MarketView for April 9

Summary

The major equity indexes moved higher on Monday in a volatile trading session. Wall Street fluctuated between positive and negative territory for much of the day before climbing in the final hour of trading, ending near its session highs. However, volume was light and the Dow's gains were limited by a selloff of Johnson & Johnson shares.

Forecasts for first-quarter earnings have been scaled back in 2013, with profits seen rising just 1.6 percent from the year-ago quarter, according to Thomson Reuters data. In January, earnings were seen rising 4.3 percent.

Economic figures suggest the recovery could be less robust than some had thought. Weak corporate results could give investors further reasons to sell, pushing both the Dow and the S&P 500 back from recent all-time closing highs.

The season unofficially started after the market closed with results from Alcoa. The aluminum company reported adjusted earnings that beat expectations, but revenue was down from the year-ago quarter. After initially rising in extended-hours trading, Alcoa's stock slid 1.1 percent to $8.30.

As the first Dow component to report, Alcoa is informally viewed as setting the initial tone for the season, though many more bellwether companies' earnings won't come out until next week. Among the day's most active names, Advanced Micro Devices rose 13 percent to $2.59 as the S&P 500's largest percentage gainer, while Monster Beverage was up 4.7 percent to close at $52.01.

On the downside, J&J fell 1.1 percent to $81.11 after JPMorgan downgraded the healthcare company's stock to "neutral" from "overweight," saying it faced "a messy first quarter and a likely downward revision to 2013 guidance."

Both the Dow and the S&P 500 finished Monday's trading at their session highs, while the Nasdaq was just below its intraday peak. During the session, the Dow made a swing of 115.68 points - falling 67.45 points to its intraday low before it rebounded to end the day up 48.23 points at its session high. The S&P 500 is up 9.6 percent for the year so far, while the Dow has gained 11.5 percent.

Despite that, major indexes posted their worst weekly loss for 2013 last week, with the payroll report fueling concerns about economic growth. 

Loose monetary policy from central banks around the world is expected to keep equities attractive. The Bank of Japan started its bond purchases on Monday after it announced last week that it will inject about $1.4 trillion into the economy in less than two years.

General Electric said it will acquire Lufkin Industries for about $2.98 billion, driving Lufkin shares up 37.6 percent to $87.96. GE ended the day up 0.8 percent to close at $23.12.

Volume was light, with about 5.11 billion shares changing hands on the three major equity exchanges, well below the daily average so far this year of about 6.48 billion shares.

Bernanke Endorses Stress Tests

Federal Reserve Chairman Ben Bernanke said on Monday the central bank's periodic bank stress tests have made the financial system more resilient. Contrasting the current state of banks to their tattered condition in 2009 after the historic financial crisis, Bernanke said the sector's rebound was positive for the broader recovery given the importance of credit to economic growth.

"The resilience of the U.S. banking system has greatly improved since then, and the more intensive use and greater sophistication of supervisory stress testing, as well as supervisors' increased emphasis on the effectiveness of banks' own capital planning processes, deserve some credit for that improvement," Bernanke told a conference on financial stability sponsored by the Atlanta Federal Reserve Bank.

In a speech that did not directly touch on the outlook for the economy and monetary policy, Bernanke hinted at why the central bank continues to pursue an extraordinarily easy monetary policy. "The economy is significantly stronger than it was four years ago, although conditions are clearly still far from where we would all like them to be," he said.

Asked about how he felt about loose monetary policy in other advanced economies, Bernanke reiterated his view that it generally benefits all the nations involved. "Most of the world's major industrial economies are engaged in expansionary monetary policy and on net I think that's mutually constructive," he said.

Some critics have argued the Fed's stress tests are not sufficiently harsh, while banks have complained they do not fully understand the central bank's methodology.

The Fed has released scores for major bank holding companies that show how low their capital ratios would fall under proposed plans for dividends and stock buybacks if "severely adverse" economic conditions unfolded over the next two years.

Bernanke said providing too many details about the methodology could lead banks to curtail their own internal risk-management systems.

He argued U.S. financial institutions had bolstered their balance sheets by raising more capital. However, he said too many firms still rely too heavily on short-term sources of funding, raising some potential for trouble.

"In the area of liquidity and funding, continued improvement is still needed on some dimensions," he said. "Notably, supervisors will continue to press banks to reduce further their dependence on wholesale funding, which proved highly unreliable during the crisis."

Bernanke said it was important the stress test scenarios remain severe even as the economy improves so as to not generate complacency.

The Fed was widely criticized in the wake of the global financial crisis for missing the oncoming train wreck and being too lenient on banks that took excessive risks. The crisis led to a series of unpopular bailouts of financial institutions that tarnished the central bank's reputation.

In response to a question, Bernanke dismissed the notion that financial reform had become too costly and burdensome. He said the crisis itself made clear that reforms were needed, adding the Fed routinely considers alternatives when implementing new rules.