MarketView for January 10

Summary

The major equity indexes managed a bit of a turnaround after being in negative territory in early trading, thereby recovering much of their early losses. However, volume was light with about 7.4 billion shares trading on the three major exchanges. That number was well below last year's estimated daily average of 8.47 billion shares. The reason for the turnaround was because the Street is expecting good things from this quarter’s earnings season despite fears over the prospect that Portugal would be forced into a financial bailout.

The bulls are adamant that the market's upward trend remains intact. Unfortunately, the S&P 500 index’s third straight session of declines suggests that perhaps there is trouble in River City. Yet, even though The S&P 500 edged down, the number of advancers outweighed decliners on both the New York Stock Exchange and the Nasdaq. The benchmark S&P 500 found technical support near its 14-day moving average, now around 1,264.

Stocks initially fell on worries Lisbon would have to seek a bailout, but concerns faded on talk of support from the European Central Bank. The euro, seen of late as a proxy for the degree of risk investors are willing to accept with regard to the EU, gained 0.5 percent against the dollar, as it recovers from a four-month low, thereby showing that investors are not overly concerned...at this moment.

M&A deals announced on Monday included Duke Energy agreeing to acquire Progress Energy for $13.7 billion in stock. Shares of Progress fell 1.6 percent to close at $43.99, while Duke was down 1.2 percent, closing at $17.58. DuPont announced that it plans to acquire Danisco, a Danish food ingredient firm, for $5.8 billion. DuPont, a Dow component, fell 1.5 percent to $49.03, while Danisco rose 24 percent.

Apple, up 1.9 percent to $342.46, led the Nasdaq higher on bets of stronger sales as an announcement of the end of AT&T’s more than three years of exclusive rights to sell Apple's iPhone was expected. AT&T fell 1.8 percent to $28.34. Verizon is expected to announce on Tuesday that it will offer the iPhone.

LDK Solar rose 18.2 percent to $12.33 after the Chinese solar wafer maker forecast fourth quarter and 2011 revenue above Street expectations, signaling strong demand for solar products.

For profit education took a hit after Strayer announced that new enrollments at its University fell 20 percent in the winter term. As a result, Strayer saw its share price fall 22.6 percent to $118.60, while Corinthian Colleges was down 13.3 percent to close at $4.58. Apollo Group, the largest of the for-profit colleges, fell 5.4 percent to $35.94 but recovered its losses after the bell, following its quarterly results. In extended trading, Apollo rose 9.6 percent to $39.37.

Intel is paying graphics chip designer Nvidia a $1.5 billion licensing fee, settling a legal dispute and sending Nvidia's shares up 4.7 percent to close at $21.60.

Bar To Be Set High For the Fed

Narayana Kocherlakota, President of the Minneapolis Federal Reserve Bank, said he would set the bar "very high" for the central bank to stop short in its planned $600 billion in bond purchases, but that the Fed may need to begin considering a reversal of policy by year end.

"The bar is very high for me,"   Kocherlakota said in an interview with the Wall Street Journal. "There would have to be a disorderly reaction of some kind in inflation expectations or in the behavior of the dollar." "We're talking about relatively extreme events," he said.

Kocherlakota, who rotates into a voting slot on the Fed's policy panel this year, said he threw his support behind the bond purchase plan after colleagues argued persuasively the policy would move monetary policy in the right direction even if it would not have a large impact.

He told the Wall Street Journal he did not know whether the Fed might stop short of buying the full $600 billion or end up buying more. He said, however, he would have supported the program even if he had known the economy would prove somewhat stronger than he had been forecasting.

Kocherlakota said he expects the economy to grow 3 percent to 3.5 percent this year, with inflation rising about 1.5 percent to 2 percent. He said he expects the U.S. jobless rate to drop to close to 9 percent by the end of the year, but stay above 8 percent through 2012.

He also reiterated his argument that structural shifts in the economy had likely raised the level of measured unemployment that would be sustainable without generating unwanted inflation. According to Kocherlakota, the level of unemployment that might trigger inflation was likely in a range of 6.5 percent to 8 percent, well above the 5 percent to 6 percent Fed forecasts released in November suggest is a more widely held view among policymakers.

He said that was not an immediate concern for policy, but that it might become a consideration by the end of the year. The government said on Friday that the jobless rate dropped to 9.4 percent last month from 9.8 percent in November.

"Right now this debate over what the level is of structural unemployment is somewhat -- I don't want to say uninteresting -- but is not immediately relevant for policy considerations," Kocherlakota said.

"If things go as I expect, then I think it's going to be really important toward the end of the year, toward the end of 2011, to have some notion of what this level of structural unemployment is," he said.

"If the number is 8 percent ... and according to my forecast unemployment will be around 9 toward the end of 2011 and inflation is at 1.5 percent ... that's the point where you might think about exit," Kocherlakota added.

Kocherlakota said the backlash against the program did not change his calculation of the plan's costs, which he called relatively small.

Alcoa Turns in Fourth Quarter Profit

Alcoa reported a fourth-quarter profit on Monday, after a year-ago loss, beating Wall Street estimates on higher aluminum prices and projected demand for the metal will rise in 2011. Alcoa shares were down 1.6 percent at $16.23 in after-hours trade on the New York Stock Exchange. The stock closed at $16.49 during the regular session.

Income from continuing operations was $258 million, or 21 cents per share, excluding special items, compared with a loss of $266 million, or 27 cents per share in the same quarter of 2009. Net income was 24 cents per share. Revenue rose 4 percent to $5.7 billion, said the company which is traditionally the first Dow component to report in the quarter.

Alcoa said improved earnings were driven by higher pricing, continued strengthening in most end markets and improved productivity as a result of cost-cutting measures. Results were offset somewhat by a weaker dollar and higher energy and raw material costs, the company said.

Aluminum prices, which slumped dramatically during the recession, rose 11 percent last year -- 5 percent in the fourth quarter alone -- and are now near a two-year peak of $2,500 per ton.

"In 2011, we see aluminum growing another 12 percent on top of last year's 13-percent improvement," said Chief Executive Officer Klaus Kleinfeld. "We are well positioned to outpace the recovery in the markets we serve."

He later told CNBC that global aluminum markets continue to grow and that in the construction and building markets the company sees "a little light at the end of the tunnel."