Perception is everything
The early part of the week was good for the equity market. In fact, all major indices posted daily increases through Wednesday. Market players discounted earnings warnings, and pundits were beginning to claim that we might have touched bottom. Funny that we mentioned market guru Abby Cohen last week. This week she came out with a prognostication that the S&P was undervalued, causing market prices to head higher. She wasn't alone in declaring that the S&P was undervalued, as other Wall Street investment strategists from Merrill Lynch and Morgan Stanley Dean Witter have also become more bullish in the past couple of weeks.

But Abby's remarks weren't enough to keep the market going after the employment report. Clearly, lower interest rates - or hopes for lower rates - are a greater market plus than this market bull. When Intel lowered its sales forecast for the third straight quarter, it was also clear that investors had not completely discounted such warnings. This helped erase some of the gains made earlier in the week - at least for the Dow. The Dow Jones Industrials did manage to end the week with a 1.7 percent gain from the previous week's close. Other price indices didn't fare as well. In particular, the Nasdaq composite index suffered a more dramatic hit from the Intel news (-3.1 percent for the week). The implications are that more high tech companies may similarly lower their forecasts going forward.

Treasury yields fluctuated in a tight range this week
Early in the week when stock prices were beginning to head higher, bond prices tumbled (and yields rose). This isn't unusual given that Treasury securities are often the refuge of uncertain investors. The positive movement in the stock market probably had investors taking money out of Treasury securities and into potentially higher yielding (and higher risk) investments. But the stock market rally was short-lived. In the second part of the week, Treasury yields declined once again despite the lack of favorable economic news or friendly comments by Fed officials. But the Treasury market was hurt by the stronger than expected gain in nonfarm payrolls. After all was said and done, bond yields at Friday's close ended up quite similar to last week.