MarketView for Febuary 21

Summary

Share prices ended the day lower on Friday due in part to options-related trades related to options expiration as the S&P 500 came enticingly close to its record high even as economic data continues to underwhelm. The S&P 500 ended 0.66 percent below its record close of 1,848.38 set on January 15.The Street continues to dismiss weak economic data, which is being blamed on the extreme weather that has affected large swaths of the United States.

February individual equity options and some options on stock indexes stopped trading at Friday's close and will settle on Saturday. Typically, options expiration is orderly, but some volatility may occur as players unwind those positions against stock and index products. Volume, however, was below the recent average. For the week, the Dow fell 0.3 percent as the S&P 500 fell 0.1 percent. The Nasdaq, up 0.5 percent, scored its third consecutive week of gains.

Giving support to equities, data showed that fund investors worldwide poured a net $8.3 billion into funds that specialize in domestic equities in the week ending February 19. Inflows into global stock funds were $13.4 billion, the largest inflow in 12 weeks.

Meanwhile, existing home sales fell more than expected in January hitting an 18 month-low as a combination of cold weather and a lack of inventory sidelined potential buyers.

Shares of Isis Pharmaceuticals ended the day up 15.5 percent to $59 after the company said a mid-stage trial of its experimental treatment for a rare spinal disorder showed that it increased muscle function in children. Shares of Biogen, Isis' partner in the drug's development, hit a record high of $349.77 on the news before closing up 3.6 percent at $347.11.

Priceline.com rose 2.5 percent and ranked as one of the S&P 500's largest gainers, rising to close at a record $1,315.65 a day after the online travel company reported results that beat expectations.

Hewlett-Packard reported results that exceeded expectations and a higher 2014 profit view, though its share price fell 1.3 percent to end at $29.79.

Investment firm G Asset Management said it had offered to take a 51 percent stake in either Barnes & Noble or in the bookseller's Nook digital books and device business. Barnes and Noble shares rose 5.4 percent to $17.69.

Shares of Safeway rose 4.3 percent to $36.84 on news that the grocery chain operator is in advanced talks with private equity firm Cerberus Capital over a leveraged buyout deal that may come within the next few weeks, according to people familiar with the matter.

Groupon fell 21.9 percent to $8.03 a day after the daily deals website unexpectedly forecast a quarterly loss, even as it reported revenue that was ahead of expectations.

Approximately 6.55 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 7.0 billion average number of shares traded so far in February.

Existing Home Sales Tumble

Severe cold weather and a shortage of houses on the market pushed existing home sales to an 18-month low in January; the latest indication economic activity has hit a soft patch. According to the National Association of Realtors home sales fell 5.1 percent last month to an annual rate of 4.62 million units, the lowest level since July 2012.

The Realtors group said unseasonably cold weather was partly to blame, but it also acknowledged some fundamental weakness, with fewer homes on the market to choose from and higher mortgage rates and prices reducing affordability. The 30-year fixed mortgage rate is about a full percentage point higher than it was a year ago, even though rates have come down a bit since hitting a two-year high in September.

Sales were down in the Northeast, South and Midwest, which were hit by snow storms and ice last month. But they were down 7.3 percent in the West, an indication that other factors apart from the weather also weighed on sales.

Home re-sales, which peaked in July, have declined in five of the last six months, and in January were down 5.1 percent from a year-ago. Economists had expected sales to fall to a 4.68-million pace last month and some were not convinced that the weather had played a major role in the January slump. Freezing temperatures have hurt home building, manufacturing and hiring in December and January.

While most analysts see the weather-driven slowdown in economic activity as temporary and expect growth to rebound in the second quarter, there are growing concerns that there may be some underlying weakness in the economy, particularly given that growth was already slowing towards the end of 2013.

There is some optimism that existing home sales will pick-up once the weather starts warming up.

In January, the inventory of unsold homes on the market rose 2.2 percent from December, pushing the months' supply to 4.9. While that was up from December's 4.6 months, it remained below the 6.0 months that is normally considered as a healthy balance between supply and demand.

With inventory still tight, the median price for a previously owned home rose 10.7 percent from a year ago. Higher house prices and lack of stock were slowing sales in the lower end of the market. First-time buyers accounted for 26 percent of the transactions, the smallest share since the Realtors group started tracking the series in October 2008.

A market share of 40 percent to 45 percent is considered to be ideal. The NAR, however, believes the worst of the supply squeeze is over, noting that the stock of unsold homes increased 7.3 percent from a year ago.