MarketView for April 21

 

 

Summary 

 

The major equity indexes posted a positive week as healthy earnings news lifted share prices on Wall Street on Thursday, although gains were limited with another 180 S&P names due to report next week. Apple's excellent results and strong reports from a number of industrials kept sentiment on the bullish side.

 

Apple rose 2.4 percent to $350.70 a day after posting results that surged past expectations, joining F5 Networks, DuPont and other names that increased the perception of a healthy corporate America after some names' early results disappointed.

 

Nonetheless, an increase in jobless claims, along with mediocre quarterly results from General Electric and McDonald's, meant that the markets remained in check. The S&P 500 ran into resistance close to 1,340, a level that has triggered selling plenty of times this month. Some see a failure to convincingly rise above 1,344, the recent high in the benchmark, as a bearish technical signal.

 

Along with GE and McDonald's, the Dow's advance was limited by Verizon. GE fell 2.2 percent to $19.95, while Verizon lost 2.3 percent to $36.91 and McDonald's was off 1.9 percent at $76.91. Overall volume was light, with about 6.45 billion shares changing hands on the major exchanges, a number that was well below last year's daily average of 8.47 billion shares.

 

Factory activity in the Mid-Atlantic region slowed sharply in April and the number of claims for unemployment insurance fell less than expected last week, implying the economy was struggling to regain momentum.

 

The Dow climbed as high as 12,506.06, its highest intraday level since early June 2008. For the week, both the blue-chip index and the S&P 500 are up 1.3 percent while the Nasdaq, lifted by strong tech results, rose 2 percent.

 

Notable companies, such as Travelers, Morgan Stanley and UnitedHealth advanced following quarterly results. By the end of the regular trading day Travelers was up 3.7 percent to $61.32 making it the Dow's top gainer, while Morgan Stanley rose 1.7 percent to $26.48, DuPont added 1 percent to $55.91 and UnitedHealth rose 8.1 percent to $47.81.

 

Biogen Idec was the S&P 500's top gainer, up 15.2 percent at $99.70, after it released promising data from a clinical trial of an experimental multiple sclerosis drug.

 

Gold Up … Dollar Down

 

Gold prices rallied to record highs on Thursday for a fifth straight session and silver surged as the dollar index tumbled for a third day toward an all-time low, resulting in additional demand for gold bullion as a currency hedge. Bullion, which rose above $1,500 an ounce for the first time on Wednesday, once again rose in tandem with riskier assets such as equities on inflation fears.

 

Spot gold rose 0.6 percent to $1,507.21 an ounce by 3:22 p.m., after hitting a record $1,508.75 an ounce. U.S. gold futures for June delivery settled up $4.90 an ounce at $1,503.80.

 

The commodity markets will be closed on Friday for the Good Friday holiday. However, the CFTC Commitments of Traders report is still scheduled to be released at 15:30 p.m. EDT Friday.

 

Silver gained 2.7 percent to $46.44 an ounce. Trading in silver futures was active, with volume topping 170,000 lots. The gold/silver ratio -- which shows how much silver an ounce of gold can buy -- is set to fall for a ninth consecutive session to below 33, a 28-year low.

 

However, a large put option trade on iShares Silver Trust, the world's largest silver-backed exchange-traded fund, suggests some traders are betting on a sharp reversal by year's end after a huge rally in silver prices.

 

Gold also benefits as a hedge against U.S. currency depreciation, as the dollar fell broadly for a third straight day as record low interest rates and the crushing weight of the U.S. budget deficit pushed it closer to an all-time trough against major currencies.

 

S&P warmed on Monday that it could cut its long-term rating on U.S. Treasury debt if the government cannot find a way to slash its massive debt. Such a move would weigh heavily on the U.S. dollar and threaten economic stability throughout the world -- a perfect recipe for gold rally.

 

Gold prices have risen more than 5 percent so far this month and posted a sixth straight week of gains, reflecting strength across the commodity markets.

 

Investors have rushed into risky assets due to strong corporate earnings and signs the global economy is chugging along even as the Federal Reserve stays very cautious about when it will start to unwind its super-loose policy.

 

The metal is expected to be underpinned by uncertainty over how the United States will adjust monetary policy after the Federal Reserve's $600 billion government bond-buying program -- known as quantitative easing -- comes to an end in June.

 

Among other precious metals, platinum rose 1.2 percent to $1,813.24 an ounce, while palladium gained 2 percent to $766.97.

 

Economy Continues To Try To Move Ahead

 

Middle Atlantic factory activity fell sharply in April and the number of Americans claiming new jobless benefits fell less than expected, implying the economy was struggling to regain momentum. Other data on Thursday showed steep declines in home prices in February, underscoring the challenges confronting the economy, but the recovery is expected to remain on track.

 

The Philadelphia Federal Reserve Bank's business activity index fell to 18.5 in April, pulling back from March's 27-year high of 43.4. The index covers Pennsylvania, southern New Jersey and Delaware and is an early indicator of the health of U.S. manufacturing contained in a later national report.

 

The Philadelphia Fed survey also showed steep declines in new orders and the employment measure, which were both the lowest since December. It also showed a surge in prices received by manufacturers, a potential warning on inflation.

 

Despite the sharp pullback in April, mid-Atlantic factory activity has now expanded for seven months in a row. Economists did not view the report as a sign that manufacturing, which as led the economic recovery, was slowing. The reports came a week before government data is expected to show growth slowed significantly in the first quarter.

 

Separately, the Labor Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 403,000 last week, well above economists' expectations for a decline to 392,000. The claims data covered the survey period for April's nonfarm payrolls report, which will be released in early May. Employers added 216,000 jobs in March, the most in 10 months, and the unemployment rate slipped to a two-year low of 8.8 percent from 8.9 percent.

 

The smaller-than-expected drop in claims last week left the total above 400,000 for a second straight week. Claims below that level are usually associated with fairly solid jobs growth.

 

The slowdown in economic activity comes as some policymakers at the Federal Reserve are pushing for the U.S. central bank to start considering withdrawing some of the stimulus it has provided the economy. The Fed's policy-setting committee will meet April 26-27 to assess the economy and is expected to reaffirm a June end date for purchases of $600 billion of government bonds.

 

Thursday's economic data curtailed stock market gains, which began with a flurry of strong corporate earnings. Treasury debt prices rose marginally, while the dollar fell against a basket of currencies.

 

A third report showing home prices fell 1.6 percent in February from January provided more evidence of the headwinds buffeting the economy. On a year-over-year basis, home prices fell 5.7 percent.

 

While the economy slowed in the first three months of 2011, it is expected to continue expanding. The Conference Board's Leading Economic Index rose 0.4 percent in March to 114.1, rising for a ninth straight month.

 

Judge Reverses Mattel Win in Bratz Case

 

Mattel, after waging a seven-year legal war against a tiny California company, suffered a surprise defeat on Thursday after a U.S. jury decided that MGA Entertainment Inc is the rightful owner of the once-billion dollar line of pouty-lipped Bratz dolls.

 

The astonishing loss for the world's largest toy maker is the latest development in a case that began in 2004, when MGA's line of dolls was all the rage among young girls. Mattel accused Van Nuys, California-based MGA of stealing its designs by hiring away a key employee.

 

Mattel CEO Robert Eckert sat stone-faced, staring straight ahead as the verdict was read on Thursday in a Santa Ana, California, federal courtroom. He said afterward that he was disappointed.

 

"We remain committed to protecting the intellectual property that is at the heart of business success," Eckert said in an email.

 

Mattel will soon file a motion for a new trial, said Susan Estrich, a lawyer for the company.

 

MGA Chief Executive Isaac Larian, meanwhile, said the case has been a prolonged battle for his family. Larian, who left Iran alone at the age of 17, named two of the Bratz dolls after his children.

 

"It very well shows that in America, even huge corporations are not above the law," Larian told Reuters afterward.

 

A federal jury in 2008 ordered MGA and Larian to pay Mattel $100 million, but a federal appeals court threw out that verdict last year. MGA then accused Mattel of gaining entry to toy fairs with false credentials to steal trade secrets and concealed evidence of these activities.

 

The jury found Mattel misappropriated trade secrets from MGA and awarded MGA $88.5 million in damages. The jury found that Mattel acted willfully, and after the verdict MGA attorneys said they would seek to triple the damages award.

 

The jury also decided MGA had interfered with Mattel's contract with designer Carter Bryant, but awarded only $10,000 in damages to Mattel.

 

At the height of its popularity, in 2005 and 2006, the urban-chic Bratz dolls -- sporting short skirts and flirty, midriff-baring tops -- ate into Mattel's market share and were viewed as a threat to Mattel's key Barbie franchise.

 

The craze died down, however. MGA has accused Mattel of costing the company hundreds of millions in litigation.

 

U.S. District Judge David Carter said the trade secrets damages could be lowered to $88.4 million due to a calculation mistake by the jury.

 

Mattel's shares fell as much as 2.8 percent to a low of $26.17 after the verdict was announced, before bouncing back slightly to close one percent lower at $26.67. The stock had been roughly flat throughout the morning session. The next court hearing has been set for May 24.

 

"This is not the final word in this case," Estrich said.