MarketView for August 6

Summary

It was a three-month high for Wall Street on Monday, extending last week's rally on the hope for more assistance for the troubled euro zone. The S&P 500 chalked up its highest point since early May, but pared its gains going into the close. The index also failed to move above 1,400, a level that could spur further buying if convincingly broken. The S&P 500 hasn't closed above the 1,400 level since May 2.

Sentiment in Spanish and Italian bond markets improved, with two-year Spanish yields falling to 3.42 percent on Monday, less than half of a late July high of over 7 percent. European Central Bank President Mario Draghi has said the ECB may buy short-dated bonds to lower borrowing costs to help Europe, which has been mired in a debt disaster. European shares closed at four-month highs.

Meanwhile, a group of investors will rescue market maker Knight Capital Group in a $400 million deal that keeps the company in business, Knight said on Monday. However, it comes at a huge cost to investors as Knight essentially sold75 percent of the company to make the deal. Knight’s shares ended the day down 24.2 percent to close at $3.07.

Material shares were the strongest for the day, as a result of the improved sentiment regarding Europe. U.S. Steel led the sector, ending the day up 5.6 percent to close at $22.94. Newmont Mining added 3.3 percent to end the day at $46.12.

Utilities, considered a defensive play, were among the day's weakest groups, with the S&P utilities index down 0.3 percent.

Best Buy’s shares were up13.3 percent to $19.99 after Richard Schulze, the founder and former chairman, offered to buy the shares he does not already own in the electronics retailer for $24 to $26 each.

Cognizant Technology Solutions ended the day up 11 percent to close at $64.21 after the information technology services provider raised its full-year adjusted profit forecast. The stock's gains contributed to the outsized moves in the Nasdaq, which at its session high topped 3,000 for the first time since May 4.

Of the 411 companies in the S&P 500 that have reported second-quarter earnings through Monday morning, 67.4 percent have reported earnings above analysts' expectations, near the four-quarter average of 68 percent, according to Thomson Reuters data.

Volume was light, with about 5.33 billion shares on the three major exchanges, a number that was well below last year's daily average of 7.84 billion shares.

News from the Fed

Many Are Still Hurting

Federal Reserve Chairman Ben Bernanke said on Monday that although broad measurements of the economy point to recovery, many people and businesses are facing tough times.

"Even though some key aggregate metrics -- including consumer spending, disposable income, household net worth, and debt service payments -- have moved in the direction of recovery, it is clear that many individuals and households continue to struggle with difficult economic and financial conditions," he said in prepared text.

Bernanke was speaking to a research conference on the topic of economic measurement. He did not discuss the outlook for monetary policy or refer to a report that the economy added a more-than-expected 163,000 jobs in July even as the jobless rate rose to 8.3 percent.

Bernanke said there have been interesting developments in the field of the measurement of economic well-being. He cited the Himalayan kingdom of Bhutan's Gross National Happiness index, which incorporates indicators such as level of education and time spent in leisure activities, as an example of an alternative survey.

More conventional economic measurements that bear on the quality of life include income distribution, upward mobility, job security, and buffers households have to protect against financial shocks, he said.

"All of these indicators could be useful in measuring economic progress or setbacks as well as explaining economic decision making or projecting future economic outcomes," he said.

Small Businesses Still Have Difficulty Obtaining Credit

The Federal Reserve said on Monday banks continued to ease lending standards for larger firms in the last three months but small businesses are still having a hard time accessing credit. The results from the central bank's quarterly senior loan officer survey suggest the ability of firms to borrow has continued to improve despite recent signs of weakness in the economic recovery. A number of banks eased loan standards on auto and credit card loans, the Fed said.

Strong demand for prime mortgage loans offered further evidence that a nascent housing rebound is finally beginning to take hold. Banks are benefiting from new business due to a decrease in lending from European institutions, the survey found.

The Fed left monetary policy on hold but many analysts still believe it could launch a third round of bond purchases as early as September in an effort to support a still-fragile economy. The Fed said banks received the survey on or after July 3, and responses were due by July 17.