MarketView for February 27

Summary

The major equity indexes were higher again on Wednesday, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed's stimulus policy and data pointed to economic improvement.

In a second day before a congressional committee, Bernanke defended the Fed's buying of bonds to keep interest rates low to boost growth. The market's jump of more than 1 percent also came on better-than-expected data on business spending plans and the housing market.

Bernanke's remarks helped the market rebound from its worst decline since November and put the S&P 500 index back above 1,500, a closely watched level that has been technical support until recently. The Dow Jones Industrial Average closed at a level not seen since 2007 as it again pulled within striking distance of an all-time high.

Speaking before the House Financial Services Committee, Bernanke downplayed signs of internal divisions at the Fed, saying the policy of quantitative easing, or QE, has the support of a "significant majority" of top central bank officials.

Bernanke removed a headwind from markets arising from concerns the Fed's quantitative easing might end earlier than anticipated. Doubts about the Fed's intentions had broken a seven-week streak of gains by stocks.

Pending home sales rose 4.5 percent in January, three times the rate of growth that had been expected. While orders for durable goods fell more than expected in January, non-defense capital goods orders excluding aircraft - a closely watched proxy for business spending plans - showed the biggest gain since December 2011.

The S&P turned very slightly higher on the week, recovering from the index's biggest daily drop since November on Monday. That drop came on concerns over Italy's election, as well as over sequestration - U.S. government budget cuts that will take effect starting on Friday if lawmakers fail to reach an agreement on spending and taxes.

The index had climbed 6.3 percent for the year before pulling back on concerns about Fed policy and inconclusive elections in Italy, which rekindled fears of a new euro zone debt crisis.

In earnings news, Priceline gained 2.6 percent to $695.91 after reporting adjusted earnings that exceeded expectations. TJX rose 2.5 percent to $44.75 after the retail chain operator posted higher fourth-quarter results. Target offered a cautious outlook for consumer spending in 2013 following a weak holiday quarter. The stock dipped 1.1 percent to $63.32.

First Solar fell 14 percent to $27.04 after failing to give a full-year earnings and sales outlook, though it also swung to a quarterly profit. Groupon was also down, falling 21 percent to $4.70 after the bell after reporting its fourth-quarter results.

With 93 percent of the S&P 500 companies having reported results so far, 69.5 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data.

Fourth-quarter earnings for S&P 500 companies are estimated to be up 6.2 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

About 6.23 billion shares changed hands on the three major exchanges, a number that was slightly below the daily average so far this year of about 6.48 billion shares.

Business Spending at Annual High

Planned business spending chalked up its largest increase in more than a year during January, suggesting growing confidence in the durability of the economic recovery. Further bolstering the economy's resilience was data indicating contracts to buy previously owned homes approached a near three-year high last month.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 6.3 percent, the largest gain since December 2011. These so-called core capital goods orders had slipped 0.3 percent in December. Although shipments of core capital goods, used to calculate equipment and software spending in the government's measures of gross domestic product, fell last month, economists were little worried.

Factory activity, which helped lift the economy from recession, has cooled in recent months, held back by sluggish domestic demand, tighter fiscal policy in Washington and slowing global growth.

While business investment plans looked strong, the report showed that overall orders for durable goods - items ranging from toasters to aircraft that are meant to last three years or more - tumbled 5.2 percent as demand for civilian and defense aircraft collapsed. It was the first decline since August.

Orders for civilian aircraft, which are very volatile and which tend to fall at the start of the year, dived 34 percent. Boeing received orders for only 2 aircraft, down from 183 in December. The decline was probably not related to the grounding of Boeing's 787 Dreamliners after problems with overheating batteries.

Defense aircraft orders plunged 63.8 percent after soaring 58.5 percent in December, likely as orders were pushed forward ahead of $85 billion in government-wide spending cuts set to kick in on Friday. Overall defense capital goods orders fell 69.5 percent in January, the sharpest decline since July 2000.

However, durable goods orders excluding transportation increased 1.9 percent last month, also the largest gain since December 2011, after increasing 1 percent in December. That was a sign factory activity continues to plod along.

In a separate report, the National Association of Realtors said its pending home sales index rose 4.5 percent to its highest level since April 2010, just before a home-buyer tax credit expired. The rise in signed purchase contracts, which become sales after a month or two, added to data such as building permits and house prices that have suggested a decisive turnaround in the housing market.

Home building added to growth last year for the first time since 2005 and economists expect another contribution this year.

Nonetheless, the data is unlikely to bring about any change in the Federal Reserve's easy monetary policy. Fed Chairman Ben Bernanke, testifying before Congress for a second straight day, pointed to the pick-up in housing as a sign the central bank's aggressive easing of monetary policy is gaining traction. However, he signaled a willingness to press forward with efforts to spur an even stronger recovery and lower the jobless rate, which remains at a lofty 7.9 percent.