MarketView for April 9

Summary 

Share prices and their associated indexes were higher on Friday with the Dow Jones industrial average briefly breaking through the psychologically important 11,000 level for the first time in a year-and-a-half. The three major equity indexes scored a sixth straight week of gains -- a positive run not seen since stocks rebounded from more than 12-year lows in March 2009.

Adding to the market’s momentum was Chevron's upbeat outlook and wholesale inventories data that reinforced bets on an improving economy. Chevron’s shares closed up 2.4 percent to $79.50 a day after it said its refining and marketing arm would return to profit in the first quarter.

Another lift for the energy sector came from Atlas Energy whose shares increased 20.3 percent to $38.25 after Reliance Industries agreed to pay $1.7 billion for a stake in an Atlas shale project to provide natural gas. Other leaders in the sector included ConocoPhillips, up 2.6 percent at $55.32, and Exxon Mobil, up 1.3 percent at $68.76.

Shares of technology companies, which are often among the first to benefit from economic strength, also outperformed the broader market. Cisco gained 1.2 percent to $26.60 and Microsoft added 1.4 percent to $30.33.

For the week, the Dow rose 0.6 percent, the S&P 500 gained 1.4 percent and the Nasdaq advanced 2.1 percent. Although some momentum indicators suggest the rally could start to run out of steam, the market has continued to grind higher and add another leg to the run-up started last March. The S&P 500 has gained 76.5 percent since it hit a 12-year closing low March 9, 2009.

According to economic data released on Friday by the Commerce Department, wholesale inventories came in higher than expected in February and sales at wholesalers reached their highest level in 16 months, brightening prospects for first-quarter economic and earnings growth.

J.C. Penney rose 1.7 percent to $31.52 after Goldman Sachs added the stock to a list of recommended buys. Palm closed up 11 percent to $5.16, capping a volatile week in which the smartphone maker's stock has seesawed on options market chatter and takeover rumors.

Worries about Greece's debt problems, which have weighed on stocks for weeks, eased after a European Union source said policy-makers had reached an agreement on terms of possible emergency loans for Athens.

Economic Data Better Than Expected

The Commerce Department reported on Friday that inventories increased 0.6 percent, exceding market expectations for a 0.4 percent rise and prompted some raise their forecasts for first-quarter gross domestic product. Meanwhile, sales at wholesalers reached their highest level since October 2008. Wholesale inventories in January rose by an upwardly revised 0.1 percent.

A sharp slowdown in the rate at which businesses depleted inventories contributed strongly to the economy's rebound from the worst downturn since the Great Depression of the 1930s. When businesses increase inventories or slow the rate at which they are liquidating them, manufacturers raise production and this boosts GDP.

The increase in wholesale inventories in February was good news for the manufacturing sector, which has been leading the economic recovery that started in the second half of 2009.

Sales at wholesalers increased 0.8 percent, the 11th straight increase, to $338.7 billion in February, the highest level in 16 months, the Commerce Department said. While inventories were expected to boost growth in the first half, the strength of the gains indicated that inventories' influence on the economy could wane in the last six months of the year.

The rise in February wholesale sales left the inventory-to-sales ratio -- a measure of how long it would take to sell stocks at the current sales pace -- unchanged at 1.16 months. In February, durable goods inventories increased 0.5 percent, the largest gain since September 2008, while stocks of nondurable goods increased 0.8 percent.

EU To Finally Help Greece

Euro zone officials agreed on Friday on the terms of a possible financial rescue for Greece as Fitch downgraded its debt by two notches citing a worsening economy and rising borrowing costs. Deputy finance ministers and central bankers of the 16 countries sharing the European single currency decided that any emergency loans would be made on terms almost identical to standard International Monetary Fund bailouts.

The news brought only momentary relief to credit markets because Fitch Ratings cut Greece's credit rating to BBB-minus, its lowest investment-grade rating, and signaled further downgrades are possible. Fitch also downgraded to BBB-minus the ratings of Greece's four largest banks and it cut the rating of the Agricultural Bank of Greece to BB-plus, or junk status. All of those institutions, which still carry a negative ratings outlook, have experienced a 2-4 percent decline in the level of deposits as a result of the elevated risk perception surrounding Greece, Fitch said.

New figures published on Friday highlighted a deepening recession in Greece that will further aggravate its fiscal problems as the government continued to resist market pressure to seek outside help with its debt crisis. Nonetheless, euro zone officials, including the leaders of France and Italy, sought to reassure markets that the financial safety net agreed in principle at an EU summit last month, would be ready if it became needed. The EU indicated that with the technical details of loans for Greece agreed upon, a decision on lending to Athens could now be made quickly.

A request for assistance from Athens would be analyzed by the European Commission and the European Central Bank and they would suggest the amount and maturity of the loans needed. It would then be up to a quick teleconference of euro zone finance ministers to give the green light to pay out the cash.

However, the interest charged would still be high as EU sources have said Greece would have to pay more than 6 percent to get loans for up to three years and 100 basis points more for a longer-term loan. The IMF charges 3.26 percent for loans to countries which borrow more than 300 percent of their quota, which would be the case for Greece as its quota is only $1.25 billion.

According to EU formula, the euro zone would charge an additional 300 basis points on top and an additional 50 basis points service charge.

Yet some policymakers still believe the aid may not be needed. Greek bank shares rose more than 7 percent on word of the euro zone deal after Thursday's 6 percent fall.

Yet, news that Greek industrial output fell by 9.2 percent year-on-year in February while inflation spiked to 3.9 percent in March underscored the dire economic background to the fiscal crisis that has shaken confidence in the euro zone.

The Greek economy is officially forecast to contract by 2.0 percent this year after a similar fall in 2009, but some economists now expect the decline to be even sharper. That would make it harder to reach a promised budget deficit cut of four percentage points of gross domestic product this year and to sustain the fiscal adjustment over several years.

Greece needs to borrow about 11 billion euros by the end of May to finance maturing debt and interest payments. Its overall borrowing requirement for this year is 53 billion euros. The next test will come on Tuesday, when it will auction 1.2 billion euros in six- and 12-month T-bills, a government official said.

The euro zone source said that the bloc's finance ministers would issue a statement clarifying the terms of the aid for Greece at their meeting in Madrid on Friday, but could do that earlier should Greek yields surge on the market before then.