Another Mixed Day - More Green than Red

For a second straight day, stocks finished mixed. A batch of better than expected earnings, more proof the market remains awash in liquidity, and the first drop in producer prices since January initially armed the bulls with enough momentum to power the Dow to its fifth straight victory and, more notably, above 14,000 for the first time ever.

However, some hesitation heading into another deluge of corporate earnings, a closely-watched update on inflation (e.g. CPI), and the beginning of a two-day testimony before Congress from Fed Chairman Bernanke left some questioning whether the market's sizable gains of late are sustainable.

The Dow closed in record territory again; but its best performer was not among the two components in focus after topping Wall Street's expectations. Johnson & Johnson (JNJ 62.75 -1.05) beat forecasts and backed its full-year profit outlook but lowered its 2007 sales growth guidance. Coca-Cola (KO 53.06 -0.79) also checked in better than expected but continued weakness in North American sales left investors questioning the 52-week high shares hit a day earlier.

The Dow's salvation was American Express (AXP 64.80 +2.92), which accounted for all of the Dow's 20-point gain. The stock soared 4.7% after Goldman Sachs upgraded the stock to Buy and raised its price target to $77 from $66.

A technical breakout in General Electric (GE 40.77 +0.65), the second most heavily-weighted name on the S&P 500, was another bright spot and was the biggest reason behind Industrials pacing the way among just four sectors finishing higher. As evidenced by the Nasdaq turning in the best performance among the major averages, Novellus Systems (NVLS 33.03 +3.34) essentially calling the bottom in bookings helped validate optimism throughout Technology and support our recent upgrade on the sector to Overweight.

KLA-Tencor (KLAC 61.78 +5.08) later in the session offering some upbeat commentary out of the SEMICON West conference also helped pave the way for Intel (INTC 26.32 +0.37), a suggested holding in the Briefing.com Active Portfolio, ahead of its report tonight. A 3.1% rally in Yahoo! (YHOO 27.52 +0.82) ahead of its results after the close and a 2.5% surge in Microsoft (MSFT 30.77 +0.74), which also reports this week, provided additional sector support.

Materials (+0.6%) was the day's third best performing sector. Basell agreeing to buy Lyondell Chemical (LYO 47.05 +6.93) for $12.1 bln in cash and a $2 bln buyback from Rohm & Haas (ROH 61.27 +5.54) earmarked chemical stocks among the session's biggest winners. After being up as much as 1.6% at $75.35/bbl level intraday, crude for August delivery heading into expiration and closing relatively flat was also noteworthy.

Unfortunately, subsequent deterioration in the Energy (-0.9%) sector removed much of the leadership that had helped the S&P 500 recently hit historic highs and contend with the lack of participation from the more heavily weighted Financial sector.

The latter was in focus after Merrill Lynch (MER 86.86 -0.53) posted a 31% jump in Q2 profits; but its CFO saying the market for subprime debt has yet to stabilize prompted a reversal in MER shares and, had it not been for the rally in AXP, the sector would have slipped further into negative territory for the year.

Separately, today's headline PPI unexpectedly falling for the first time in five months due to a drop in food and energy prices was also welcome news for investors. When it was all said and done, though, investors opted to wait for Wednesday's more influential CPI report to get a better inflation read for Fed policy direction.
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