MarketView for August 13

Summary

We are certainly in the Dog Days of Summer as far as Wall Street is concerned. So it was one more day of very light trading with a slight down turn by the major equity indexes as the Street tried to understand the ramifications from an investment viewpoint of the latest political development in the presidential race. Add to that some basic market fatigue after recent six-day rally. At the same time, some disappointing Japanese growth data provided a fresh reminder of the headwinds facing the global economy.

Japan's gross domestic product expanded just 0.3 percent in the April-June period, half the expected pace, raising doubts about the strength of the recovery and highlighting the impact of Europe's debt crisis on worldwide demand.

The benchmark S&P 500 index gained 3 percent over the prior six sessions, its longest rally since December 2010. However, the gains had slowed, with the index hovering at highs not seen since May. The S&P 500 was still up 1.8 percent for the month. Keeping the spirits up on the Street has been the expectation that the Fed and other central banks would step in soon to support the flagging global recovery and roll back the euro zone debt crisis.

Unfortunately, much of that action is unlikely to occur before September, when the Federal Reserve and European Central bank next hold policy meetings, leaving markets in a holding pattern until then.

Meanwhile, the CBOE VIX Volatility index, seen as a proxy for investors' fears, fell more than 7 percent to 13.70, its lowest level in over five years. The decline was unusual as the index typically moves inversely to the S&P 500, suggesting investors were not overly concerned about the market's outlook.

Late on Friday, the head of the San Francisco Federal Reserve said the Fed should launch a fresh round of bond buying to lower the unemployment rate at a faster pace, fueling speculation that the central bank could soon unveil a new round of stimulus.

Much of the money entering the U.S. equity market since the rally started in June has gone into defensive sectors. But investors are eyeing early signs that more aggressive areas of the market -- such as small-caps and cyclical sectors -- are starting to do better, a key factor if the rally is to continue.

Tesoro moved on Monday to create the biggest U.S. refining empire in the Pacific Basin with a $2.5 billion deal to buy BP's Carson plant in the isolated California market. Tesoro shares rose 9.5 percent to $38.87 while shares of BP fell 0.7 percent to $42.09.

According to Thomson Reuters data through Monday, of the 454 companies in the S&P 500 that have reported second-quarter earnings to date, 68 percent have reported earnings above analyst expectations, matching the rate for the last four quarters.

Volume was light on Monday, with about 4.5 billion shares changing hands on the three major equity exchanges, a number that was well below last year's daily average of 7.84 billion shares.