MarketView for February 28

Summary

The Dow closed above 13,000 for the first time since May 2008 on Tuesday and the S&P 500 also hit a milestone, as consumer confidence data and a sharp drop in oil prices ensured that the markets continued to rally for another day. The S&P 500 closed above 1,370, its May 2011 intraday high, a move that could invite momentum buying as money managers chase performance, though low volumes lately have raised concerns about the rally's longevity.

Technology shares were among the best performers, and the Nasdaq was trading at its highest level the year 2000. Micron Technology rose 3.7 percent to $8.88 after Intel said it planned to sell its stake in two wafer factories to Micron and buy chips from the company. Intel ended the day up 1.3 percent to $27.24.

The S&P 500 is up about 9 percent since the start of the year, largely because of data showing stronger momentum in the economy and signs of progress in managing the euro zone's debt crisis, including a debt deal for Greece.

None the less, there is still the issue of low volume of shares changing hands on a daily basis. With just one trading day left in February, daily volume on the three major equity exchanges has averaged 6.89 billion shares daily. In February 2011, the daily average volume was 7.81 billion. Tuesday's volume was about 6.4 billion shares.

Meanwhile, consumer confidence in the world's largest economy hit a one-year high in February, according to a report from The Conference Board, a private business research group. This indicator is noted because consumer spending accounts for more than two-thirds of U.S. economic activity.

The drop in oil prices from recent highs also relieved worries about the outlook for consumer spending. Brent crude oil futures fell more than $2 to settle at $121.55 a barrel.

Some of the economic optimism was tempered by a government report showing durable goods orders in January had their largest decline in three years. Durable goods range from large-ticket items like aircraft, down to consumer goods like refrigerators and even toasters.

Retailers got a lift from the earnings of Office Depot, which were up 18.9 percent to $3.59 per share, and AutoZone, which rose 2.9 percent to $376.41.

Fourth-quarter earnings have been less impressive than in recent quarters, however, with 63 percent of companies beating analysts' expectations, below the average 70 percent beat rate in the last four quarters. Results are in so far for 472 of the companies making up the S&P 500.

Latest Economic Data of Concern

A strengthening employment marketplace helped lift consumer confidence to a one-year high this month, but a surprisingly large plunge in orders for some factory goods cast a cloud over signs of increased economic momentum. Furthermore, Tuesday’s data also indicated that home prices fell in December, a reminder of the uphill climb faced by the housing market.

A recent slew of positive data had allayed fears economic growth could slow sharply early in the year. Other gauges of manufacturing activity have been solid, and the unemployment rate sank to a three-year low last month. However, Tuesday's data made concern the word of the day.

While the markets rose modestly on the consumer confidence data, but the gains were checked by January's decline in new durable goods orders.

The spike in the Conference Board's monthly gauge of economic confidence, which rose more than expected to a reading of 70.8, could mean consumers will open their wallets more readily in coming months, analysts said. The report by the Conference Board indicated that confidence had yet to be badly hit by a rise in gasoline prices, while consumers are beginning to believe in an improving labor environment.

About 38.7 percent of respondents in the Conference Board survey said jobs were hard to get this month, down from 43.3 percent in January. The share of consumers viewing jobs as plentiful rose to 6.6 percent from 6.2 percent the prior month. The readings on confidence contrasted with a government report that showed orders for long-lasting factory goods fell the most in three years in January.

The Commerce Department data also pointed to a potential scaling back of business investment, which would undermine a pillar of the country's recovery from the 2007-2009 recession. New orders for durable goods dropped 4.0 percent last month, the biggest decline since January 2009. Demand slipped across the board - from machinery and appliances to airplanes.

Data on durable goods can be volatile, and January's weakness followed strong gains in December and November. The weakness last month was likely due to one-time factors like the expiration of some tax breaks. The drop, however, was much sharper than expected.

Weaker export demand highlights one of the chief risks facing the economy: an ongoing debt crisis in Europe that could lead to fewer orders for American manufacturers.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for future business investment, fell 4.5 percent, the steepest drop in a year. Machinery orders were down 10.4 percent, the largest decline since January 2009.

A 6.1 percent drop in bookings for transportation equipment, including a 19 percent drop in civilian aircraft orders, acted as a drag on the overall durable goods reading. Boeing received 150 orders for aircraft during the month, down from 287 in December.

A third report cast doubt on the strength of an incipient housing market recovery. The S&P/Case Shiller index of home prices in 20 metropolitan areas fell 0.5 percent in December from November and a hefty 4.0 percent from a year earlier. The 20-city index registered its lowest reading since January 2003. The drop, which came despite relatively upbeat signs for home building and sales in recent weeks and likely reflected downward pressure from the ongoing wave of foreclosures.