MarketView for February 15

Summary

The S&P 500 fell on Friday after Wal-Mart reported a weak start to February sales, though the index just barely extended its streak of weekly gains to seven. Equities were little changed for much of the session, with investors finding few reasons to make big bets following an extended rally on Wall Street, but stocks turned lower in afternoon action.

Wal-Mart fell 2.1 percent to $69.30 after Bloomberg News reported a weak start to February sales, citing internal company e-mails. The stock was the largest decliner on the Dow, while the S&P retail index .SPXRT fell 0.5 percent.

Equities have struggled for direction recently, with major indexes moving only slightly in the past several sessions. The S&P didn't end a session with a move greater than 0.2 percent at all this week.

The S&P 500 index, up 6.6 percent so far this year, is facing strong technical resistance near the 1,525 level. But investors, expecting the index to advance further in the quarter, have held back from locking in profits.

Many investors are starting to look ahead to a debate in Washington over sequestration, automatic across-the-board spending cuts put in place as part of a larger congressional budget fight. The cuts are due to kick in March 1 unless lawmakers agree to an alternative.

Possible Insider Trading in Heinz

Securities regulators filed suit on Friday against unknown traders in the options of ketchup maker H.J. Heinz Co, alleging they traded on inside information before the company announced a deal to be acquired for $23 billion by Warren Buffett's Berkshire Hathaway Inc and Brazil's 3G Capital.

The suit marks the second time in six months that the SEC has taken legal action for alleged insider trading on a 3G deal.

The suit, in federal court in Manhattan, cites "highly suspicious trading" in Heinz call options just prior to the February 14 announcement of the deal. The regulator has frequently in past filed suit against unnamed individuals where it has evidence of wrongdoing, but is still trying to uncover the identities of those involved.

That trading, the suit said, caused the price of the particular call option they bought to soar 1,700 percent and generated unrealized profits of more than $1.7 million. The regulator claims the traders are either in, or trading through accounts in, Zurich, Switzerland. The account had no history of trading in Heinz over the last six or so months.

It has also obtained an emergency order to freeze assets in the Swiss account linked to the trading. In the suit, the SEC refers to the account as the "GS Account" and in a statement Goldman Sachs said it was cooperating with the regulator's investigation.

"Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information," Daniel Hawke, chief of the SEC's Division of Enforcement's Market Abuse Unit said in a statement.

Representatives of Heinz and Berkshire Hathaway were unavailable for immediate comment. A 3G representative declined to comment. The founder of 3G, Jorge Paulo Lemann, is from Brazil, but has made a home in Switzerland since the 1990s. He has not been implicated in any wrongdoing related to the deal.

After the deal was revealed on Thursday, options market experts called Wednesday's trading "suspicious and incredibly well-timed."

The suit marks the second time in less than six months that the SEC has taken action over a 3G acquisition. In September 2012, the regulator got a court order to freeze the assets of a Wells Fargo & Co stockbroker who allegedly traded on inside information about 3G's 2010 acquisition of Burger King.

In that case, the SEC said the Brazilian stockbroker got the information from a client who had invested at least $50 million in one of 3G's funds.

The suit also marks the second time in two years that controversy has erupted over a Berkshire acquisition target.

In March 2011, Berkshire struck a deal to buy chemical company Lubrizol for $9 billion. Less than three weeks later, Berkshire said Buffett lieutenant David Sokol was resigning and disclosed he had been buying Lubrizol shares while pushing Buffett to acquire the company. The SEC dropped a probe into Sokol's trading earlier this year.

The suit is Securities and Exchange Commission v. Certain Unknown Traders in the Securities of H.J. Heinz Co, U.S. District Court, Southern District of New York, No. 13-1080.

Temporary Setback for Manufacturing

Manufacturing got off to a weak start this year as motor vehicle output tumbled in January, but a rebound in factory activity in New York State this month suggested any setback would be temporary.

In a further sign the sluggish economic recovery remains on track, consumers were a bit more upbeat early this month even as they paid more for gasoline and saw an increase in taxes reduce their paychecks, other data on Friday showed.

Manufacturing output fell 0.4 percent last month, the Federal Reserve said. But production in November and December was much stronger than previously thought and the 3.2 percent drop in auto output - the largest since August - followed two solid months, suggesting it was just a temporary pause.

In a separate report, the New York Federal Reserve Bank said its "Empire State" general business conditions index, which gauges factory activity in the state, rose to 10.0 from -7.8 the month before. February's index showed the first growth in the sector since July and the best performance since May 2012.

The rebound was driven by new orders, which hit their highest level since May 2011. Economists said the pick-up in activity likely reflected recovery from Superstorm Sandy, which struck the East Coast in late October.

Separately, the Thomson Reuters/University of Michigan index of consumer sentiment rose to 76.3 in early February from 73.8 in January.

Households drew comfort from steady job gains, which together with rising home and stock prices should help offset a recent increase in payroll taxes and underpin consumer spending.

The fairly upbeat sentiment data helped to lift the dollar against the yen, but stocks on Wall Street were little moved, consolidating after a rally that saw the Standard & Poor's 500 index rise nearly 7 percent so far this year.

Last month's weakness in manufacturing contributed to pushing overall industrial production down 0.1 percent.

Production at the nation's mines fell 1.0 percent, but cold weather boosted utilities production by 3.5 percent. The need for Americans to spend more money on utilities in January should support consumer spending this quarter.

Forecasting firm Macroeconomic Advisers raised their first-quarter growth estimate by a tenth of a percentage point to a 2.5 percent annual rate, which would be a nice step up after a dismally weak fourth quarter.