NEW YORK -- U.S. stocks eked out gains for a second day yesterday as expectations of an economic slowdown tempered optimism about earnings at Apple Computer Inc. and Microsoft Corp.
As long as concern persists that the Federal Reserve will raise interest rates and curtail economic growth, even robust earnings at technology bellwethers aren't enough to rally an industry group, let alone the entire market, said Philip Tasho, portfolio manager at Shawmut Investment Advisers, which manages about $14 billion.
"Nobody wants to make a major move yet, because they're not quite sure whether the economy will start to slow down," Mr. Tasho said. In that type of bear market environment, "investors will react to things on a stock-by-stock basis."
The Dow Jones industrial average closed up 2.59, at 3,735.04, ending the week with a loss of 18.77 points. Eastman Kodak Co., General Electric Co. and Sears, Roebuck & Co. were the biggest gainers. McDonald's Corp. and Aluminum Co. of America posted the largest declines.
Kodak rallied $1.50, to $49.25, amid anticipation of Tuesday's release of second-quarter results by the film and copier maker, traders said. Analysts estimate Kodak's net income will be 87 cents a share, according to Zacks Investment Research.
McDonald's Corp. fell $2, to $26.25, even though the fast-food chain said second-quarter earnings rose 12 percent. While the results matched analysts' expectations, Merrill Lynch & Co. analyst Peter Oakes lowered his rating of the stock yesterday, citing slower sales growth "and more impressive earnings growth in other sectors of the market."
Restaurant shares were the biggest decliner in the Standard & Poor's 500 index, which rose 0.50, to 453.11. Declines in restaurant, health care, telephone, and computer systems shares were offset by gains in software, electrical equipment, and entertainment shares.
The Nasdaq composite index gained 1.65, to 716.68, buoyed by Microsoft, Apple and U.S. Healthcare Inc. The three stocks outweighed losses in Intel Corp., Amgen Inc., and Novell Inc.
On the New York Stock Exchange, 11 stocks gained for every 10 that fell. Trading was moderate, with about 261 million shares changing hands on the Big Board.
The Russell 2000 index slipped 0.58, to 243.33, the American Stock Exchange market value index rose 0.21, to 433.45, and the Wilshire 5000 index gained 4.78, to 4,481.77.
"Earnings reports continue to be principal focus of the market," said Hugh Johnson, chief investment strategist of First Albany Corp.
Mr. Johnson said that of the 152 earnings reports First Albany has monitored so far this quarter, 92 exceeded expectations, 46 fell below, and 14 were on the mark. The reports have created a "reasonably positive tone to the market."
Shares of Microsoft advanced $2.8125, to $50.5625, after the company told analysts Thursday that earnings for the fiscal first quarter ending Sept. 30 will be 24 percent to 30 percent above last year's.
Meanwhile, Apple leaped $3, to $31, after the personal computer maker said lower costs and increased shipments of its new Power Macintosh computer produced third-quarter earnings from operations of $59.5 million, or 50 cents a share. Analysts expected earnings from operations of 35 cents a share, according to Institutional Brokers Estimate System.
Yet the optimism surrounding Apple and Microsoft failed to lift the broader market. Stocks got no help from Treasury bonds yesterday, which fell amid expectations the Fed will raise interest rates soon to rein in inflation, traders said. The yield on the benchmark 30-year bond rose as high as 7.58 percent, up four basis points.