After two months of steady gains, stocks ran out of steam last week.

The Standard & Poor’s 500 index closed at 1,283.35, down on the holiday-shortened week. It was the first weekly decline for the index in eight weeks. On Jan. 19, it fell by more than 1%, something it hadn’t done for 37 trading days, according to Bespoke Investment Group. The index retraced some of its losses as the week wore on.

The Dow Jones Industrial Average managed to eke out its eighth consecutive week of gains, climbing 0.72% to 11,871.84. General Electric (ticker: GE) was a standout among the blue chips, jumping 7% on Friday on strong fourth-quarter earnings report. The conglomerate’s profits surged 51%, helped by improved operating margins. Barry Knapp, head of U.S. equity strategy at Barclays Capital Equity Research, was heartened to see strength in GE’s infrastructure-related sales.

The tech-heavy Nasdaq Composite, for its part, was down 2.4%, to 2,689.54. A big drag on the index was Apple (AAPL), which fell 6% on the week. The technology behemoth released stellar earnings, but that was overshadowed by the announcement earlier in the week that its famed chief, Steve Jobs, is taking a medical leave.

It was also a tough week for smaller stocks, which had enjoyed nice gains until recently. The Russell 2000, which tracks small-capitalization stocks, was down 4.26%, only its second weekly decline since mid-November. And the S&P 400 Midcap Index fell 1.8% on the week. Brian Belski, chief investment strategist at Oppenheimer, predicts there “will be an unwinding of the small-cap trade, especially this year as we see bond yields go up.”

Yields did edge up as Treasuries sold off, in part because of some encouraging news about the economy. For example, new claims for unemployment benefits dropped by 37,000 to around 404,000, seasonally adjusted. The 10-year Treasury was yielding 3.413% at the end of the week, up from 3.334% a week earlier.

FINANCIAL STOCKS HAD A NOTABLY mixed time of it. Morgan Stanley (MS) saw its shares rise about 3.6%, thanks to strong fourth-quarter results. But Goldman Sachs (GS) sold off about 5% on disappointing earnings. Fourth-quarter profits fell by 52%, reflecting weaker trading results. It was also a tough week for Bank of America (BAC); its shares slid about 6% amid continued mortgage write-downs. The banking giant posted a fourth-quarter loss of $1.2 billion.

Belski maintains that this week’s up-and-down performance by the financials illustrates how “financials have taken over for tech as the quintessential stock-pickers sector.” In other words, expect banks to bumpy for a while.

But the market as a whole may still be intact. In general, Knapp says, “There is nothing to dissuade me from an overall optimistic view.” Even bulls sometimes need a breather

(Source: Barrons Online).