MarketView for August 28

Summary

The major equity indexes were little changed in another day of light trading on Tuesday after mixed economic data gave investors little reason to shift their focus away from Federal Reserve Chairman Ben Bernanke's speech on Friday. The Fed chief is scheduled to address a conference of central bankers in Jackson Hole, Wyoming, and could announce new measures to boost growth. While Bernanke is expected to keep alive expectations for a third round of major bond buying by the Fed, or quantitative easing, he could keep markets guessing about the actual timing.

The S&P 500 has been in a fairly tight range over the last three weeks, finding a support level at 1,400 while also unable to convincingly pierce the April high of 1,422.38, which has acted as a resistance point. The index has been unable to muster a move of at least 1 percent in either direction since August 3. Volume was among the lightest of the year after Monday's lightest trading in 2012. August is a slow season, and investors mostly stayed on the sidelines, anticipating Bernanke's speech.

The latest sign of slowing in the global economy added to expectations for more central bank stimulus. Japan cut its assessment of economic growth, citing a deceleration in the demand for Japanese exports by both the United States and China.

Consumer confidence unexpectedly weakened in August to its lowest in nine months as Americans turned more pessimistic about the short-term outlook, according to the Conference Board. However, in another report, the S&P/Case Shiller composite index of 20 metropolitan areas showed U.S. home prices rose for a fifth consecutive month, a sign of slow improvement in the housing sector.

Among the day's largest gainers, Lexmark International closed up 13.7 percent to $21.62 after the company announced that it planned to stop manufacturing inkjet printers, cut about 1,700 jobs, and focus on its more profitable imaging and software businesses. Shares of Hewlett Packard, which has a substantial portion of inkjet sales, were down 1.8 percent at $16.90.

PVH raised its full-year earnings outlook for the third time this year as it expects its European business to grow and its flagship Tommy Hilfiger brand to remain popular with shoppers. The Company’s shares ended the day up 4.8 percent to $92.77.

Movado Group closed up 17.4 percent at $35.36 after hitting an all-time high of $36.11. The watchmaker reported a higher second-quarter profit and raised its full-year earnings forecast for the second time.

Approximately 4.60 billion shares changed hands within the three major equity markets, as compared with Monday's 2012 low 4.46 billion shares. The year-to-date average is about 6.6 billion shares.

Home Prices Rise

Home prices rose for the fifth consecutive month in June, a fresh sign of improvement as the recovery in the housing market picks up steam. The housing sector has been a bright spot, with the stabilization in prices since February suggesting the long-struggling market has finally turned a corner. Still, the recovery is expected to be slow as the sector faces several hurdles, including ongoing foreclosures and a large number of underwater homeowners.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.9 percent on a seasonally adjusted basis for June. On a non-seasonally adjusted basis, prices were even stronger, up 2.3 percent. Prices in the 20 cities rose 0.5 percent compared with the previous year, the first time year-over-year price changes were in positive territory since September 2010.

Atlanta fared the worst, tumbling 12.1 percent from a year ago. Hard-hit Phoenix continued to bounce back and was up nearly 14 percent.

However, in a reminder of how fragile the overall economy remains, another measure of consumers' economic views released on Tuesday deteriorated in August to the lowest in nine months as Americans were more pessimistic about business and labor market prospects.

The Conference Board said its index of consumer attitudes fell to 60.6 from a downwardly revised 65.4 the previous month. August's figure was the lowest level since November. The expectations index tumbled to 70.5 from 78.4, while the present situation index edged down to 45.8 from 45.9.

The decline suggested the recent rise in gasoline prices took a toll on consumers, said Paul Dales, senior U.S. economist at Capital Economics. The raft of tax hikes and spending cuts that are set to take effect at the beginning of next year may also be weighing on sentiment, he said.

Consumers' labor market assessment was mixed. The "jobs hard to get" index eased to 40.7 percent from 41 percent while the "jobs plentiful" index also declined, to 7 percent from 7.8 percent. Meanwhile, the view of the job market in the next six months was weaker, with 15.4 percent expecting to see more jobs, down from July's 17.6 percent.

Consumers were more concerned about price increases. They expected inflation in the coming 12 months to climb to 5.9 percent, from 5.4 percent in the previous survey.

G7 Argue for Increased Output of OIl

The Group of Seven finance ministers urged oil-producing countries on Tuesday to raise output to ensure the market is well supplied, while warning that Western nations were ready to tap strategic oil reserves to offset rising prices that could hurt global growth.

"We stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied," the G7 said in a statement. "The current rise in oil prices reflects geopolitical concerns and certain supply disruptions. We encourage oil-producing countries to increase their output to meet demand."

Oil prices have strengthened as Hurricane Isaac approached the gulf coast and President Barack Obama said separately on Tuesday that it was still open to a possible release from the Strategic Petroleum Reserve.

"That option has been on the table for some time, and remains on the table, but we have no announcements to make today," White House spokesman Jay Carney told reporters traveling to Iowa with President Barack Obama.

Oil production in the Gulf of Mexico was down more than 90 percent on Tuesday as Hurricane Isaac headed toward the Louisiana as a Category 1 storm. The storm was expected to make landfall as early as Tuesday night. And it is not expected that there will by any sort of extensive damage to oil and gas infrastructure if the storm stays in line with current projections. Still, any supply disruptions could raise pressure for a release of emergency oil supplies.

"We remain vigilant of the risks to the global economy. In this context and mindful of the substantial risks posed by elevated oil prices, we are monitoring the situation in oil markets closely," the G7 said. Finance ministers also noted that Saudi Arabia had committed at a G20 meeting of world leaders in Mexico earlier this year to use its spare oil production capacity to ensure adequate supply.