MarketView for February 25

Summary 

After sustaining some major losses by midday, share prices improved and the major equity indexes managed to close out the day in better shape, having recovered most of their losses. Nonetheless, the day’s trading activity showed the effects levied by weak employment and durable goods data. Coca-Cola contributed the most to the Dow's slide after it said it will acquire the North American bottling businesses of Coca-Cola Enterprises for about $13 billion. Coke shares fell 3.7 percent to $53.12, while CCE rose 32.9 percent to $25.48.

When word hit the Street of a possible 4-for-1 stock split by Apple Wall Street’s outlook on life improved considerably and a rebound in share prices quickly followed. It was no surprise that a comment by a spokesman for Apple stated that the company has not made an announcement of a stock split. Apple gained 0.7 percent to $202.01. Also buoying the index, Express Scripts rose 8.5 percent to $95.23 after at least three brokerages raised their price target on the company's stock. The Nasdaq reaped most of the benefit of Apple's rebound and the index ended the day just shy of break-even.

Nonetheless, the Commerce Department’s report on durable goods orders excluding transportation, which unexpectedly fell in January, and a jump in weekly jobless claims, provided fuel for the day’s selloff activity. The data came on top of disappointing reports on consumer sentiment and home prices and sales earlier this week.

Industrial and financial shares were among the day’s biggest drags on the S&P 500, with JP Morgan Chase down 0.5 percent to close at $40.64.

Concerns over the debt loads of some euro-zone countries were revived after rating agencies said they might downgrade Greece's sovereign debt rating. The news added to investor anxiety ahead of a new 10-year bond Greece will issue in the next few weeks. Moody's said a change in Greece's rating would depend on whether Athens could smoothly enact a fiscal reform plan, while Standard & Poor's said a downgrade by one or two notches in the next month was possible. The move could increase borrowing costs and exacerbate Greece's problems.

Health insurance stocks were in focus as President Barack Obama and Republicans clashed at a summit on his stalled healthcare plan.

Federal Reserve Chairman Ben Bernanke said in his second day of congressional testimony that regulators are looking into how Wall Street firms like Goldman Sachs helped Greece arrange derivatives deals that critics say were used to disguise the size of its budget deficits.

Weak Economic Data Worries Some

Durable goods orders fell in unexpectedly in January, while new applications for unemployment insurance rose again last week, supporting the argument being put forth by some that the economy is moving back into a recessionary stance. It is not but the news makes for the kind of media headlines that draw readers and viewers. According to the latest release of data from the Commerce Department, durable goods orders, excluding transportation, slipped 0.6 percent last month, but overall orders rose sharply as civilian aircraft bookings surged 126 percent.

Separately, the number of people filing initial claims for unemployment insurance rose for a second straight week last week. The latest report from the Labor Department Thursday showed first-time filings for state unemployment benefits rose to 496,000 last week from 474,000 a week earlier. However, the figures were likely skewed by snowstorms that blanketed parts of the country. Still, the data did not suggest the start of a double dip recession. There is always some back-and-fill in recoveries.

While economists remained optimistic the economy would start to create jobs in the first half of the year, they worried the continued rise in jobless filings could be a sign of a shift in the downward trend that layoffs had displayed.

The weak reports and threats from rating agencies to downgrade Greece's sovereign debt did not do anything to help the day’s trading activity. Prices for government debt soared, while the dollar neared a nine-month high against the euro.

The data, coming in the wake of reports showing a drop in consumer confidence and a plunge in new home sales to a record low in January, supported views economic growth would slow in the first quarter after a brisk 5.7 percent pace in the October-December period.

Federal Reserve Chairman Ben Bernanke also acknowledged the harsh weather could negatively impact employment data, but he said he expected the effects to be temporary. "We will have to be particularly careful about not over interpreting the data," he told a congressional committee.

Since the start of the recession in December 2007, payrolls have dropped every month, except in November last year when employers added 64,000 jobs.

Durable goods orders, excluding transport, were pulled down last month by the biggest decline in a year in orders for machinery. Economists had expected a 1 percent gain. Disappointment was tempered by an upward revision that showed non-transport orders increased 2 percent in December.

In January, motor vehicles and parts orders saw their largest fall in eight months, and a closely watched gauge of business spending dropped 2.9 percent after a 3.3 percent rise in December. Shipments, which go into the calculation of GDP, slipped 0.2 percent. They rose 2.4 percent in December.

Some analysts drew comfort from gains in some categories, in particular large orders for computers and electronic products, which they said pointed to increased business investment in equipment and software.

Durable goods inventories were flat last month after easing 0.2 percent in December. Unfilled orders rose 0.1 percent, snapping a record 15 straight months of decline.