Stock Weekly Wrap for 21-May-10

Weekly Wrap

A volatile week filled with uncertainty resulted in sharp losses for the stock market. The euro fell to a four year low before rebounding in a short covering trade. The 30-year bond yield hit the lowest level since May 2009 lows and the S&P 500 at its lowest closing level since last February.

There wasn't a specific headline to account for the swings, though continued uncertainty regarding growth and the situation in Europe is playing a significant role. Some of the selling pressure started as news came out of Europe that Germany was partially banning short sales in some stocks, bonds and sovereign debt.

The euro had some of the largest swings of the week. The currency started the week at the $1.23 level, dropped to a four year low of $1.2144 before rebounding to $1.2672 and finally settling at $1.2574. The recovery in the euro was likely due to short covering. There was also speculation of central bank intervention.

The recovery in the euro did not help U.S. or European bourses remained pressured, which gave credence to the notion that the currencies upward move was not one based on renewed confidence.

The S&P 500 tumbled 4.2% for the week as all 10 sectors declined. The energy sector (-5.4%) was among the worst performing as crude prices dropped 7.0% for the week, settling at $70.19 per barrel. Other cyclical sectors underperformed, with industrials down 5.9% and tech falling 4.6%.

A large number of retailers reported quarterly results, a sure sign that first quarter earnings reporting season is coming to an end. A total of 26 S&P 500 companies reported, all but one -- Sears Holdings (SHLD) -- topped EPS expectations. Wal-Mart (WMT), the world's largest retailer, posted slightly better than expected earnings and revenue.

Home Depot (HD) beat on the top and bottom line as revenue rose 5.7% y/y.

Target (TGT) posted a 5.1% y/y rise in revenue, in-line with expectations, and better-than-expected earnings.

Other retailers that topped expectations include Lowe's Companies (LOW), Staples (STPLS), TJX Cos (TJX) and GAP (GAP), among others.

But Sears Holdings (SHLD) missed on the top and bottom line. The struggling retailer reported earnings per share of $0.02, which was well short of the $0.14 consensus.

A pair of giants in the computer industry reported their quarterly results. Hewlett-Packard (HPQ) reported a 13% y/y rise in revenue, sending EPS up 27% y/y to $1.09. That beat the consensus estimate of $1.05.

DELL (DELL) also beat on the top and bottom lines as revenue climbed 21% y/y. But the computer maker's margins failed to impress, resulting in selling pressure.

In economic news, inflation remains in check as both PPI and CPI showed muted readings. Core CPI is up just 0.9% y/y, which is the smallest rate of increase since January 1966.

The number of new jobless claims for the week ended May 15 jumped 25,000 to 471,000 versus the consensus of 439,000. The release compounded selling efforts on Thursday.

In other developments, the Senate passed a financial reform bill 59 to 39. The bill still needs to go back to the house before it hits President Obama's desk. The current timeline is for the bill to be passed before July 4.