MarketView for Febuary 20

Summary

Wall Street moved sharply higher on Thursday after a reading on manufacturing activity hit its highest in nearly four years, while news about Facebook and Tesla drove their shares to record highs. The major equity indexes swung between slight gains and losses in early trading, but were clearly in the black by lunch time and from that point back there was no looking back. The S&P 500 ended less than 0.5 percent below its record close set last month at 1,848.

According to Markit's preliminary Manufacturing Purchasing Managers Index, factory activity accelerated at its fastest pace in nearly four years during the month of February. The index is considered to be a bullish indicator that was released following a string of weaker-than-expected reports.

New claims for unemployment insurance fell in the latest week, boding well for the job market, but the Philadelphia Fed's gauge of manufacturing activity unexpectedly contracted in February. The financial markets have selectively shrugged off tepid data, pinning recent weakness on the impact of extremely cold weather and massive snow falls, as opposed to worsening fundamentals.

Facebook reported late Wednesday that it had agreed to acquire mobile-messaging startup WhatsApp for $16 billion in cash and stock, plus $3 billion worth of restricted stock units to WhatsApp's founders. Facebook shares initially fell on the news, but closed up 2.3 percent at $69.63 after earlier hitting a record high of $70.11.

Tesla saw its share price move up 8.4 percent to $209.97 after hitting an intraday record of $215.21. The company reported fourth-quarter results that topped expectations on Wednesday after the closing bell and said deliveries of its luxury sedan would increase by more than 55 percent this year.

The market disregarded rising political tensions and violence from Caracas to Kiev, though concerns may increase next week as earnings wind down and the data calendar thins further. Emerging market growth was also in view after China's flash Markit/HSBC Purchasing Managers' Index fell to a seven-month low in February.

DirecTV rose 2.9 percent to $75.08, falling from a record high of $75.50 hit earlier in the session, after the company reported fourth-quarter numbers that were above Street expectations. The company also authorized a $3.5 billion stock-buyback program.

On the downside, Wal-Mart fell 1.8 percent to $73.52 after the company reported a decline in domestic same-store sales and gave an earnings outlook below expectations.

Approximately 6.4 billion shares changed hands on the major equity exchanges according to the latest available data from BATS Global Markets, a number that was below the 7.05 billion average number of shares traded so far during February.

Unemployment Claims Fall

The number of new claims for unemployment benefits fell last week, suggesting that the labor market continues to improve despite the severe weather that could hold back hiring again this month. Specifically, cold temperatures continue to inflict pain on the economy, with other reports on Thursday showing a surprise drop in factory activity in the mid-Atlantic region this month and a spike in electricity and heating fuel prices in January.

Initial claims for state unemployment benefits fell by 3,000 claims to a seasonally adjusted 336,000 claims, the Labor Department reported on Thursday. The claims data covered the period for February's nonfarm payrolls count. Snow storms slammed parts of the country last week, which could have kept some workers at home, and possibly held back payrolls growth in February.

Bitterly cold weather was blamed for a sharp slowdown in hiring in December and January's marginal bounce back. But claims have been tucked in a 325,000-348,000 range this year, suggesting no fundamental shift in labor market conditions. The severe weather also took its toll this month on manufacturing in the mid-Atlantic region. The Philadelphia Fed said its business activity index tumbled to -6.3 in February, the lowest in a year, from 9.4 last month.

A reading below zero indicates a contraction in manufacturing. A gauge of factory employment in the region slowed sharply, while orders hit a nine-month low. Some of the pull-back in activity is likely related to firms selling off inventories after a huge stock build-up in the second half of 2013.

The Philadelphia Fed index came on the heels of a report on Tuesday that showed a sharp cooling in factory activity in New York State in February. But a survey of national factory activity also released on Thursday indicated manufacturing activity grew in February at its fastest pace in nearly four years.

Financial data firm Markit said its "flash" or preliminary U.S. Manufacturing Purchasing Managers Index rose to 56.7 in February, its highest level since May 2010, from 53.7 in January. Readings above 50 indicate expansion.

The cold weather is also putting a strain on household budgets. In another report, the Labor Department said strong gains in the price of household energy had accounted for most of the 0.1 percent rise in its Consumer Price Index in January. The CPI had advanced 0.2 percent in December.

Overall, the data showed inflation remained contained. Stripping out the volatile energy and food components, the so-called core CPI also rose 0.1 percent in January for a second straight month.

Consumer prices advanced 1.6 percent in the 12 months to January, after increasing 1.5 percent in December. Core CPI rose 1.6 percent on the year, slowing from a 1.7 percent increase in December and the smallest rise since June.

With inflation continuing to run below the Federal Reserve's 2 percent target, the central bank is likely to keep interest rates low for some time to boost growth, even as it reduces the amount of money it is injecting into the economy each month through bond purchases.

In January, electricity prices rose 1.8 percent, the largest gain since March 2010. Natural gas prices surged 3.6 percent. That was the largest rise since April. The cost of heating oil jumped 3.7 percent, the biggest increase since September 2012.

The increases, which offset a 1.0 percent fall in the price of gasoline, come against the backdrop of subdued income growth. Average weekly earnings adjusted for inflation rose 0.1 percent in January after sliding 0.5 percent in December.

Propane inventories are well below average levels for this time of year, while the entire inventory of natural gas in underground storage is 40 percent lower than a year ago.