MarketView for July 18

Technology stocks fell on Friday and drove the NASDAQ down one percent on disappointing earnings from Google and Microsoft, while Citigroup's smaller-than-expected loss sent the Dow Jones industrial average higher and helped keep the broader market near the unchanged mark.

Nevertheless, the S&P 500 and NASDAQ snapped a six-week losing streak. The Dow ended four weeks of losses as financial stocks rallied after the government outlined a plan to shore up mortgage finance companies Fannie Mae and Freddie and the SEC announced rules to curb short selling.

Reassuring quarterly results from key banks also fed the week's rally, with Citigroup capping a series of closely watched scorecards from Wells Fargo and JPMorgan Chase that exceeded estimates. Adding to the positive environment was the largest weekly drop ever in oil prices.

Despite their weekly gain, tech stocks ended the week on a downward note. Google's stock fell almost 10 percent, its largest one-day percentage drop since it went public in 2004. Microsoft saw its share price fall 6 percent a day after the tech bellwethers' quarterly results fell short of expectations.

Regional banks, many of which report earnings next week, were among the top sector drags on the S&P 500, suggesting investor worry that the credit crisis has not run its course for some of the less diversified, smaller banks. The S&P Regional Banks Index fell 0.8 percent.

Citigroup ended the day up $1.38, or 7.68 percent, to close at $19.35 after the Dow component reported a smaller-than-expected $2.5 billion loss and said it would keep cutting costs and getting rid of risky or poorly performing assets.

Among the techs, a wider-than-expected loss by chip maker Advanced Micro added to concerns about the outlook for the technology sector. Google's stock fell $52.12, or 9.77 percent, to close at $481.32, while Microsoft ended the day down $1.66, or 6.03 percent, to close at $25.86. IBM helped out the Dow as its shares ended the day up $3.37, or 2.66 percent, to close at $129.89.

For the week, the Dow rose 3.5 percent, its best week in three months, the NASDAQ was up 1.9 percent and the S&P 500 was up 1.7 percent.

With earnings season now in full flow, look for second-quarter S&P 500 earnings to drop 17 percent. If second-quarter earnings end up being lower, it will be the fourth consecutive quarter of negative growth for the S&P 500, the longest losing streak in six years.

Oil prices fell on Friday, helping to cushion the market's decline. High fuel costs have been adding to concerns about consumer spending and corporate profits. Crude for August delivery settled at down 41 cents per barrel at $128.88.

Crude prices Boost Schlumberger

Schlumberger kicked off the petroleum sector's midyear earnings reporting season on a strong note Friday, with about a 13 percent increase in earnings as its customers search frantically for new sources of crude and natural gas.

Unless the global economy goes into the tank, Schlumberger said it expects continued brisk spending on exploration and production as energy companies try to benefit from high commodity prices.

"At the half year, the uncertainty around the direction of natural gas drilling in North America has been removed and extremely high commodity prices have led operators to increase their budgets overseas," chairman and chief executive Andrew Gould said in a conference call.

The company, a bellwether oilfield services contractor, said its net income came in at $1.42 billion, or $1.16 per share, as compared to $1.26 billion, or $1.02 per share, a year ago. Revenues increased to $6.75 billion from $5.64 billion a year earlier. For the first six months of 2008, Schlumberger said its net income was $2.76 billion, or $2.25 a share, up from $2.43 billion, or $1.98 a share, for the same period a year ago. Sales rose to $13 billion from $11 billion.

Schlumberger said its oilfield services arm posted revenue of $6.1 billion in the period, up 22 percent from a year ago. Sales rose 39 percent in Latin America, 28 percent in Europe, Africa and the former Soviet Republics and 19 percent in the Middle East and Asia.

In North America, revenue was up 7 percent year-over-year, but results were hurt somewhat by a significant seasonal slowdown in Canada. The company's seismic arm, WesternGeco, posted second-quarter revenue of $665 million, up 1 percent from a year ago.

A busy oilfield bodes well for outfits like Schlumberger and rival Halliburton Co., which provide technology, equipment and other services to help oil and natural gas companies find and tap hydrocarbon reservoirs.

Schlumberger ended the day up $3.77, or 3.90 percent, to close at $100.55. Its share price has traded in a range of $72.30 to $114.84 during the past year.

Fed's Stern supports early rate hikes

The Federal Reserve can not wait until financial and housing markets stabilize before raising interest rates, Minneapolis Fed President Gary Stern said in an interview with Bloomberg on Friday.

Stern, a voter on the policy-setting Federal Open Market Committee this year, said that "headline inflation is clearly too high," and could feed through to core prices.

"We're pretty well positioned for the downside risks we might encounter from here ... I worry a little bit more about the prospects for inflation," he said.

Freddie Mac To Sell Stock

Despite protestations to the contrary, Freddie Mac has decided that it might need additional capital after all and is going to some lengths to ensure the availability of such as it won approval from regulators on Friday to sell the stock needed to overcome mounting losses. The Wall Street Journal indicated on Friday that the mortgage finance company might seek to raise as much as $10 billion.

The approval, meanwhile, clears the way for the company to fulfill its promise in May to raise $5.5 billion to bolster its balance sheet, allowing it to continue its support of the deflating U.S. housing market.

Freddie Mac in its filing said it expects to "take actions" to maintain its required capital, which has been eaten away by rising defaults among the trillions of dollars of mortgages that the company guarantees. A spokeswoman later said the company had no immediate plans to raise capital, reducing fears the company would mint a massive number of new shares and dilute existing shareholders.

Lawmakers and regulators increasingly have come to rely on Freddie Mac and Fannie Mae to stabilize the worst housing downturn since the Great Depression by buying loans from lenders and providing a dependable source of mortgage finance. Investors have been concerned for weeks that the two companies would need expansive amounts of capital to offset burgeoning losses from delinquent borrowers and record foreclosures.

Freddie Mac said it is not under any mandate to raise more than the $5.5 billion, and that expected second quarter financial results suggest it will have enough capital. Its safety and soundness regulator, the Office of Federal Housing Enterprise Oversight, said it was pleased with Freddie Mac's registration and its commitment to capital was appropriate.

Investors have rushed to sell shares in Freddie Mac and Fannie Mae in recent weeks amid concern of shareholder dilution. The plunging stock prices means the companies would have to sell a greater number shares to raise the same amount of capital.

The timing of the sale of shares, which will include common and preferred stock, depends on market conditions and approval by Freddie Mac directors, a Freddie Mac spokesman said. Dealers were gauging investor interest on Friday, an investor said.

Over the past two days, shares of Freddie Mac have recovered some of the deep losses they suffered last week. The recovery follows a hastily arranged plan by the Treasury and Federal Reserve to backstop it and Fannie Mae with greater borrowing abilities and the possibility of an investment by the U.S. government. The plan met resistance in Congress, where many lawmakers are worried that a bailout could expose taxpayers to trillions of dollars in liabilities.

Lawmakers also resisted a plan to exclude any debt incurred from the rescue plan against the federal debt limit, which Congress is expected to soon increase to $10.615 trillion from $9.815 trillion.

Freddie Mac and Fannie Mae raise money for housing by selling debt cheaply, thanks to an implied guarantee from the government, and then use the proceeds to buy mortgages from lenders. They repackage the loans as mortgage-backed securities with their guarantee and sell them to investors or hold them in their $1.5 trillion portfolios.