by Jason Norris, CFA
Senior Vice President of Research

 The Wealth Effect Rearing Its Head

Shrugging off higher taxes and politics in Washington, consumer sentiment reached levels not seen since 2007. The gains, however, were focused primarily among the higher income earners. The broad University of Michigan Index gained seven points from last month, however, those families earning over $75,000 posted a gain of over 17 points, while those making less rose only two points. Higher home prices and a strong stock market has a significant wealth effect on higher earners, thus instilling higher confidence.

This strength in data fueled Friday’s equity markets to record highs. Specifically, the S&P 500 is up over 17 percent for the first five-and-a-half months of 2013. Robust economic growth has not been the catalyst. While the U.S. economy should continue to grow in the 2 to 3 percent range and corporate earnings are expected to show growth of around 7 percent, a 17 percent move in equities may seem a little frothy. We believe that equities still offer a better risk/reward relative to bonds. With the price-to-earnings multiple on stocks is currently at 15 times the earnings in 2013, this is still below multiples seen in 2007 when the equity markets were last at these levels. Also, with interest rates remaining below 2 percent on the 10-year Treasury, we would not be surprised if price-to-earnings multiples continue to expand into the upper-teens.

Japan Joins the Printing Party

That leads us to that elusive question of when will interest rates start rising in a meaningful way. Central banks around the world continue to flood their economies will currency in order to stimulate growth. The four major central banks (U.S., EU, UK and Japan) have increased their balance sheets by over $5.0 trillion to $9.1 trillion since 2008. Japan has been the most recent country to aggressively purchase securities to increase its money supply. This has resulted in a meaningful depreciation of the Japanese Yen relative to the U.S. dollar. However, the ECB has been shrinking its balance sheet and the Federal Reserve has been giving signals that it may be closer to unwinding its QE program. San Francisco Federal Reserve President John Williams stated earlier this week that the pace of securities purchases could slow as soon as this summer. This will have to be balancing act so rates do not spike. Commenting on how the Fed might end the monthly purchase of $85 billion in fixed income securities, this week the Dallas Fed President stated that, “I don’t want to go from wild turkey to cold turkey,” and “I think we ought to dial it back.” We believe the end game will be the Fed eventually stopping all purchases. However, they will not actively sell bonds to the open market, but rather just let them mature.

Has Gold Lost it Luster?

Collectively, the aforementioned events have resulted in relative strength in the U.S. dollar, which in turn, has led to a major sell off in gold. Friday’s close of $1,364 for an ounce of gold is the lowest level since early 2011. With inflation benign and the dollar holding firm, there may be more downside to gold in 2013.

Our Takeaway from the Week

•  Even with stocks at historic highs, valuations are still reasonable

Disclosures

by Deidra Krys-Rusoff
Portfolio Manager

Ask any municipal bond expert what keeps them awake at nights and I guarantee that concerns over the escalating costs of pensions and post-retirement benefits for municipalities is on their top 10 list. The pension landscape is changing; as costs increase, the balance between fiscal, ethical and moral responsibility becomes more precarious. Analysts worry about how the costs will be funded and whether the costs will impact or interrupt debt repayment. 

I was afforded the opportunity to moderate an expert panel on pension reform at the National Federation of Municipal Analysts annual conference last week and came away believing that while the problems are large, they are not insurmountable. Here are the key takeaways from the experts.

Politicians tend to think about the next two to four years, which is a not productive for pension reform which is an obligation for the next 30 to 60 years (think “kick the can” mentality). As Robert North, chief actuary for the New York City Retirement Systems said, “I have yet to find anyone who would rather not spend the money on other things.” He noted that public pension financing is asymmetric: the more assets and better funded the pension plan is, the more money politicians are willing spend on enhancing plan benefits. Less assets and lower funded pension plans will result in increased employer contributions and less money in the budget for other services. Most politicians do not want to spend today’s money on a future liability. This leads to some government employers not funding their pension plans at sustainable levels. 

Steve Kriesberg, director of collective bargaining and healthcare policy for the American Federation of State, County and Municipal Employees, noted that retiree health spending is projected to rise, but that it is still a relatively modest share of governmental budgets. He also stated that some government reforms that decrease healthcare for government employees may push the costs onto the taxpayer in other ways; such as through state programs for underinsured patients. The labor opinion is that distressed pension situations are relatively few and easy to identify and that bankruptcy is not an effective way to solve the problems. 

Perhaps the most encouraging speaker was Steve Toole, head of North Carolina’s Retirement Systems. He noted that pension reform is underway in many states and local government agencies and that the underfunding can be solved with political will and creative planning. Progressive pension plans are changing their amortization periods from a rolling 30-year cycle to six to 12 years (this increases annual required contributions now, but will stabilize funding in the future). Other reform measures include removing annual cost of living adjustment provisions, decreasing discount rates and extending plan vesting periods. Toole noted that we should expect to see upward pressure on plan contribution rates for the short term, but that the improving stock market may reduce that pressure within the next five to 10 years. 

We believe that increasing pension and pos-retirement healthcare obligations will continue to have an impact on municipality balance sheets, but that this won’t immediately impact their ability to make bond interest payments. Reform is slowly becoming more palatable to politicians as taxpayers are paying closer attention to benefit costs, which should ease some of the pressure. We will continue to pay close attention to this issue and monitor our client’s municipal bond holdings. 

Disclosures

by Shawn Narancich, CFA
Vice President of Research

 Sell in May? Not on this Day

 Defensive sectors like telecom, utilities, and healthcare don’t typically lead stocks to new bull market highs, but through the first four months of this year, that is exactly the odd circumstance investors have observed. A recent string of softer economic reports (both domestically and overseas), stubbornly low Treasury yields and weak trading volumes have fed investor skepticism about the underlying strength of a stock market that once again set a new high on the S&P 500 this week. Only time will tell if a late-week rally in cyclicals will reverse a trend of year-to-date underperformance, but count us as pleased to see a market led higher by elements signaling better economic health. In that regard, the Labor Department’s latest read on jobs was surprisingly upbeat, as net non-farm payrolls expanded at a faster rate in April. Net new job creation of 165,000 certainly isn’t a barn-burning number, but when combined with the upward revisions made to both February and March figures, the jobs picture all of a sudden doesn’t look so bad. Once again, the unemployment rate dropped, this time to 7.5 percent. Surprisingly weak construction spending and lower levels of manufacturing activity reported domestically and in China remind investors that a global economy facing European and U.S. fiscal austerity continues to encounter substantial headwinds.

Discretion the Better Part of Valor

While austerity remains official mantra in Europe, we have noticed a not-so-subtle shift in the Continent’s view of it. With Spain struggling to overcome 27 percent unemployment, key European leaders have agreed to relax the timetable for it to achieve the Eurozone’s holy grail of reducing deficits to a rate of 3 percent of GDP or less. Of course we have to question how long it will be before other economically depressed countries on the southern periphery ask for similar treatment and, if granted, whether the hard-fought reduction of borrowing costs in southern Europe could reverse course. One key player who remains unswayed by calls to relax austerity is ECB President Mario Draghi who, in announcing another rate cut this week, implored European countries to stick to their fiscal diets. Judging by the dramatic fall of interest rates in Spain, Italy and Portugal, the sovereign debt crisis has been extinguished, at least for now. 

Distinctly Mediocre

With about 80 percent of the S&P 500 having now reported first quarter earnings, about two-thirds of companies have delivered better than expected bottom line numbers and modest levels of EPS growth, while at the same time missing top line expectations in the majority of cases.  In other words, a near repeat of what we saw at the end of 2012. The feel right now is late cycle, with companies that are offering updated financial guidance more often than not reducing their projections. A notable exception is the insurers. Aetna and Cigna both reported surprisingly good numbers and raised estimates for the year. A big question that continues to loom large is whether the HMOs will prosper under the expanded system of health insurance coverage mandated by the Affordable Care Act, which becomes law next year. Only time will tell whether the volume gains associated with additional insured lives will more than offset the potential margin headwinds of covering the previously uninsured. 

 Our Takeaways from the Week

•  The sun is beginning to set on a partly cloudy earnings season

• Stocks continue to set new highs as global central banks remain committed to unprecedented levels of monetary stimulus

Disclosures

by Brad Houle, CFA
Senior Vice President

In the not-so-distant past, Twitter was solely known as a bullhorn for celebrities, such as Paris Hilton, who would extol their wisdom – 140 characters at a time – to tens of millions of followers. Global events over the past year have catapulted Twitter into an unprecedented aspect of mainstream media – both as a lifesaving resource and a weapon for destructive pranks and rumors.

Last year, Twitter was part of electronic communication that facilitated the Arab Spring and just last week, it was used by police to inform Boston-area citizens of public safety issues following the marathon bombings. In addition, federal securities regulators have allowed the use of Twitter and Facebook as a means to disseminate potentially market-making news. On Tuesday, equity markets plunged 1 percent in three minutes due to an erroneous Associated Press tweet indicating that there were two explosions at the White House, causing injury to President Obama. The Associated Press quickly announced that their Twitter account had been hacked and the markets quickly recovered from its pandemonium. This incident exposes the razor’s edge that financial markets are on relative to news dissemination. Algorithmic and high-speed trading quickly takes over without any real evaluation of changing conditions.

This incident is reminiscent of the flash crash that occurred nearly three years ago on May 6, 2010, when the Dow Jones Industrial Average (DJIA) fell almost 1,000 points intra-day and recovered most of its loss before the close. This “crash” was the result of selling pressure from quantitative investors, as well as high-frequency trading that fed on itself. Having only begun to recoup the losses of 2008, investor confidence in the markets was rattled by this volatility as there was a growing suspicion among investors that the “game was rigged.”

This lack of confidence in the equity markets can be observed in the difference between fund flows into both equity and fixed income mutual funds. From the market bottom in March of 2009 to the end of the first quarter of 2013, investors have plowed greater than $1 trillion into bond funds and withdrawn more than $500 million from equity funds. In the first quarter this year fund flows into equity funds have turned modestly positive. While market indexes flirt with all-time highs, retail investors are largely on the sidelines in bonds or cash. 

In other market-maker news, it was a busy week for earnings releases. With the earnings season nearly half over, the largest takeaway is that results are mixed at best. Earnings have generally exceeded expectations and revenue growth that has been largely disappointing.

Our Takeaways from the Week

• This is in an environment with low expectations where company guidance was cautious coming into the quarter
• Guidance for next quarter and the remainder of the year has also been weak

 Disclosures

by Shawn Narancich, CFA
Vice President of Research

Dr. Copper?

What might have seemed to some like a rounding error for China’s first quarter economic growth metastasized into something worse, after news Monday that the Red Giant’s GDP grew 7.7 percent instead of the 8 percent investors expected. A typical lack of detail accompanying the release, as well as ongoing questions about its accuracy, were of little concern to commodity and stock investors who booked profits and headed for greener pastures. A rally in Treasuries has signaled the recent weaker tone of economic data globally, and this week was no exception, with the benchmark 10-year security rising again. Gold’s shellacking Monday amounted to 9 percent, its worst one day decline in 30 years, amid a free-fall that fed on itself as futures owners were hit with margin calls. Copper, long known for its ability to predict economic cycles, joined gold in a bear market that has some wondering whether this week’s 2 percent pullback in stocks could get worse. What’s clear to us is that stocks were due for a pullback after an almost uninterrupted march upward since last fall.

Big Blues

Investors received key inputs from corporate America this week, as 20 percent of the S&P 500 reported first quarter earnings. Blue chips were in the spotlight, and the results were decidedly mixed. A tally of key company earnings reports reveals that while most have delivered earnings above expectations, revenues have come up short in more cases than not. Tech companies Yahoo and eBay are good examples of companies whose earnings outperformance failed to be confirmed by top line numbers, and both stocks suffered as a result. Within technology overall, these companies have so far failed to deliver compelling enough results to refute the sector’s year-to-date underperformance.  IBM laid an egg across nearly every facet of its business in reporting numbers that missed both top and bottom line expectations. The Dow component plunged 8 percent after citing order delays in mainframes as well as weakness in software, storage, and services.

Winning the Race

In contrast to technology, the one sector earning its keep so far this earnings season is consumer staples, and in this case, the preponderance of evidence supports its status as a market leader year-to-date. Beverage and salty snack powerhouses Coca-Cola and Pepsi both reported surprisingly strong results, despite a continued weak soft drink market domestically. International markets drove Coke’s beverage volume growth, up a surprisingly strong 4 percent in the quarter, while Pepsi’s Frito Lay unit delivered superior results once again. Revenues at both companies exceeded expectations, confirming the bottom line beats and sending the stocks to nice gains in a week of market declines.  Global personal care titan Kimberly-Clark also delivered the goods, reporting superior top and bottom line results that boosted its stock by nearly 5 percent Friday. Philip Morris International, purveyor of cigarettes outside the U.S., was a notable exception, and a key reason for its earnings miss was currency. The stronger dollar that dented its earnings will undoubtedly have done the same for countless other multi-national companies that have yet to report.

Next week is the heaviest of the first quarter reporting season, when investors will see earnings results from 169 members of the S&P 500.  As well, investors will glimpse the Commerce Department’s preliminary estimate of first quarter GDP, which most now expect to tilt the scales at somewhere near 3 percent growth.

Our Takeaway from the Week

• Stocks and commodities succumbed to weaker economic data internationally, as first quarter earnings reports failed to turn the tide

Disclosures

It is important that investors understand all of the fees they are charged when working with an advisor. However, fees can be confusing and, as a result, some investors are left without a solid understanding of how much they are really paying.

A recent article from the Wall Street Journal highlights some important questions that investors should ask their advisors to better understand the fees that they are charged. Additionally, these questions help draw attention to some fees that investors often overlook.

To read the full article please click here.

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by Shawn Narancich, CFA
Vice President of Research

There’s Always a Bear Market Somewhere

As good as things have been lately for stock investors, who witnessed blue chip averages reach new highs again this week, gold bugs are licking their wounds from recent selling pressure that has plunged the yellow metal into a bear market. Behind this selloff, several key factors appear to be at work:  1) a plunging yen is driving the Japanese to scour their attics for gold to sell, gold that is priced in dollars and converted at ever higher rates into a weak yen, 2) a stronger dollar, which tends to correlate negatively with the price of gold, and 3) at least one major brokerage firm downgrading its price outlook. What’s unique about gold and what makes it particularly challenging to price, is that very little of its demand is tied to cash flow generating activities. Unlike industrial metals, energy, and grain commodities, whose prices are determined by the economics of a business cycle, most of the demand for gold comes from its primary uses in jewelry and as a store of value. Paradoxically, the determination of an increasing number of global central banks to do whatever it takes to stimulate economic activity has led to decreased demand for gold.  Instead, investors increasingly see the merits of investing in cash flow generating investments advantaged by expansionary monetary policy. Nothing like a good bull market in stocks to make gold bugs wonder why they own so much of the stuff.

Spring Swoon?

In the real economy, surprisingly poor retail sales in March confirmed for investors that last week’s lackluster employment report was more substance than exception. Sales declines at department stores and general merchandisers underpinned a 0.4 percent decline in overall retail sales compared to February. While colder than average weather probably explains some of the drop, the data dovetail with the tepid rate of retail job creation in March. Confirming the recent softness of economic data was a bigger than expected drop in the producer price index last month. Fishing even further upstream, one can observe a recent softening in bank loan surveys confirmed by weaker mortgage loan production reported at both Wells Fargo and JP Morgan, the first banks to report Q1 earnings earlier today. While the wealth effect from higher housing and stock prices remains a key support for the U.S. economic expansion, economists appear to be correct in forecasting a slowdown in GDP growth from the 3 percent rate forecast for Q1.  Amidst a weaker tenor of economic data, Treasuries have caught a meaningful bid, and in less than one month, the yield on the benchmark 10-year security has fallen from over 2 percent to 1.73 percent today.

I Had a Laptop Once

While investors have become used to hearing bad news about the PC market, this week’s data from industry observer IDC was attention grabbing. Increasing adoption of tablets and smart phones is putting a tighter squeeze on personal computers and laptops, demand for which fell a staggering 14 percent in the March quarter. Put into perspective, these are the poorest numbers to see the light of day since IDC began collecting the data in 1994. Much to the chagrin of the old WinTel juggernaut, Microsoft’s latest operating system Windows 8 appears to be hitting the market with a thud. Not only are consumers shunning the new software, but enterprises appear to be running the other way as well, loathe to make the cost and time commitments necessary to train workers on a new touch-screen interface.

A Tradition Unlike Any Other

As golf fans revel in the magic of Augusta, investors among us are gearing up for the first full week of Q1 earnings season next week. They will be looking for management commentary on the current state of business and what that may portend for the remaining three quarters of the year. Next week will bring key earnings reports from a range of blue chip stalwarts like General Electric, Kimberly Clark, McDonalds and Verizon.

Our Takeaways from the Week

• As stocks continue to soar, gold has entered a bear market

• Economic data has softened, putting a meaningful bid back into Treasuries

Disclosures

by Shawn Narancich, CFA
Vice President of Research

Land of the Rising Stimulus

Nervous investors inclined to book profits got several excuses to do so this week, and despite blue-chip U.S. stocks ascending to new highs early on, equities in most major markets lost ground. Across the Pacific, few would have wagered on a 23 percent increase in 2013, let alone in just the first few months, but that’s where Japanese stocks (measured by the Nikkei 225 Index) stand at this point. Behind the rush of optimism is a new prime minister and central bank chief who have taken a page out of our Fed’s unconventional playbook, vowing to do whatever is necessary to end Japan’s miserable 15-year stint of deflation. Ben Bernanke’s newly installed counterpart Haruhiko Kuroda fleshed out the central bank’s policy bone, vowing to double Japan’s monetary base by boosting the country’s quantitative easing program, to the tune of 1 percent of GDP monthly. Long-term Japanese government bonds, real estate investment trusts, and even exchange-traded funds will be purchased in a show of force roughly twice as large as the Fed’s current program, when measured relative to economic output. Reactions were predictable. The yen plummeted, Japanese stocks surged, and most of the world’s economic observers applauded. Improvement in Japan’s leading economic indicators and anecdotal evidence of better sales activity appear to confirm an intended uptick in economic activity year-to-date. However, it’s still too early to tell how successful Japan’s aggressively expansionary monetary policy will be in stimulating loan demand and, ultimately, the country’s output.

Trouble in Paradise?

Stateside, a slowdown in manufacturing activity and a much weaker-than-expected March jobs report put a chill into our stock market. After several consecutive years of the economy experiencing a summer slowdown, the question in the back of investors’ minds is whether we could be in for another air pocket of economic activity following the highly documented tax increases and mandated government spending cuts instituted earlier this year. A net jobs gain of 88,000 for March was certainly underwhelming, and while optimists will point out that the previous two months’ jobs data were upwardly revised, the fact remains that average job creation in the first quarter fell below fourth quarter 2012 levels by more than 15 percent. Colder-than-normal weather could have impacted the jobs tally, but when combined with the Purchasing Managers’ Index of manufacturing activity also retracting more than expected in March, investors are less likely to presume that an economy growing more quickly in the first quarter can sustain such 2.5 to 3.0 percent growth momentum for the rest of the year. Diminished reconstruction activity following Hurricane Sandy last fall, reduced levels of inventory investment, and fiscal headwinds are likely to cause the economy’s growth rate to normalize at a lower level for the remainder of 2013. In the meantime, resurgent housing and the wealth effect from higher asset prices are likely to remain key supports preventing a more sinister outcome.

It’s About that Time Again

Ready or not, Alcoa ushers in first quarter earnings season next week when it delivers results after the close of trading Monday. Investors aren’t expecting much from corporate America this time around, with consensus expectations calling for 3 percent growth in earnings for the S&P 500. While public companies have become masterful at managing down expectations into the print, sprinting ahead of estimates this time around may prove more difficult given a stronger dollar that created first quarter headwinds for multinational companies’ international earnings.

Our Takeaways from the Week

• Aggressive monetary policy easing in Japan has resurrected the country’s stock market

•  Investors are mulling less bullish economic data domestically, as first quarter earnings season looms

Disclosures

by Brad Houle, CFA
Senior Vice President

With the bond market closing early and the capital markets closed on Friday, Brad Houle, CFA, gives a brief update on Cyprus for this week’s Weekly Market Makers entry.

The S&P 500 closed today at a new record, surpassing its previous closing high from October of 2007 and resulting in a 10-percent gain for the first quarter of 2013. Over on the other side of the Atlantic, the news was less celebratory, with focus on developments in the relatively small, but significant sovereign state of Cyprus.

Banks in Cyprus started reopening after two weeks during which a bailout was being negotiated with the European Central Bank. The reopening of the banks was less dramatic than feared as only small crowds of depositors lined up to withdraw the limit of €300 limit per day. The government has temporarily put in place strict capital controls on removing cash from Cyprus to limit the damage of a wider run on the banks.

Ordinarily, this story would be receiving little international attention due to the small size of the Cyprus economy; however, the news coverage we are seeing is a by-product of the nature of the bailout. Depositors’ funds in banks are thought to be sacred as the financial system runs largely on trust. Because this bailout involved the “taxing” of depositor’s money in order to assist in funding the bailout, it is seen as a taboo in the financial world to not give bank depositors their money back. Although these depositors are receiving equity in their banks, it’s just not the “standard operating procedure” we have seen from both sides of the Atlantic.

Initially, the plan involved a deposit tax on all accounts— regardless of size. This week, we saw the Cyprus solution altered to tax only deposits over €100,000. This policy change was more politically feasible because it was perceived to be impacting wealthy Russians who were using Cyprus banks as a tax haven, as opposed to local senior citizens.  

While this crisis has not reignited the broader European financial market stress, it has potentially given pause to investors and depositors all over Europe. Europe lacks a central deposit insurance organization, such as the FDIC. As a result, their deposit insurance is a comparatively more fragmented infrastructure. Using depositors’ money to fund a bailout may cause investors in bank bonds to be wary. Senior debt holders have mostly been made whole in bank bailouts both in the United States and in Europe. If bond investors fear the jeopardy of holding these European assets has risen—confidence may be further eroded in a business that functions on trust. 

 Disclosures

by Shawn Narancich, CFA
Vice President of Research

March Madness

With Italy still lacking a government after indecisive elections earlier this month and business on the island of Cyprus grinding to a halt because of a banking crisis there, Europe is again proving to be a thorn in the side of investors. Blue chip stocks were stirred but not shaken, ending the week modestly lower amid an uptick in volatility. Because Cyprus is a tiny economy with a total GDP a tenth of a percentage point the size of ours, one could easily dismiss the turmoil there as inconsequential if not for the otherwise surprising proposal by Europe’s power brokers, who recommended that a bailout funded by the European Central Bank, the European Commission, and the International Monetary Fund be accompanied by a tax on Cypriot bank deposits. 

Penny-Wise and Euro Foolish?

The fear is that a bank deposit levy could wash up on the shores of countries like Greece or Italy, where funding bailouts has left a bitter taste in the mouths of German citizens who would like to stop funding the profligacy of southern Europe. The situation in Cyprus is unique because its banking sector is almost entirely financed by deposits. With relatively little funding from bond investors, recapitalizing the oversized Cypriot banks by restructuring debt obligations wouldn’t accomplish much. So following a unanimous rejection of the European proposal, the ball is now in Cyprus’s court, and the shot clock is about to expire. If Cyprus fails to propose a Plan B acceptable to European lenders by Monday, the ECB has promised to eliminate lender-of-last resort funding for the Cypriot banks. With depositors chomping at the bit for their cash, a lack of central bank liquidity would almost assuredly sink Cyprus’s banks once they re-open, and likely lead to the country’s exit from the European Union. Yes, Europe remains a simmering menace to investors. Amid the turmoil this week, Treasuries caught a safe-haven bid that dropped the benchmark 10-year yield back below 2 percent. 

Just Did It

While Europe festers, Nike is prospering. Much to the delight of its shareholders, the sports apparel and footwear behemoth re-energized its stock by reporting better-than-expected sales and earnings that grew at the fastest rate in recent memory. After struggling with excessive inventories and upstart competition in China, Nike “checked all the boxes” this time around, reporting a healthy increase in gross margin profitability and a 7 percent increase in futures orders, including gains from the Red Giant.  On heavy trading volume, the stock raced ahead by 11 percent.

Just Didn’t

Contrast Nike’s success with a disappointing setback for Oracle, which reported February-ending financial results that fell short of estimates both on the top and bottom lines. In what appears to be a case of three steps forward and two steps back for the leader in enterprise software, management cited a lack of follow-through by the sales force, newer members of whom failed to close deals in a timely matter. After quarter end, Oracle booked several of these large deals, so bulls on the stock are left to expect that the financials will look better in Oracle’s seasonally strongest May quarter. Bears will argue that software as a service delivered over the Internet is denting Oracle’s business, but the company’s acquisition strategy has targeted many such “cloud” computing firms to strengthen its capabilities in this area. Meanwhile, the jury is still out on Oracle’s acquisition of Sun Microsystems, with hardware sales from this business continuing to fall. Also on heavy trading volume but with a much different result, Oracle shares fell nearly 10 percent on the news.

Our Takeaways from the Week

• Stocks remain well bid amid renewed turmoil in Europe
• Odd-month earnings reports were decidedly mixed

Disclosures