MarketView for April 26

Summary 

Higher corporate earnings sent the major equity indexes to their highest point since June 2008, renewing optimism that profit growth will remain resilient enough to keep Wall Street on the rise. The S&P 500 index broke through the 1,344 level, seen as a key resistance point the benchmark index needed to surpass in order to trigger further gains.

Ford and United Parcel Services were among the bellwether names to impress, continuing a string of better-than-expected results. 3M and UPS also raised their full-year profit outlooks. Shares of 3M closed up 1.9 percent at $95.94 while UPS was up 0.9 percent at $74.30. Ford managed a 0.7 percent to end the day at $15.66.

Nonetheless, trading volume across the three major equity indexes remained tepid, with about 7.31 billion shares changing hands on the three major exchanges, a number that was slightly below the daily average of 7.73 billion shares.

According to Thomson Reuters data, 35 percent of S&P 500 companies have reported earnings through Tuesday, with 76 percent exceeding analysts' expectations. However, there were some disappointments. For example, Coca-Cola fell 1.2 percent to close at $66.93 and was the Dow's biggest drag after its results were hurt by lost Japanese revenue. U.S. Steel and Netflix also fell after results.

Although the three major stock indexes reached new highs for the year and the Nasdaq climbed to its highest level since October 2007, caution remained a day before a press conference by Fed Chairman Ben Bernanke. The press conference will follow the Fed's last policy statement before it is expected to stop its quantitative easing program at the end of June. Investors have concerns that the end of that program could remove support for buying stocks.

After the closing bell, Amazon fell 0.2 percent to $182 as a result of the company’s announcement that earnings for the first quarter fell as its investment in new businesses resulted in lower earnings. However, chasing market share at the peril of earnings is Amazon’s style.

Consumer confidence rose in April as inflation expectations eased somewhat and consumers felt better about the short-term outlook, according to a report from the Conference Board, a private-sector group. The data helped ease concerns that the recent rise in oil prices have started to hit shoppers.

Sentiment Up As Home Prices Fall

Consumer sentiment increased somewhat in April as consumers lowered their inflation expectations and worried less about the jobs market. At the same time, another reported decrease in home prices underscored the challenges still facing the economy. The housing market continues to struggle as home prices fell for an eighth month in February, inching closer to an April 2009 trough.

Furthermore, the overall confidence level, as measured by the Conference Board was still historically low. The Conference Board, an industry group, said its index of consumer attitudes rose to a better-than-expected 65.4 in April from a revised 63.8 in March. For full details, see

Higher energy and commodity prices from the political unrest in the Middle East and North Africa have weighed on consumers lately and there has been debate over whether the price increases will be temporary. Data on Monday showed national gasoline prices at $3.88 a gallon.

With consumers accounting for about two-thirds of the economy, Wall Street is worried that sustained high prices will stifle spending and limit economic growth. The gauge of consumers' view of their present situation climbed to its highest since November 2008, rising to 39.6 from 37.5 the month before, while the expectations index edged up. Despite the fall in the proportion of those who said jobs were hard to get, to 41.8 percent from 44.4 percent the month before, the longer term view was more mixed.

Consumers' expectations for inflation in the coming 12 months eased, likely a comfort for the Federal Reserve, which wants to keep interest rates low until the economic recovery is on solid footing. The consumer data gave stocks a lift, while solid earnings from bellwether companies including United Parcel Service pushed the market rally to around three-year highs.

The central bank is holding a two-day meeting starting Tuesday that is expected to conclude with a signal that it is in no hurry to scale back its massive support for the recovery. At the same time, the economy faces new headwinds from soaring oil prices, Treasury Secretary Timothy Geithner said on Tuesday, but he said a forecast of 3 to 4 percent growth seemed reasonable.

Separate data on Tuesday showed the housing market continues to struggle as U.S. single-family home prices fell for an eighth straight month in February, inching closer to an April 2009 trough. The S&P/Case-Shiller composite index of 20 metropolitan areas declined 0.2 percent in February from January on a seasonally adjusted basis, slightly better than economists' median forecast for a drop of 0.3 percent.

The 20-city composite index was at 139.27, holding just a hair above its 2009 low of 139.26. Average home prices across the United States are back to levels where they were in the summer of 2003, S&P said.

Prices in the 20 cities have fallen 3.3 percent year over year, in line with expectations. The glut of houses up for sale has kept prices low and the market has struggled to regain traction since a home buyer tax credit that helped buoy the market expired last spring. Other data in the past week has suggested some stabilization in the market with sales of new and existing homes rising in March.

Fed Begins Two-Day Meeting

The Federal Reserve began a two-day meeting on Tuesday that will likely indicate that it is in no hurry to scale back its massive support for the economic recovery. The Fed is expected to confirm that it will complete its $600 billion bond-buying program by the end of June and renew its commitment to maintain rock-bottom borrowing costs for "an extended period."

The Street is now waiting to hear what the Fed will do after June. Signs from policymakers so far have mostly suggested it will wait and see how the fragile economic recovery develops before tightening monetary conditions. The Fed is expected to release its post-meeting statement at 12:30 p.m. ET on Wednesday. Bernanke will then hold the first-ever regularly scheduled news conference by a Fed chief at 2:15 p.m. ET. It is expected to last about 45 minutes.

The financial markets anticipate the central bank will be in no rush to tighten financial conditions because the jobless rate stood at 8.8 percent in March. Furthermore economic growth in the first three months of the year is expected to have slowed to an annualized 2.0 percent or lower. Data on first-quarter growth is due on Thursday.

Expectations that Fed will not raise interest rates until sometime next year have pushed down the value of the U.S. dollar which hit a 16-month low against the euro on Tuesday. The European Central Bank raised its benchmark rate earlier this month, its first hike since the financial crisis struck.

Treasury prices rose on Tuesday as traders judged inflation was not yet troubling enough to push the Fed to raise rates and bet other buyers would fill the void once the central bank's buying ends.

As well as its inaugural news conference, the Fed will make another change to become more transparent by issuing quarterly forecasts for growth, employment, and inflation as the news conference begins. Until now, the forecasts were released only three weeks after each meeting along with minutes of the discussions.

The question then becomes one of whether the Fed has raised its inflation forecasts, which could be a sign it is growing a bit more nervous that high oil costs are pushing up prices for a wider array of goods and services.