming on Wednesday
and the latter the following day.
On Friday, estimated share-weighted earnings for the S&P 500
for the third quarter of 2010 stood at $193 billion, slightly below
last week's $193.1 billion, according to John Butters Thomson
Reuters.
Economic data next week brings reports on housing , along with
weekly jobless claims reported on Thursday. The count of those
applying for jobless benefits have taken on added significance with
the count of unemployed Americans still "stubbornly high," said
Lancz.