MarketView for Febuary 18

Summary

Two of the major indexes, the S&P 500 and Nasdaq, closed out Tuesday with a gain following Wall Street's largest weekly advance of the year, as merger activity increased confidence that there is value in the equities market even as the S&P 500 index nears a record high. The Nasdaq Composite rose for an eighth straight session, a winning run not seen since early July.

Economic reports were disappointing, but following a recent pattern, soft data was mostly dismissed by the market and blamed on the weather. However, homebuilder confidence suffered its largest one-month decline ever in February, and the New York Federal Reserve's gauge of manufacturing was weaker than expected.

Forest Laboratories was the S&P 500's best performer after Actavis said it would acquire the specialty pharmaceuticals company in a cash-and-stock deal valued at about $25 billion. As a result, Forest Labs shares chalked up a 27.5 percent gain to close at $91.04. Shares of generic drug makers Teva and Mylan rose on the news. Teva gained 3.3 percent to $45.67. Mylan was up 4.8 percent to close at 48.30 and was the best performer in the Nasdaq 100

The S&P 500 closed 0.4 percent below its record level reached on January 15. The small-cap Russell 2000 outperformed the overall market with a 1.1 percent gain for the day.

Coca-Cola reported global sales volumes below expectations and its stock fell 3.8 percent, closing at $37.47, weighing on the Dow Jones Industrial Average.

With few obvious justifications for stocks climbing further, investors are left in the position they were in at the beginning of the year: unsure about the economy and earnings, but facing an environment where few other assets offer the same potential return as the equity market.

After the closing bell, Herbalife rose 4 percent after the company posted quarterly results and guidance.

Tesla Motors shares hit an all-time high following a report that Apple's mergers and acquisitions chief, Adrian Perica, met Tesla Chief Executive Officer Elon Musk last year, sparking speculation that Apple could be interested in buying the electric car maker. As a result, Tesla shares rose 2.8 percent to close at $203.70 after hitting a record intraday high of $206, while. Apple ended the day up 0.4 percent, closing at $545.99.

BlackBerry closed up 5.3 percent to $9.46. Dan Loeb's Third Point LLC Hedge fund disclosed a 10-million-share stake in the Canadian company.

Swedish mobile phone game maker King, best known for the hit Candy Crush Saga, is planning an IPO that could value it at more than $5 billion and trigger a flurry of technology company listings.

About 6.2 billion shares changed hands on the major equity exchanges, a number that was below the 7.13 billion share average so far in February, according to data from BATS Global Markets.

So Is It Really the Weather

Homebuilder confidence suffered its largest one-month decline ever in February, heightening concerns that recent signs of weakness in the economy reflect deeper problems than the severe weather that has gripped much of the country.

The National Association of Home Builders said on Tuesday its Housing Market Index fell 10 points to 46 in February, with a majority of builders seeing market conditions as poor. The NAHB, which produces the index together with Wells Fargo, said cold temperatures kept potential home buyers out of the market across much of the country.

But the trade group said high costs were also holding back the housing industry, and the data adds to worries the U.S. economy might actually be losing momentum following a year of break-out growth.

Poor weather usually drags on growth only temporarily as businesses and consumers put off purchases. If the recent slowdown in the economy is weather related, economists expect that the trend will reverse once temperatures turn higher and spur consumers to get back to spending.

Worries over the outlook for the economy have grown since reports showed weak hiring across the economy in December and January, when much of the country experienced unusually frigid temperatures. Now signs of economic weakness are persisting into February.

Investors were caught off guard by the NAHB report, which marked the first time since May that the reading was below the key 50 mark. Readings below 50 mean more builders view market conditions as poor than favorable.

The Dow Jones index of housing stocks fell 0.7 percent following the release of the data. All three of the home builders in the S&P 500 index, Lennar, PulteGroup and D.R. Horton were down more than 1 percent.

The housing market has been declining over much of the last year as the Federal Reserve prepared to wind down its bond-buying stimulus program. Expectations the program would come to an end have pushed borrowing costs higher.

Builders also are concerned that the industry can't keep up with demand. While this does point the underlying health in the sector, it also is a factor limiting the supply of homes, which helps push up prices and could put home out of reach for some buyers.

Meanwhile, the New York Federal Reserve Bank's Empire State general business conditions index fell to 4.48 from 12.51 the month before, which was a 20-month high.