Dow -120.79 at 12822.57, Nasdaq -40.60 at 2925.3, S&P -13.85 at 1362.66

Stocks saw a persistent bid over the first four days of this week, helped by low expectations for earnings results and continued hope that the Fed will eventually step in with additional quantitative easing. The low expectations into earnings helped several major index components move higher on what might normally be considered to be lackluster earnings reports, characterized by slight earnings beats and revenue misses. The continued Fed hopes allowed broader markets to shake off disappointing economic data. While stocks gained over the first four sessions of the week, sentiment turned negative on Friday as European concerns weighed on stocks, paring the week’s gain down to just 0.5%.

Stocks opened lower on Friday and showed weakness over the course of the day, as renewed worried about Spain knocked Spain's equity market down 5.8% and weighed heavily on other European markets. Spain's 10-year yield climbed back above the 7.0% level to end the week at 7.2%. Egan Jones downgraded Spain's sovereign debt rating to CC+ from CCC+ following word the Spanish region of Valencia needs government help to meet its debt obligations. The EU also recently released a Memorandum of Understanding on the bailout of the Spanish banking sector which calls for a EUR30 billion tranche to be released shortly, ahead of a stress test of the system which will be completed by the end of September. A Spanish roadmap will be created by the end of November.

Looking at U.S. equity movers, Chipotle Mexican Grill (CMG 316.98, -86.88) saw its largest ever percentage loss for one session after disappointing the Street on the top line, and warning about costs in the back half of the year. Other momentum restaurant stocks such as Panera Bread (PNRA 144.97, -5.72) and Starbucks (SBUX 51.96, -2.24) also showed relative weakness.

Looking at the technology sector, flash memory producer SanDisk (SNDK 38.70, +3.62) was a notable outperformer after the company beat second quarter estimates and gave a bullish outlook for the remainder of the year. On the other hand, chip maker Advanced Micro Devices (AMD 4.22 -0.64) missed reduced expectations and guided third quarter revenue below expectations.

Google (GOOG 610.82, +17.76) was one of the lone bright spots this morning as the stock trades up close to 3.0% after announcing earnings of $10.12 per share which beat the Capital IQ Consensus Estimate of $10.09 per share. The company also announced revenues surged 39% year over year to $9.61 billion which was well above the consensus estimate of $8.41 billion. Key metric paid clicks rose 1% quarter over quarter and 42% year over year.

Treasuries saw heavy buying dropping yields across the curve to near record lows. Today’s session brought about a record low print in the 5-yr yield as it hit 0.576%. Meanwhile, the benchmark 10-yr yield holds just above its record low 1.440%. Significant flattening of the yield curve has the 2-10-yr spread tighter at 124.5 basis points... Today was also the July options expiration.

Recapping the first four days of the week, we'd note that Monday started with weakness in China following comments from Chinese Premier Wen Jiabao, which suggested China's economic recovery may take some time. Elsewhere, reports out of Europe indicated that the ECB was looking to impose losses on bondholders of Spanish banks which are most impacted by the crisis. Earnings season continued as Citigroup (C 25.93, -0.65) finished slightly higher following its mixed quarterly results. The S&P was nearly flat on the day.

On Tuesday, the flow of earnings continued as market participants awaited the highly anticipated testimony by Ben Bernanke. Goldman Sachs (GS 94.16, -0.84) beat top and bottom line estimates, but only finished marginally higher on the day. Mosaic (MOS 57.50, -0.12) finished higher by over 4% following better than expected results. On the other hand, Johnson & Johnson (JNJ 68.63, -0.90) missed revenue expectations and lowered FY12 guidance. As far as the Bernanke testimony, one key item that stuck out was the mention of possible deflation, which may have been interpreted as one potential justification for more quantitative easing. Shortly following this mention, markets seemed to catch a bid, and the S&P finished 1.6% higher on the day.

On Wednesday, The Fed's Beige Book was released and suggested "overall economic activity continued to expand at a modest to moderate pace in June and early July." Excerpts from the Beige Book hinted that reports on residential housing were "largely positive" and drought caused "stress to crops and livestock" while indicating employment grew at a "tepid pace." The S&P managed a 0.6% again for the session. 

On Thursday, earnings season stepped into high gear. Morgan Stanley (MS 12.78, -0.47) shares fell 5% after the bank reported disappointing earnings and revenues. MS reported Q2 earnings of $0.28 per share including its Debt Valuation Adjustment, or DVA, and $0.16 excluding DVA. The Capital IQ consensus called for EPS of $0.33. Revenues were also below expectations. International Business Machines (IBM 192.45, -2.69) was a notable winner, rallying 3.8% and regaining its 200-day moving average as the stock was able to shake off a top line miss. The S&P inched out a gain of 0.3%.

Looking to next week, approximately 750 companies that we cover are expected to report second quarter results, including 175 companies in the S&P 500. Apple (AAPL 604.30, -10.02) will announce its results on Tuesday afternoon, and Facebook (FB 28.76, -0.24) will report its first quarter as a public company following Thursday's closing bell. On Monday morning, McDonald's Corp. (MCD 91.58, -1.18), Halliburton (HAL 30.77, +0.56), and Eaton Corp. (ETN 39.06, -0.47) will report their results.