Stocks move sideways after big jump; Nasdaq slides as Microsoft, Amazon stir unease about tech

Stocks pause after rally; Microsoft drags Nasdaq

NEW YORK — Investors are taking a breather after a two-week rally that has left stocks at their highest levels of the year.

Stocks zigzagged Friday, holding the Dow and the Standard & Poor’s 500 index to only modest moves. Disappointing profit reports from Microsoft Corp. and Amazon.com Inc. weighed on the technology-laden Nasdaq composite index.

Microsoft dropped more than 8 percent after company reported revenue that fell short of analysts’ forecasts. Amazon.com also reported weaker-than-expected sales, and its shares also fell 8 percent.

The reports underscore the prevailing theme of earnings season thus far: Companies have been able to report better-than-expected earnings in large part because of aggressive cost-cutting measures, not stronger sales. Revenue at some companies is still sagging as consumers forgo spending to shore up their savings.

Still, investors have taken the improved results as confirmation that the economy is healing and that a turnaround is possible by the end of the year.

“We are of the opinion that it may not be a straight line, but things are going to continue to get better,” said Keith Walter, portfolio manager at Artio Global Equity Fund.

Investors are betting on an improvement. On Thursday, news that existing home sales rose in June for the third straight month pushed the Dow over 9,000 for the first time since January. In just nine days, the Dow and the S&P 500 index have climbed 11 percent, reigniting a rally that carried the market 40 percent this spring. Stocks gave up some of those gains last month as still-growing unemployment and weak consumer confidence fed doubts about the economy’s recovery.

Despite the market’s gains, analysts warn that investors still have a number of obstacles to contend with, including earnings reports from retailers that will provide more insight into the financial health of the consumer.

“It’s healthy that there is fear and skepticism in the marketplace,” said Jeffrey Frankel, president of Stuart Frankel & Co. “The more people are concerned and the more people are careful, the healthier the market will be. What gets us in trouble is when there is no fear.”

In late afternoon trading, the Dow slipped 0.84, or less than 0.1 percent, to 9,068.45, while the S&P 500 index slipped 0.26, or less than 0.1 percent, to 976.03. The Nasdaq fell 13.79, or 0.7 percent, to 1,959.81. The Nasdaq has risen the past 12 days.

The market’s climb in the past two weeks reflects a mix of forces. Some analysts link part of the buying to short-covering, where investors have to buy stock after having earlier sold borrowed shares in a bet that the market would fall. That rush to cover ill-timed bets can hasten the market’s climb.

It’s not just traders making all the moves. Everyday investors also are withdrawing money from some safe corners of the market where the returns are low. In the week ended Tuesday, money market mutual fund investors pulled $3.99 billion from taxable funds, according to according to iMoneyNet Inc. This has been flowing into stock and bond funds.

Analysts also say money managers are afraid of missing out on a continued rally.

“There is so much cash still on the sidelines,” said David Darst, chief investment strategist at Morgan Stanley Smith Barney.

“People missed it and they’re beginning to worry that the train isn’t going to come back for them,” he said, referring to the rally.

Bond prices slipped, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.68 percent from 3.67 percent late Thursday.

Traders were disappointed by the Reuters/University of Michigan index of consumer sentiment’s final July reading, which fell to 66.0 from 70.8 in June. Analysts want to see gains in confidence because that signals consumers might be more willing to increase how much they spend. Consumer spending accounts for about two-thirds of U.S. economic activity.

Analysts say a break in the market’s advance is warranted and disappointing earnings reports gave investors reason to lock in some of the recent gains.

Microsoft fell $2.12 to $23.44, while Amazon.com dropped $7.57 to $86.31.

The dollar was mixed against other major currencies, while gold prices fell.

Oil rose 69 cents to $69.05 a barrel.

Four stocks rose for every three that fell on the New York Stock Exchange, where volume came to a light 696.9 million shares, compared with 891.2 million traded at the same point Thursday. Light volume can skew the market’s moves.

The Russell 2000 index of smaller companies rose 0.67, or 0.1 percent, to 546.51.

Overseas, Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index fell 0.3 percent, and France’s CAC-40 lost 0.2 percent.

Japan’s Nikkei stock average jumped 1.6 percent, while Hong Kong’s Hang Seng index gained 0.8 percent. The Hang Seng stands at its highest level in 10 months.