MarketView for February 17

Summary 

Two of the three major equity indexes were a bit higher on Friday, but investors stayed cautious before a long holiday weekend, while at the same time there is some anticipation that Greece's bailout plan will be approved prior to the markets opening on Tuesday. Euro-zone finance ministers will meet to approve a 130 billion euro rescue package for Greece on Monday.

Equity markets have tended to react positively on the progress being made toward helping Greece avert a disorderly default. Nonetheless, past agreements have broken down at the last minute. Then there is the point that the markets will be closed for the Presidents Day holiday on Monday.

Meanwhile, the S&P 500 index ended its sixth positive week out of seven so far this year, lifting it near levels not seen in more than three years. Friday's modest advance has pushed the benchmark index up nearly 24 percent from its October low, while it is up 8.2 percent since the start of this year.

As a result, technicians see the market at a short-term top, with the S&P at nine-month highs and within 10 points of hitting its highest level since 2008. Share prices typically pause near the end of earnings season as the market digests the results. According to Thomson Reuters data, 404 of the S&P 500 companies have reported results through Friday, with 64 percent beating expectations.

For the week, the Dow is up 1.2 percent, the S&P 500 index is up 1.4 percent and the Nasdaq has chalked up a gain of 1.7 percent.

Looking at Friday’s trading activity; the Nasdaq underperformed the overall market, dragged lower by a 14.3 percent decline in shares of Gilead Sciences to $47. The drop came after some patients treated with its experimental hepatitis C drug relapsed.

HJ Heinz saw its shares rise 4.5 percent to close at $54.47 and Campbell Soup gained 2.6 percent to close at $32.90 after both food companies posted better-than-expected quarterly earnings. In contrast General Mills lost 3.6 percent to close at $38.34 after company lowered its outlook.

The latest release of the Consumer Price Index showed that gasoline prices for the month of January were up 0.9 percent in January, pushing overall consumer prices up and offering a reminder of the risks energy costs pose to the economic recovery.

Volume was modest with about 6.5 billion shares changing hands on the three major exchanges, a number that was well below the daily average of 6.98 billion shares.

Consumer Prices Move Higher

Gasoline prices chalked up a gain of 0.9 percent in January, pushing overall consumer prices up at their fastest clip in four months and offering a reminder of the risks energy costs could pose to the economic recovery. Nonetheless, the 0.2 percent increase in the Consumer Price Index reported by the Labor Department on Friday is unlikely to ring alarm bells at the Federal Reserve, which is trying to decide whether the economy needs another dose of monetary stimulus.

The gain in gasoline prices was the first in four months. Tensions in the Middle East have been pushing oil prices higher, leading to extra costs at the pump for Americans. After rising throughout January, the national price for regular unleaded gasoline prices rose to $3.58 a gallon in the week through Monday, according to the Energy Information Administration. It had started the year around $3.32 a gallon.

The Labor Department report showed that after stripping out food and energy, the so-called core reading rose 0.2 percent, which was in line with expectations and Fed guidelines. However, the report also showed the rate of core price increases in the twelve months through January unexpectedly climbed to 2.3 percent. The increase in the 12-month core reading, which is seen as a barometer of inflation trends, might be read as a sign that inflation pressures are not subsiding as quickly as expected.

Overall consumer prices rose 2.9 percent year-on-year after increasing 3.0 percent in December.

Moderating the monthly gain in core prices, used car and truck prices fell 1.0 percent and new vehicle prices were flat.