MarketView for August 24

Summary

The major equity indexes moved somewhat higher  on Friday as news from the European Central Bank indicating that it is considering setting targets in a new bond-buying program that could help contain euro-zone borrowing costs and on hopes of more stimulus from the Federal Reserve.

Despite the day's advance, the S&P 500 index broke a six-week string of gains. For the week, the benchmark index fell 0.5 percent. Conflicting perceptions of the Fed's commitment to provide additional stimulus took a toll on the market this week.

Investor sentiment received a lift on Friday from the Fed Chairman. Bernanke said the Fed has room to deliver additional monetary stimulus to boost the economy. Bernanke made the comment in a letter to a congressional oversight panel. In the letter to a congressional oversight panel on Friday, Bernanke said, "There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.

The letter comes a week ahead of the annual economic symposium at Jackson Hole, Wyoming, where Bernanke and ECB President Mario Draghi will speak. Meanwhile, The ECB is discussing yield-band targets under a new bond-buying program to let it shield its strategy and avoid speculators trying to cash in, central bank sources told Reuters on Friday. Any decision would not be made before the ECB's September 6 policy meeting.

The market's gains were fairly broad. Shares of Amazon.com were up 1.9 percent to close at $245.74. During the session, Amazon's stock hit a lifetime intraday high of $246.87. The Dow also broke a six-week string of gains, losing 0.9 percent for the week. The Nasdaq fell 0.2 percent for the week after posting five weeks of gains.

Early in the day, the S&P 500 briefly fell below the 1,400 level following cautious comments from German Chancellor Angela Merkel about Greece staying in the euro zone. It was the first time in two weeks that the benchmark S&P 500 had dipped below 1,400.

Among gaining stocks, Supervalu rose 10.9 percent to $2.35 as the grocery company's advisers sought potential buyers to bid for the entire business, even as several suitors have inquired about its individual parts, according to a Bloomberg report.

On the downside were shares of Autodesk slid 15.6 percent to $30.13. The stock was downgraded by various brokerages a day after the design software maker's quarterly results fell short of expectations for the first time in nearly two years.

On the data front, new orders for durable goods, which are long-lasting manufactured goods such as computers and aircraft, surged in July, even as declines in a gauge of planned business spending pointed to a slowing growth trend in manufacturing.

The mixed data added to the market's uncertainty on whether the Federal Reserve will act soon to bolster the economy. Meanwhile, volume was the second lowest for a full day this year, with 4.6 billion shares changing hands on the three major equity exchanges as compared with the year-to-date average of 6.6 billion shares.

Factory Orders Fall

According to a report released by the Commerce Department on Friday, non-defense capital goods orders excluding aircraft, a closely watched proxy for business investment plans, fell 3.4 percent after falling by a revised 2.7 percent in June. The weakness in the business spending gauge was in keeping with regional manufacturing surveys showing a cooler growth pace of activity in a sector that has shouldered the economy's recovery from the 2007-09 recession.

The softness, which was also evident in shipments, could favor additional monetary easing by the Fed next month, even though other data on jobs, consumer spending and the housing sector suggested a bit of improvement in the economy early in the third quarter.

Shipments of non-defense capital goods excluding aircraft, used to calculate equipment and software spending in the gross domestic product report, were flat after rising 1.5 percent in June. Unfilled orders of these so-called core capital goods fell by the most since August 2009, suggesting little need for factories to step up production for these items.

While businesses largely pulled back, demand for civilian aircraft lifted overall orders for durable goods by 4.2 percent after a 1.6 percent increase in June. Last month's increase was the largest since December. Durable goods are items from toasters to tanks that are meant to last at least three years. Orders excluding transportation fell 0.4 percent, the second straight monthly decline.

Orders for transportation equipment jumped 14.1 percent, with demand for civilian aircraft surging 53.9 percent. Boeing received orders for 260 aircraft, up from 24 planes in June, according to information posted on Boeing’s website. United Airlines placed an order for 150 planes last month.

Motors vehicles orders were also strong, rising by 12.8 percent, the most since July last year. Eliminating transportation, there were still gains in new orders for primary metals, computers and electronic products. But new orders for fabricated metal products, electrical equipment and appliances and machinery fell.

Despite a decline in unfilled orders for core capital goods, the backlog for durable goods overall increased 0.8 percent due to the strong demand for aircraft. The inventory of unsold durable goods increased 0.7 percent.