MarketView for July 19

Summary

The Dow Jones Industrial Average and the Nasdaq indexes fell on Friday as disappointing results from Microsoft and Google dragged on the market, while the S&P 500 index edged up to end at a second consecutive record close. Stronger-than-expected results from General Electric and Schlumberger helped the S&P 500 index to offset the tech losses and to post a fourth week of gains. For the week, the Dow was up 0.5 percent, the S&P chalked up a gain of 0.7 percent and the Nasdaq was down 0.3 percent. The benchmark S&P is up 18.6 percent for the year.

Disappointing earnings announcements within the tech sector prompted profit-taking on Friday after upbeat company results on Thursday and reassuring comments from Federal Reserve Chairman Ben Bernanke. Microsoft was largest drag on all three major indexes, with the Nasdaq registering the day's steepest declines. Google also weighed heavillyon the S&P 500 and Nasdaq. Both reported earnings that fell short of expectations. Friday, saw Microsoft fall 11.4 percent to $31.40, while Google ended the day down 1.5 percent at $896.59.

Through Friday, of the 104 companies in the S&P 500 that have reported earnings for the quarter, 65.4 percent have reported earnings above analyst expectations, while 51 percent have topped revenue estimates, according to Thomson Reuters data. Analysts' estimates for corporate earnings have been reduced so much that investors believe the targets for the most part should be easily beaten. Analysts expect S&P 500 companies' second-quarter earnings to have grown 2.9 percent from a year earlier, with revenue up 1.1 percent, according to Thomson Reuters data.

Advanced Micro Devices fell 13.1 percent to $4.03 after the company indicated gross margins would fall, even as the chipmaker forecast stronger-than-expected revenue growth in the third quarter. Encouraging earnings reports from other companies helped to offset the tech losses. Shares of General Electric rose 4.6 percent to $24.72 while shares of Schlumberger gained 5.4 percent to $82.74. Whirlpool rose 8 percent to $128.91 after raising its full-year outlook.

Intuitive Surgical fell 6.8 percent to $392.66 after the company cut its 2013 sales forecast and said regulators had issued a warning after an inspection of its facilities.

Approximately 5.9 billion shares changed hands on the three major equity exchanges, a number that was well below the average daily closing volume of about 6.4 billion shares this year.

Microsoft's Shares Drop by More Than 11 Percent

 Microsoft saw its share price fall more than 11 percent on Friday, making it the largest decline in that company’s share price in more than four years. The sell-off came a day after the software company posted dismal quarterly results due to weak demand for its latest Windows system and poor sales of its Surface tablet.

The stock's selloff, from five-year highs, is the largest in percentage terms since January 2009, when Microsoft cut 5,000 jobs during the recession. At one point in the day, losses exceeded 12 percent, making it the biggest drop since the Internet stock bubble burst in 2000.

About $34 billion was wiped off Microsoft's market value on Friday, exceeding the size of Yahoo.

Microsoft's earnings were wrecked by a $900 million write down on the value of unsold Surface tablets after it cut prices in a bid to excite buyers. The disastrous results shocked Wall Street, which had always been of the opinion that the company's strength with business customers would help it ride out a downturn in consumer PC sales. The results provoked fresh skepticism of Chief Executive Steve Ballmer's new plan to reshape the company around devices and services, unveiled last week.

Price targets were cut as low as $35, below Thursday's closing price of $35.44. The shares fell as low as $31.02 on Friday and closed at $31.40 on Nasdaq, an 11.4 percent drop.

Earlier this week, Microsoft said it was drastically cutting Surface prices to entice buyers, reducing the value of the devices in its inventory. Microsoft launched Surface tablets last year to challenge Apple's iPad, but sales have failed to meet expectations.

The company also said on Thursday it expected revenue from Windows software to continue to fall due to a weak PC market.

Microsoft's outlook points to a weaker PC market, shifts toward subscription revenue and a pause ahead of the Xbox One gaming console release, all of which are expected to pressure revenue growth, Morgan Stanley analysts wrote in a note. Xbox is the only device by Microsoft that has found a following among consumers and a new version is expected to launch this year.