MarketView for February 15

Summary 

The major equity indexes were lower on Wednesday for the third session in four, with market direction largely dictated by the swings in shares of Apple, the largest company in the world.

The S&P 500 appeared set for a strong move off a nine-month high as Apple’s shares gained 3 percent in early trading, helped by Tuesday's disclosures that prominent hedge-fund managers had been buying the stock.

However, Apple, the largest company by market capitalization, turned negative around midday and closed down 2.3 percent to $497.67, quickly reversing the Nasdaq composite index's advance. The stock had climbed as high as $526.29 during the session.

The fortunes of both S&P and Nasdaq have been closely tethered to Apple of late, with the benchmark S&P index and Nasdaq a near-perfect correlation over the last 50 days, showing they are moving almost in lockstep.

A Chinese technology firm is trying to ban shipments of Apple's iPad tablet in and out of the country in a legal battle over the iPad name.

Apple share volume rose to 50 million shares, an increase of over 400 percent when compared with its 30-day average. Apple option flow was a total of 1.77 million contracts, surpassing the record of 1.3 million contracts set last Thursday, according to Trade Alert. About 9 percent of the option volume market wide was on Apple.

The S&P hit a peak of 1,355.87, just shy of its July 2011 high. A break above that level would take the benchmark to its strongest position since at least May of last year.

Industrial stocks led declines on the S&P 500, with Deere down 5.4 percent at $84.28 after investors expected the farm equipment company to give a stronger full-year forecast.

Domestic manufacturing output rose solidly in January and a gauge of factory activity in New York state hit a 1-1/2-year high in February, adding to a run of fairly upbeat data, even though overall industrial production was flat last month.

Decliners on the Dow, which underperformed the broader market, included industrial and material stocks like Caterpillar, down 1.7 percent at $112.53. Early in the trading day the Dow Jones Industrial Average was trading near a 3 1/2 year high and the Nasdaq was at a more than 11-year high.

Weighing on the market was word that EU sources said finance officials were examining ways of delaying parts or even all of a second bailout for Greece, while still avoiding a disorderly default. That rekindled fears about the region's debt crisis.

The day’s trading volume was solid with about 7.38 billion shares changing hands on the three major equity exchanges, a number that was well above the daily average of 6.98 billion shares.

Economic Strength Continues to Increase

Manufacturing output rose in January and a gauge of factory activity in New York State hit a 1-1/2-year high in February, showing a solid underpinning for the economic recovery. The firmer tone was also in evidence in another report on Wednesday that showed optimism among home builders approached a five-year high this month, a good omen for the struggling housing market.

The reports added to a run of fairly upbeat data, even though overall industrial production was flat last month as unusually mild winter weather weighed on utility output.

Factory production increased 0.7 percent, the Federal Reserve said, after an upwardly revised 1.5 percent rise in December. The December increase was previously reported as a 0.9 percent gain. Manufacturing was buoyed by a 6.8 percent jump in motor vehicle output. But production at utilities plunged 2.5 percent, the second straight month of big declines.

A 1.8 percent drop in mining production, the first decline in almost a year, also helped damp industrial output last month. However, overall production was stronger than first thought in December, rising 1 percent as opposed to the previously reported 0.4 percent gain.

Data, including employment, manufacturing and retail sales, so far suggest the economy got off to a firmer start in 2012, prompting analysts to scale back expectations of a sharp pull-back in first-quarter growth and further monetary easing by the Fed.

The economy grew at a 2.8 percent annual pace in the last three months of 2011, with a build-up of inventories accounting for two-thirds of the rise. However, slowing new orders and further declines in unfilled orders suggested activity in that region could be close to peaking. There was a rise in shipments and companies increased hours for existing workers.

Manufacturing remains the main pillar of the economy, although it only accounts for about 12 percent of gross domestic product and 11 percent of nonfarm payrolls. Capacity use in manufacturing rose in January to 77.0 percent, the highest since April 2008.

There are also signs of green shoots in the housing market, which has been a drag on the economy, with confidence among home builders the highest this month since May 2007. Sentiment has increased for five straight months. Builders have been breaking ground on new residential projects, driven by rising demand for rental apartments as Americans shift away from homeownership.

Home building is expected to add to growth this year for the first time since 2005.