MarketView for August 9

Summary

Stocks fell on Friday and posted their biggest weekly decline since June as investors focused on when the Federal Reserve would begin to scale back its stimulus. All but one of the 10 S&P 500 sector indexes ended lower.

J.C. Penney fell 5.8 percent to $12.87 and ranked as the S&P 500's largest percentage loss. Bill Ackman, the company's top investor, urged the retailer's board on Friday to replace its chairman.

Richard Fisher, president of the Federal Reserve Bank of Dallas, reiterated late Thursday that the central bank will probably begin cutting back on its massive bond-buying stimulus next month, as long as economic data continues to improve.

The lack of clarity over the Fed's plans gave investors reason to pull a record $3.27 billion out of funds that hold Treasuries in the latest week ended August 7, data from Thomson Reuters' Lipper service showed on Thursday.

For the week, stocks posted their largest retreat since mid-June. The Dow fell 1.5 percent, snapping a six-week string of gains. The S&P 500 dropped 1.1 percent for the week and the Nasdaq slid 0.8 percent. A week ago, both the Dow and the S&P 500 ended at record closing highs.

Stocks extended losses late in the session. President Barack Obama said he will make a decision on the nomination for the Federal Reserve chairman in the fall. Fed Chairman Bernanke is expected to step down when his second four-year term ends on January 31.

While many investors are concerned that economic growth will stall without the Fed's help, stock prices have been supported by some strong earnings and encouraging data overseas. Meanwhile, the S&P 500 is up 18.6 percent for the year so far.

In China, industrial output rose more than expected, adding to a string of data that indicated the economy may be stabilizing after an extended period of tepid growth.

The economic data indicated that wholesale inventories unexpectedly fell 0.2 percent in June, marking a second straight month of declines, versus expectations calling for a gain of 0.4 percent.

U.S.-listed shares of BlackBerry Ltd (BBRY.O) jumped 5.7 percent to $9.76 after Reuters reported that the Canadian smartphone maker was warming to the idea of going private, citing sources familiar with the situation.

Priceline.com rose 3.9 percent to $969.89 a day after the online travel company reported earnings that beat expectations and gave a strong outlook. Some analysts speculate the stock's price will cross $1,000 soon, which would be a first for an S&P 500 stock.

Earnings season is winding down, with 446 companies in the S&P 500 having already reported. Of those, 68 percent have exceeded analysts' expectations, slightly above the 67 percent beat rate over the past four quarters, Thomson Reuters data showed.

Approximately 5.3 billion shares changed hands on the three major equity exchanges, a number that was less than the daily average closing volume of about 6.36 billion shares this year.

Wholesale Inventories Fall

A report released by the Commerce Department Friday morning indicated that wholesale inventories unexpectedly fell 0.2 percent after declining 0.6 percent in May. It was the second consecutive month, prompting the Street to trim its second-quarter consensus economic growth estimates.

The inventory number was weaker than the government had assumed in its advance estimate of second-quarter gross domestic product published last week, which put growth at a 1.7 percent annual pace.

Inventories are a key component of GDP changes. As a result of the unexpected decline in stocks at wholesalers in June, economists pared their estimates for second-quarter GDP growth by one-tenth of a percentage point.

The consensus had raised their estimates to as high as a 2.5 percent pace after manufacturing inventories in June came in slightly higher and the U.S. trade deficit narrowed more than the government had estimated in its first GDP reading.

Barclays lowered its second-quarter GDP estimate to a 2.4 percent pace from 2.5 percent. JPMorgan now expects growth will be revised to a 2.2 percent rate instead of 2.3 percent.

Retail inventory data to be released next week could shed more light on the size of the revision to growth. The government will publish its second GDP growth estimate on August 29. Inventories added less than half a percentage point to second-quarter GDP growth.

Wholesale inventories in June were pulled down by automobile stocks, which tumbled 1.5 percent, the most since December. Besides automobiles, stocks of electrical goods, hardware, paper, metals and apparel also fell.

Sales at wholesalers rose 0.4 percent in June after increasing 1.5 percent in May. The rise in June was below economists' expectations for a 0.7 percent gain.

At June's sales pace it would take 1.17 months to clear shelves, the lowest since April last year. The inventories/sales ratio was 1.18 months in May.