MarketView for August 17

Summary 

The S&P 500 held near a four-year high on Friday, and the market's key gauge of anxiety sank to its lowest since 2007. So what does it mean? One interpretation that I like is that the Street is beginning to reach the conclusion that perhaps the problems stressing investors might be closer to a resolution. The Nasdaq outperformed the broader market as Apple hit an all-time high. The CBOE VIX volatility index fell to a 5-year low of 13.43 before closing down 5.9 percent at 13.45.

And while the S&P 500 index moved solidly above the closely watched 1,400 level, posting its largest gain in two weeks, trading volume remained low. Trading volume, which has been meager over the past several sessions during a seasonally slow period, was at 5.3 billion shares on the three major equity exchanges, this week has seen the lowest and second lowest full-day trading volumes of the year.

With few newsworthy headlines and light participation during summer holidays, traders are increasingly taking their cues from technical indicators. The S&P 500 needs to close above 1,419.04, the index's April high, to make a new four-year high.

Shares of Apple rose to an all-time intraday high of $648.19 earlier in the session. The stock ended the day up 1.8 percent to close at $648.11. Meanwhile, Facebook shares continued to slide after the expiration of a lockup period on some of the company's stock following its initial public offering. The shares fell as low as $19 a share on Friday.

Groupon also fell to a new low on Friday after Evercore Partners analyst Ken Sena downgraded shares of the largest daily deal company and set a $3 price target on the stock. The stock closed down 5 percent at $4.75, after falling as low as $4.51.

For the week, the Dow was up 0.5 percent, the S&P 500 was up 0.9 percent and the Nasdaq was up 1.8 percent. The S&P 500 has gained 2.8 percent in August and about 11 percent since a year low in June due ,mostly to some encouraging jobs data and highly anticipated policy meetings at the European Central Bank and the Federal Reserve in September.

The Thomson Reuters/University of Michigan consumer sentiment survey for August showed the main index rose to its highest since May to 73.6, buoyed by sales at retailers and low mortgage rates.

Separately, the Conference Board said its leading economic index climbed 0.4 percent, reversing a 0.4 percent decline in June and pointing to slow growth through the end of 2012.

Gap rose 4.8 percent to $35.99 after the clothing retailer posted a higher quarterly profit and raised its full-year forecast. Marvell Technology Group fell 14.1 percent to $10.54 after the chipmaker posted second-quarter earnings and said current-quarter results may miss expectations.

Consumer Sentiment at 3-Month High

Consumer sentiment improved in early August to the highest level in three months as sales at retailers and low mortgage rates spurred Americans to boost their buying plans, a survey showed on Friday. However, there are nonetheless about concerns about rising food prices caused a jump in both short- and long-term inflation expectations, according to the Thomson Reuters/University of Michigan consumer sentiment survey. The data reinforced the view that economic growth could pick up in the second half of the year but still be lackluster. That was reinforced by July's leading indicator.

Growth and hiring were disappointing in the spring, but hiring picked up in July and consumers are now feeling more confident about spending, though they remain concerned about the economic outlook. With stubbornly high unemployment and a weaker global economic picture, some analysts have raised their expectations that the Federal Reserve could launch a new round of bond buying to help prop up the economy.

The preliminary reading on the index on consumer sentiment rose to its highest level since May, at 73.6 from 72.3 last month, topping economists' forecasts for a slight uptick to 72.4.

Americans were also more optimistic about the state of the economy, with the measure of current economic conditions rising to its highest level since January 2008 at 87.6 from 82.7.

Purchasing plans were bolstered by cheap prices, and the measure of buying conditions for household durables rose to 140 from 130.

Consumers' outlook cooled, with the expectations index slipping to 64.5 from 65.6, the lowest since December. The majority of households expected no income increase during the year ahead, while one-in-four thought the unemployment rate would rise.

The Conference Board said its Leading Economic Index climbed 0.4 percent to 95.8 for July, reversing a 0.4 percent decline in June.

The odds that the Fed will launch a third round of bond buying, known as quantitative easing, have risen to 60 percent. The majority thought the central bank's next policy meeting in September was the most likely time for an announcement. The consensus was for $500 billion in bond purchases, adding to the $2.3 trillion in assets the Fed has already bought.

As the summer winds down, analysts are turning their attention to Fed Chairman Ben Bernanke's speech at a gathering in Jackson Hole, Wyoming, in late August as having the potential to shed some light on the central bank's plans.