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Stocks closed mixed as investors showed renewed interest in technology shares, while the broad market remained under pressure and posted weekly losses amid caution about rising long-term interest rates in the bond market. Worries about higher interest rates overshadowed the day’s corporate news, including upbeat earnings from Microsoft and Caterpillar, weaker results from Amgen and a Citigroup downgrade of Cisco Systems.

Today, the Dow Jones Industrial average closed down 15.54 or 0.12% to 12,487.02, and the broader S&P 500 closed down 1.72 or 0.12% to 1,422.18. The tech-heavy Nasdaq composite closed up 1.25 or 0.05% to 2,435.49. For the week, the Dow, S&P and Nasdaq all fell about 0.6%.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by a margin of nine to seven on volume of 1.5 billion shares. On the Nasdaq, decliners topped advancers three to two on volume of 2 billion shares.

Revival of worries about the interest rate are behind this great sell-off. Investors clung to these worries as a second housing market report suggested a bottoming in new home sales. New home sales plunged 17.3% in 2006, the biggest drop in 16 years. The supply of completed homes available for sale rose to a record 172,000 in December, up nearly 50% from a year earlier. Adding fuel to fire, was the strong report on durable goods. New orders rose a larger-than-expected 3.1% in December as demand for aircraft and parts soared and most other sectors showed surprising strength. Excluding transportation orders, durable goods orders rose 2.3% in December following two monthly declines.

Next week brings a plate full of economic and fundamental information. Starting with the Fed meeting, a few big earnings announcements, such as Google, January’s consumer confidence report on Tuesday, the fourth-quarter GDP report on Wednesday, and then the jobs report on Friday. While strong economic growth is good for corporate profits and ultimately leads to stock gains, but investors may be concerned that if growth is too strong it will cause the Federal Reserve to start raising interest rates again.

Shares of Caterpillar closed up $1.46 or 2.5% to $61.09, after reporting higher quarterly earnings that missed estimates on higher sales that topped estimates. The company also issued a bullish 2007 earnings forecast. Its net quarterly profit rose 4.3%, helped by increased sales of its engines and other machinery.

Stock of Microsoft closed up $0.17 to $30.60, on reporting strong quarterly sales and earnings that beat estimates. While it reported a drop in profit for its fiscal second quarter, its sales and earnings beat analyst expectations thanks to strong sales of its Xbox 360 game console during the holidays.

Shares of Honeywell closed down $0.07 to $44.13, despite reporting higher quarterly sales and earnings. However, the company also issued a 2007 earnings forecast in a range that could miss analysts’ estimates. Its quarterly profit rose 13.8% on strong demand for its airplane components and systems used in commercial construction.

Stock of Amgen closed down $3.35 or 5% to $71.50, after reporting higher quarterly earnings that missed estimates on higher sales that topped estimates. Its EPS jumped 20% to 90 cents from 75 cents for the same period the previous year.

U.S. light crude oil for March delivery rallied $1.19 to $55.42 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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