Wall Street shares found some relief over the past week from reassuring comments on the economy by Fed chairman Ben Bernanke, but the technology sector continued to struggle.
Analysts said Bernanke eased market concerns about an overaggressive central bank choking off economic growth. But the cooler economic outlook and news from key companies put the tech sector under pressure.
In the week to Friday, the Dow Jones Industrial Average climbed 1.2 percent to 10.868.38 and the broad-market Standard & Poor's 500 added 0.33 percent to 1,240.29.
But the tech-dominated NASDAQ slid for the third consecutive week, dropping 0.83 percent to 2,037.35, its weakest level since May last year.
The Dow is up a modest 1.41 percent for the year, while the S&P is down a fractional 0.64 percent. But the NASDAQ has slumped 8.4 percent.
Peter Cardillo, market strategist at SW Bach, said investors are struggling with a variety of factors, including rising Middle East violence, the outlook for interest rates and the wave of earnings reports being released.
But he argued that despite the geopolitical issues, "the main concern is the economic outlook going forward."
Wall Street is hoping that Bernanke's signals in congressional testimony over the past week mean the economy is cooling enough to take care of building inflationary pressures, giving the economy a "soft landing."
Gregory Drahuschak, analyst at Janney Montgomery Scott, said the market was trying to sort through the various earnings reports and warnings being issued. But he said forward-looking investors want to see how profits will hold up under a cooling economy.
"Despite generally good second quarter earnings ... the market clearly showed a bias toward defensive equities and away from economically sensitive stocks," he said in a note to clients.
"Whether this is rational or not, the market appears to be discounting a notable slowdown in the third and fourth quarters. Bond rates likewise seemed to be suggesting the same thing," he said.
The slowdown is a particular problem for the technology sector, which traditionally relies on a more supercharged rate of growth. Dell's profit warning and Yahoo's delay of a key platform sent their shares tumbling.
"I think the tech sector will continue to be under pressure until there's some evidence that there's some resurgence of growth," SG Cowen analyst Mike Malone said.
Dick Green at the independent research firm Briefing.com said his view on the market remains "neutral" but that he is considering upgrading that to "moderately bullish."
"The fundamentals are developing in a manner consistent with our belief that a traditional year-end rally is likely," he said.
"There is still a chance that the market even improves through earnings season. Unfortunately, the situation in the Middle East is significant enough to keep our near-term outlook on hold for now," he said.
Green said that although economic fundamentals appear strong, the Middle East situation is keeping investors on the defensive.
The bond market firmed on the perception that growth and inflation are easing.
Yields on the 10-year Treasury bond dropped to 5.045 percent from 5.059 percent a week earlier while the 30-year bond yield dipped to 5.103 percent from 5.111 percent. Bond yields and prices move in opposite directions.
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