No Inflation Rallies the Dow, AAPL Held Back on Dell's Woes

The Dow rallied above 11,000 for the first time since April 25th, but an anemic Nasdaq ended only slightly higher. Appleis stock gained little as the computer hardware sector was hard hit by Dellis solid earnings report. Apparently, Dellis revenue growth, increasing at the slowest rate in five years, frightened over-optimistic PC investors.

Everyone now fully expects the Federal Reserve to sit tight during its next FOMC meeting later this month, because there is no sign of significant inflation and the economy is slowing as expected from seven interest rate hikes in the last year. The conventional wisdom on Wall Street says the slowing economy will hurt corporate earnings going forward and, since most tech leaders have been priced for perfection, they have the furthest to fall with any earnings shortfall. Meanwhile, the undervalued blue chips and so-called old economy stocks on the Dow have already priced in worst case scenarios for earnings and have the most to gain from flat to lower interest rates going forward.

Appleis stock climbed 1/8 to close at 47 11/16 on volume of 4.2 million shares. AAPL bottomed out at 45 1/2 late in the morning then spent the rest of the session climbing back into its recent trading range and closed very close to the dayis high.

The Nasdaq climbed 29 points (0.78%) after dipping 73 points this morning to close at 3789 on volume of 1.3 billion shares. For two weeks the Nasdaq has gone nowhere. Last Friday the tech heavy index closed at 3787. Historically August is a flat to negative month for stocks.

The Dow rallied 119 points (1.09%) to close at 11027 on extremely light volume of 839 million shares, typical for this time of year. Cyclical stocks take the cake this week. Georgia Pacific (GP) is up 12% this week, Masco (MAS) climbed 10% and Caterpillar (CAT) jumped 12%. Financial stocks are also benefiting from forecasts of flat to lower interest rates going forward.

The S&P 500 climbed 11.59 points (0.79%) to close at 1471.84.

In Apple related businesses: Adobe climbed 2 3/4 to 115 9/16 and Macromedia fell 3 13/16 to 79 3/8 after Adobe filed a law suit against Macromedia for an alleged patent infringement in Flash 5. Adobe is asking the court for an injunction and damages. See the full Mac Observer story.

IBM climbed a buck to 120 3/4. IBMis stock appears to be making a solid run towards a new high for the year, but can the stock bust through fierce resistance in the 121 to 131 zone?

Akamai slid another 3 1/16 to 63 7/16. Earthlink fell 1/16 to 10 9/16. Frances Katz of Cox News reviews Earthlinkis pains and promise in an interesting analysis.

Appleis competitors: Dellis good earnings report yesterday impressed nobody. The stock sagged 4 1/16 to 37 11/16. Salomon Smith Barney downgraded the stock to outperform from buy and set a new $55 price target. Bear Sterns is staying with their buy rating and said Dell still offers a compelling risk-reward ratio with limited downside. ING Barings recommends buying the stock in the low $40 range with upside potential to $60, but says to use the stock as a "trading" vehicle, not a long term investment. USB Piper Jaffray lowered second half revenue forecasts to $17.5 billion from $18.5 billion, and lowered second half EPS projections to $0.51 from $0.53 while maintaining its buy rating on Dell. Dell has lost $40 billion in market capitalization since July 17th.

Hewlett Packard lost 2 1/4 to 110 dollars. CNET News said, "In what is becoming a game of one-upmanship, Hewlett-Packard has followed Dell Computer and IBM to make Linux one of its three istrategici operating systems." Thatis tough luck for Microsoft.

Shares of Microsoft slipped 3/16 to 72 7/16. Recently, the European Union decided to pursue their version of the US Governmentis antitrust suit against Microsoft. Today a Bloomberg report notes that the Redmond behemoth teeters on similar problems in India, although for the moment Indiais antitrust suit is on hold.

Meanwhile, Microsoft will miss its September deadline for introducing Redmondis version of interactive TV software to Europe. According to Tech Web, "The delay would force Microsoftis first customer, Europeis largest cable TV operator, United Pan-Europe Communications NV, to introduce its digital set-top boxes with only bare-bones functionality."

Gateway was higher by 13/16 to 61 9/16. Compaq gained 5/16 to 31 5/8. Intel climbed 1 13/16 to 63 13/16.

In economic news: Julyis wholesale prices as registered by the producer price index (PPI) held steady — balancing a decline in fuel costs with rising drug prices. The core PPI was up only 0.1%. However, retail sales climbed 0.7% helped by a steep rise in auto sales.

Todayis news helped the ailing retail sector stocks, which have been in a rut during recent weeks, and might indicate that Appleis sales in July were higher than expected as demand for big ticket consumer items remains strong.

The Wall Street Journal reported, "In the July report, sales of durable goods — those meant to last three or more years — rose 1.2%, their strongest gain since February. Within the category, auto-dealer sales advanced 1.1%, also the biggest advance since February. Sales of other durable goods strengthened, as well. Sales of furniture and related items rose 1.3% while purchases of building materials and hardware rose 1.3%. The gain in building materials was the sharpest since March."

Next week the consumer price index (CPI) will reveal how inflation is doing with the prices of every day items. Forecasts are for a mild 0.2% increase — not enough to feed fears of a rate hike by the Federal Reserve. Nevertheless, itis the last major economic data hurdle to clear before the Fedis meet later this month to consider US monetary policies.

The Mac Observer Stock Watch Virtual Portfolio is near its low for the year. Lucent (LU) almost scored a second 52-week low in two weeks, down 7/8 to 40 1/8.

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our Apple Stock Watch Special Report.