MarketView for April 19

Summary

The major equity indexes were down for a second consecutive day on Thursday as labor market data showed more signs of weakness, while a warning from Qualcomm and poor results from Stanley Black & Decker threw cold water on the trading day. Nonetheless, a late in the trading day bounce cut the losses by both the Dow Jones Industrial Average and the S&P 500 indexes nearly in half. Apple shares, down 3.4 percent, also contributed to the day's losses, as did renewed concerns about Europe's finances. Apple ended the day at $587.44.

Spanish government bond yields increased after a disappointing debt auction and French bond yields rose on rumors, later denied, that the country's credit rating may be downgraded.

Qualcomm led technology stocks lower, falling 6.6 percent to $62.57 a day after it warned of trouble meeting demand for some of its chips. Stanley Black & Decker fell 7.1 percent to $72.91, leading declines among industrials.

The losses followed a strong start to earnings season, confirmed Thursday by better-than-expected reports from Bank of America Corp and Morgan Stanley. Bank of America fell 1.7 percent to $8.77 after spending the morning higher. In contrast, Morgan Stanley rose 2.3 percent to $18.07. Both reported better-than-expected results. Of the 105 S&P 500 companies that have reported earnings to date, 81.9 percent have beat analysts' expectations, according to Reuter’s data.

Raising concerns about the economic outlook, new claims for unemployment benefits declined only slightly last week. Other reports showed factory activity in the Mid-Atlantic region slowed sharply in April and existing home sales dropped in March for a second straight month.

After the closing bell, Microsoft reported a small drop in fiscal third-quarter profit but still managed to exceed Street forecasts. Microsoft's shares rose 2.7 percent to $31.88 in extended-hours trading. In regular trading, Microsoft had slipped 0.4 percent to $31.01.

During the regular session, eBay was up 13.2 percent to $40.62 a day after the online auctioneer reported that its quarterly sales and profit grew more than expected.

Biotechnology companies' gains helped shield the Nasdaq from a larger loss, as the stock of Human Genome Sciences rose 98 percent to $14.17 - nearly doubling its price in Thursday's session - and shares of Gilead Sciences ended the day up 12.1 percent to close at $52.25. Human Genome rejected an unsolicited $2.6 billion bid from long-time partner GlaxoSmithKline.

A combination of experimental hepatitis C drugs from Gilead and Bristol-Myers Squibb Co showed impressive results in new clinical trial data released on Thursday.

About 7.43 billion shares changed hands on the three major equity exchanges, as compared with a daily average of 6.78 billion shares year-to-date.

Unemployment Claims Discouraging

According to a report released by the Labor Department Thursday morning, prior to the opening bell, the number of claims for unemployment benefits fell only slightly last week, suggesting that job growth in April will not improve much after March's disappointing performance.

Initial claims for state unemployment benefits fell by only 2,000 claims to a seasonally adjusted 386,000 claims, the Labor Department said. The prior week's data was revised to show 8,000 more applications received than previously reported. The four-week moving average for new claims, considered a better measure of labor market trends, was 374,750, an increase of 5,500 from the previous week's revised average of 369,250, a 2-1/2 month high.

The claims data covered the week for April's nonfarm payrolls survey. The four-week average of new applications rose marginally between the March and April survey periods, suggesting not much change in labor market conditions.

Existing Home Sales Decline

According to a report released Thursday by the National Association of Realtors, existing home sales fell 2.6 percent to an annual rate of 4.48 million units in March. However, the supply of properties on the market tightened and prices inched higher, giving mixed signals about the pace of recovery in the still-struggling housing sector.

February's sales pace was revised slightly higher to 4.60 million units from the previously reported 4.59 million units. The NAR said even with March's decline, the pace of sales in the first three months of the year marked the strongest first quarter since 2007. What appears to be an improving labor market has real estate agents upbeat about sales prospects going forward.

"This appears to be very sustainable," said NAR economist Lawrence Yun, referring to the pace of sales during the first quarter. And in a sign that the nation's glut of unsold homes was easing, inventories fell to 2.37 million. Realtors in some markets have reported shortages of housing stock, Yun said.

Nationwide, the median price for a home resale rose to $163,800 in March, up 2.5 percent from a year earlier. Distressed sales accounted for 29 percent of re-sales, down from 34 percent in February, the NAR said.

Factory Activity in Mid-Atlantic Slides Lower

The pace of factory activity in the mid-Atlantic region fell in April for the first time in five months as new orders reached their lowest point since September, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index fell to 8.5 from 12.5 in March. It was the lowest reading for that statistic since January. New orders index fell to 2.7 from 3.3. Any reading above zero indicates expansion in the region's manufacturing sector. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

It is seen as one of the first monthly indicators of the health of our domestic manufacturing sector, leading up to the national report by the Institute for Supply Management.

Increased Activity in Commercial Paper

The commercial paper market grew in the latest week, suggesting some renewed business appetite for short-term credit even as economic growth seems to be slowing, according to Federal Reserve data released on Thursday.

In the week ended April 18, commercial paper outstanding rose $4.2 billion to $932.6 billion on a seasonally adjusted basis, the Fed said. The increase reversed the decline in this outstanding short-term debt seen during the previous two weeks.

On a non-seasonally-adjusted basis, the supply of commercial paper, which companies use to finance payrolls and inventories, grew $5.2 billion in the latest week to $1.008 trillion.

While most of the major issuer categories showed growth in the latest week, commercial paper outstanding from foreign banks, on a non-seasonally adjusted basis, fell for a third consecutive week. It declined by $1.6 billion to $127.1 billion.