Two steps forward, one step back. Stocks jumped Monday and Tuesday on encouraging reports about housing and manufacturing -- the biggest two-day advance for the Dow in three months. But the market mostly fell back Wednesday, partly because growth in non-manufacturing businesses, although up after two contracting months, fell short of expectations, partly on disappointment from Pfizer, partly due to Barack Obama's promise in his Q&A with Senate Democrats to continue reforming (regulating?) banking and healthcare, and mostly on the sinking realization that this recovery isn't going to be the recovery of our dreams. With many tech companies reporting, the Nasdaq rose a fraction, helped by good earnings from Cisco and AOL, but still with a whole lot of ground to cover to make up for last week's rout. No sector was up today except technology:

INDEX WRAP, FEB. 3, 2010:

The Nasdaq had a 0.85-point or 0.04% rise to 2190.91:

NASDAQ:

The S&P kissed 1,100 goodbye to close down 6 points or 0.55% at 1097.28:

S&P500:

The Dow fell 26.30 points or 0.26% to 10,270.55. It too hewed very closely to resistance for the second day.

DOW JONES INDUSTRIAL AVERAGE:

Declining issues and declining volume significantly beat advancers on all three exchanges -- two fell on the NYSE for every one that rose -- which is always worth noting, and volume was down from yesterday. After pausing Monday and Tuesday, the dollar continued its sharp climb to close at $79.40, up over 6% since early December. The market is a difficult read right now and resistance may be a tough nut to crack without some extraordinary earnings surprises coming up.

In economic reports, the Institute for Supply Management's index inched up to 50.5 last month (from a revised 49.8 in December). Didn't matter, as the January reading was below the 51 that analysts were expecting. Good-news junkies, please know that any number above 50 signals that the sector is -- generally -- expanding; readings below 50 signify contraction. Also to the good regarding non-manufacturing: The New Orders Index increased 2.7 percentage points to 54.7%, and the Employment Index increased one percentage point to 44.6%.

Although overall growth was up, there were areas of concern. First, only four non-manufacturing industries reported growth: Utilities, Information, Wholesale Trade and . . . . Other. Production (Business Activity) was down, as this chart shows, and prices were up, perhaps tiptoeing toward inflation. New export orders, unchanged from December, were still in "contracting" mode and inventories, never to be overlooked, were still too high and expanding substantially.

ISM NON-MANUFACTURING OVERVIEW:

The weaker activity in non-manufacturing dampened cheer about the ADP report that private employers actually cut fewer jobs than expected last month. ADP said employers cut 22,000 non-farm, private-sector jobs last month, the best showing since employment started perceptibly to weaken in February 2008. That news from payroll administrator ADP comes to us as an appetizer before the government's January employment entrée on Friday, which is expected to show that employers added maybe 5,000 jobs in the first month of the year and that employment edge up from 10% to 10.1%.

The Mortgage Bankers' Association Index jumped a heartening 10.3% last week, with refinancing jumping 26.3%, both back at mid-December levels from mid-December. Coming after yesterday's market reaction to the mild improvement in pending home sales, it may prove significant. Thirty-year fixed loans averaged 5.01%, but we can expect mortgage rates to rise over the next few months as the Federal Reserve ends its mortgage-backed securities purchasing program. This will probably lead to a temporary decline in mortgage applications, but only temporary as people realize that rates can only get higher. In fact, they're up now from last year's lows. After yesterday's jump, we couldn't expect the housing sector to react wildly, and it didn't. The Philadelphia index of housing and materials stocks stayed quiet:

PHILADELPHIA HOUSING INDEX:

And lest we forget oil, a rise in imports and a decrease in refinery inputs caused a sizable build in crude stocks, up 2.3 million barrels last week to 329.0 million. In contrast, stocks of products fell as refineries cut output of both gasoline, where stocks fell 1.3 million barrels, and other distillates, where stocks fell 1 million. An oil spill of almost half a million gallons of crude off Houston waterway may have intensified the situation.

Refineries, operating at a ridiculous 77.7% of capacity, are cutting back production, and who can blame them: Demand for both gasoline and distillates is quite weak with gasoline demand down 1.2% from the previous week and 0.5% year over year. The market ignored the build and focused on the low demand, knocking the price of oil. Though an oil build was expected in the week, oil still settled below $77 Wednesday.

CRUDE OIL FUTURES:

. In earnings, disappointing numbers and especially the forecast from drug maker Pfizer (PFE) were a drag on health care stocks. The world's biggest pharma fell 44 cents or 2.3% to close at $18.62 after it missed estimates and forecast below expectations, leading a decline in several healthcare sectors. Pfizer was one cent off (adjusted) earnings expectations with net income of $767 million or 49 cents per share, despite the fact that that figure was up 188% from $266 million a year ago (albeit those results were slammed by a legal settlement; unadjusted earnings doubled to 10 cents). Q4 sales jumped to $16.5 billion, up 34% from $12.3 billion and topping expectations of $15.9 billion.

Investors might have shrugged at the once-cent miss but they couldn't ignore Pfizer's 2010 forecast of from $2.10 to $2.20 a share, recently lowered because the strengthening dollar could hurt overseas sales: analysts said $2.27. Pfizer fell 40 cents or 2% to $18.66, breaking an almost-seven-month trendline of higher lows. However, Pfizer has been amazingly resilient, bouncing back from a 32% drop off January's price. Can it get back, and stay back, above $19.50? The drop was caused by a 50% cut in the dividend, briefly giving it a yield of 5.3%; even now the 64-cent payout yields 3.4%, not terrible.

PFIZER:

Media conglomerate Time Warner (TWX) said Wednesday that better results at its movie studio and cable networks helped fourth-quarter revenue, and smaller one-time expenses helped it post a profit after reporting a loss a year ago. Time Warner, which once owned AOL, owns Time Inc. magazines, earned $627 million or 53 cents per share, up from a loss of $16 billion or $13.41 a year ago when the company had writedowns on its cable, publishing, and notably its AOL assets. Eliminate one-time items and the company earned 55 cents, surprising analysts who were looking for 52 cents. Revenue up 2% at $7.32 billion also beat expectations.

Time Warner has been losing all kinds of weight, getting rid of both AOL and Time Warner Cable to focus on creative content and leave delivery to others. So far, so good: the company's HBO and Turner cable networks pulled in more money from fees from cable and satellite providers, while its Warner Bros. movie studio did very well with "The Blind Side" and "Sherlock Holmes." The company is also raising its dividend 13% to an annual rate of 85 cents per share (3% at the current price) and increasing its stock repurchase plan.

TIME WARNER:

Time Warner's erstwhile and now independent subsidiary AOL Inc. (AOL) squeezed out a small fourth-quarter profit in its first standalone earnings report. Income totaled $1.4 million or 1 cent a share compared with a loss of $1.96 billion or $18.52 a share a year ago. But subscription declines and a still-anemic advertising environment mean the company can't close its eyes for a minute. Revenue from Internet-search advertising and subscriptions fell 17% to $809.7 million year over year; it was a smaller drop than in recent quarters, but the company will probably stumble in the short-term from sales-force cuts and business-unit closures that are part of a major reorganization begun last year. It expects another revenue hit of $225 million from the closure of underperforming businesses, including operations in Spain and Sweden.

AOL became a dominant player in the early years of the Web by selling dial-up Internet service. (We all remember its annoying but effective ads.) Broadband caught the company by surprise; it struggled constantly to innovate to no avail, leaving it wide-open for the 2001 TWX takeover. Now the company is trying to reinvent itself as an ad-supported online publisher of news and entertainment. It's a tough business with some very experienced competition. The market rewarded the company's efforts:

AOL, INC.

Aiding the Nasdaq in its baby step up on Wednesday, wireless-equipment leader Cisco Systems (CSCO) reported higher-than-expected revenue growth as more customers resumed upgrading their networks to handle increasing wireless and Internet traffic. Revenue for its fiscal Q2 jumped 8% from a year earlier to $9.8 billion, beating analyst expectations. It was the company's first year-over-year revenue growth since October 2008. Profit was $1.9 billion or 32 cents a share, up from $1.5 billion or 26 cents; without items earnings were 40 cents a share, beating Wall Street's forecast of 35 cents. Cisco is one of the first major techs to report results that include much of January. Its performance and outlook are often an early indicator for the rest of the technology sector, especially as regards enterprise spending. The market applauded politely.

CISCO, OFTEN A TECH CAPEX INDICATOR:

Shares of NetLogic Microsystems (Nasdaq: NETL) soared after the networking chipmaker reported strong Q4 earnings and proffered an upbeat outlook. Yes, the company lost $37.2 million or $1.43 per share, down from a loss of $1.1 million or 5 cents last year. Adjusted earnings, though -- and there was a whole bundle of adjustments, from compensation expenses to inventory adjustments and acquisition costs -- jumped to 59 cents, better than the 42-cent consensus, as revenue more than doubled to $69.5 million, much better than expected. For Q1, the company sees adjusted EPS of 56 cents on revenue of $85.0 million, about 37% better than analysts' predictions. Investors were quite pleased:

NETLOGIC BEATS CONSENSUS, AFTER ADJUSTMENTS:

Cable operator Comcast (CMCSA) posted a Q4 profit of $955 million or 33 cents per share, up from $412 million or 14 cents in the year-ago period; adjusted earnings rose 16% to 29 cents, two cents better than Wall Street estimates. Revenue was higher too at $9.07 billion, above the $8.97 billion consensus. Comcast's cable-TV, Internet, and phone customers increased 3% to 45.6 million. Nevertheless, after a wildly-swinging session, the stock ended down 2%. The company was practically mum about its deal to acquire NBC Universal from General Electric:

COMCAST:

In non-tech, Polo Ralph Lauren (NYSE: RL) shares sank 8.4% after the clothing company said that expenses related to its new Asia Pacific operations will hurt the current quarter. For Q3, the high-end clothier recorded net income of $111.1 million or $1.10 per share, up 6% from $1.05 per share last year; revenue was slightly lower at $1.24 billion. Analysts wanted $1.01 on sales of $1.26 billion. For Q4, the company said its Asian operations would hurt EPS by 8 to 10 cents and that revenue would slide considerably. The market was not amused and cut 8% off the share price:

RALPH LAUREN FORESEES A WEAKER QUARTER, GETS SLAMMED:

And in the "How The Mighty Are Fallen" Corner: As if perilously sticky gas pedals weren't bad enough for Toyota's (TM) Lexus, on Wednesday came reports of faulty brake pedals on its popular Prius hybrid. At least 14 cases of possible brake malfunctions have been reported in Japan since the newest model went on sale in May. A Toyota spokewoman was good enough to admit that a brake defect "could not be ruled out." Are you ready to see what all this has done to the share price? (Viewer discretion advised):

TOYOTA, AFTER BIG RECENT BODY PUNCHES:

And finally, the Oscar nominations, just announced, sometimes set one to wondering about the movies, if only for a moment. And if you think Americans like their movies, you ought to take a look at India. Worldmapper is an interesting website that gives you all manner of demographic information in an unusual format: It shows countries as relatively small or large, depending on the occurrence of whatever data you're looking for. It looks a little cartoony, but for at-a-glance information it's hard to beat. From the graph below we can see that America is consuming movies very healthily, that South America and Africa are not holding up their end at all, and that ballooning India is practically about to explode. Bollywood, indeed:

YOU THINK AMERICAN TEENAGERS SPEND TOO MUCH TIME AT THE MOVIES?

Thursday's economic reports include Jobless Claims, Productivity & Costs, and Natural Gas. Also on tap are Factory Orders and the European Central Bank announcement: Europe's interest rates are not without their effect. Earnings season continues with reports from, among many others, Toyota, Unisys, Microchip Technology, Kellogg, Sunoco, DeutscheBank, Cigna and Allergan.