MarketView for April 5

Summary

The S&P 500 index ended its worst week this year as growing pressure on Europe's debt markets revived concerns about the region's financial stability. The concerns about the euro zone, particularly Spain, overshadowed what is expected to be a solid jobs report on Friday. Meanwhile, the Dow Jones Industrial Average and the S&P 500 index fell for a third straight day.

However, the Nasdaq advanced modestly, due in no small part to Bed Bath & Beyond whose shares rose nearly 10 percent to a lifetime high a day after the company's quarterly results exceeded the consensus of Street forecasts. At the close, Bed Bath & Beyond was up 8.5 percent at $71.85 - near its all-time high of $72.75 hit earlier in the day.

The S&P 500's loss for the week of 0.7 percent was its largest weekly decline of the year as yields on Spain's debt continued to march higher and its equity market plumbed lows not seen since the height of the euro zone's crisis last year. The recent losses for stocks are slight, but traders are becoming increasingly concerned about the potential for a more stringent retreat heading into the seasonally weak period starting in May.

The three major equity exchanges saw 5.7 billion shares change hands on Thursday the lowest volume in nearly a month. Last year's daily average had 7.84 billion shares changing hands on a daily basis.

Some retailers' shares advanced after the companies reported March same-store sales that topped forecasts as mild weather and an early Easter spurred consumers to shop for summer clothes and other seasonal items. The stronger-than-expected March sales prompted some retailers to raise their profit expectations for the quarter.

Shares of TJX, which operates the T.J.Maxx and Marshalls low-price chains, gained 2.4 percent to close at $40.29.

Alcoa plans to cut alumina production by 4 percent in the Atlantic region, becoming the first producer to take measures aimed at cutting oversupply that has cut prices to about $300 per ton. Alcoa looks set to post its second consecutive quarterly loss on Tuesday when it kicks off the first-quarter earnings season. The stock, a Dow component, fell 1.8 percent to $9.63.

PPG Industries climbed to an all-time high of $98.54 after the chemical maker forecast first-quarter earnings above expectations and said it would lay off 2,000 workers, mostly in Europe, due to weak demand. The stock closed at $96.29, up 2.5 percent. 

In another indication that the labor market is slowly improving, government data on Thursday showed the number of Americans filing claims for new jobless benefits fell to the lowest in nearly four years last week.

Spain's ability to meet budget targets was thrown into sharper relief in the wake of the government's poorly received bond sale on Wednesday. The anemic demand for the country's bonds triggered fears about funding difficulties for weaker euro-zone countries, as the effects of the European Central Bank's huge liquidity injections may be diminishing.

The concern is that the rate the government pays to borrow will reach unsustainable levels, forcing a Greek-style default that would endanger the region's banks and plunge the euro zone further into economic contraction.

Jobless Claims Drop Again

A report released by the Labor Department Thursday morning prior to the opening bell showed that initial claims for state unemployment benefits fell by 6,000 claims to a seasonally adjusted 357,000 claims, making it the lowest point for that statistic since April 2008.

Regarding Thursday's report on jobless claims, a Labor Department official said there was nothing unusual in the state-level data. The prior week's figure was revised up to 363,000 from the previously reported 359,000.

Thursday's weekly claims report has no direct relationship to the March employment report due on Friday because the data for the monthly report was gathered earlier in the month. However, the claims data could continue to make a case that the healing labor market is lowering the need for the Federal Reserve to implement additional stimulus programs.

The four-week moving average for new claims, a less volatile measure of labor market trends, fell by 4,250 claims to 361,750 claims. Employers also appear optimistic enough to cut layoffs further. The number of planned layoffs fell in March to the lowest level in 10 months, according to the report from consultants Challenger, Gray & Christmas, Inc.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 16,000 to 3.338 million in the week ended March 24, the lowest since August 2008. A total of 7.05 million people were claiming unemployment benefits during the week ended March 17 under all programs, down 107,760 from the prior week.

Rising Retail Sales

Rising retail sales now have retailers considering the possibility of raising their profit expectations for the quarter. For example, Limited Brands, Target, Macy's and Gap exceeded analysts' estimates for sales at stores open at least a year. However, one surprise miss came from Costco Wholesale, which suffered from weak foreign currencies compared to the dollar.

Comparable sales at Limited Brands, rose 8 percent, versus the consensus estimate of 4.4 percent, according to Thomson Reuters data.

Seasonality is playing a role. Last month was the warmest March in more than 50 years, according to weather tracker Planalytics. As in February, the weather helped clothing retailers bounce back from December and January, when they stocked up on merchandise for a winter that never came. And the Easter holiday falls two weeks earlier in 2012, on April 8 compared with April 24 last year.

However, retailers were quick to attribute their sales to more than the weather and the calendar, attributing some of the increase on a financially healthier consumer. Consumer confidence rebounded to a 13-month high at the end of March, as optimism about jobs and income overcame higher prices at the gasoline pump.

Target's same-store sales rose 7.3 percent, versus an expected 5.4 percent increase.  The discount chain now expects quarterly earnings of $1.04 to $1.10 per share before special items, up from its earlier forecast of 97 cents to $1.07. TJX and Ross Stores, which both sell brand-name clothes at lower prices, also raised their earnings estimates.

The National Retail Federation estimated that Easter sales were likely to be up 11 percent this year over 2011, while ShopperTrak said customer traffic had risen last month because of the weather and somewhat better economic news.

Gap, which had been a drag on the sector until recently, posted an 8 percent rise in comparable sales -- an indication that its brightly colored spring clothes were selling well.

Zumiez and American Apparel also reported higher sales at stores open at least a year as they lured shoppers with blue, yellow and pink clothing.

However, good weather, stronger economic data and Easter were still not enough to help Wet Seal, which posted a bigger-than-expected drop in comparable sales. Costco, the largest retailer to report monthly sales, also missed estimates and its shares fell nearly 2 percent.