MarketView for January 12

Summary

The major equity indexes closed out the day on Wednesday in solidly positive territory after European debt fears eased and sparked a broad advance, led by banks and commodity-related shares. For the moment it would appear that there will be an additional flow of funds into equities on speculation the economy will strengthen. The S&P is almost 9 percent higher since the start of December, in part on bets that earnings would be strong.

Sectors typically helped by rising inflation, including agricultural and energy, were strong. Agricultural stocks rallied as a result of a government report stating that stockpiles of corn and soybeans would be drawn down to surprisingly low levels, lifting food prices and agricultural shares.

Monsanto rose 3.3 percent to $74.92, while Exxon ended the day up 1.2 percent to close at $76.58. Within the financial sector, bank shares were led upward by JPMorgan Chase, which ended the day up 2.5 percent at $44.71 after announcing that it could increase its dividend once the Federal Reserve gives its approval. JPMorgan is expected to report its quarterly results on Friday.

A healthy bond auction in Portugal drove investors into riskier assets. The Street is hopeful euro-zone finance ministers will add to the European Union's rescue fund. Meanwhile, the overseas auction fed risk appetite and contributed to a drop in Treasurys and municipal bonds.

Intel, a component of the Dow Jones industrial average is scheduled to report after the market closes Thursday.

Positive Report from Fed

The economy strengthened as the year drew to a close, according to a report from the Federal Reserve on Wednesday that cited rising employment levels across the country. The Fed's Beige Book report, based on anecdotal reports collected from the business contacts of the central bank's regional branches, painted an increasingly bright, if cautious, picture. While real estate markets, at the heart of the deepest recession in generations, remained predictably weak, manufacturing contacts sounded more upbeat.

The Fed reported better conditions across all 12 of its districts, though banking and financial services showed results that varied by region.

"Economic activity continued to expand moderately from November through December," the central bank said in a statement.

The findings were consistent with a recent pick-up in economic data. The economy grew 2.6 percent in the third quarter, a level considered too meek to put a significant dent in the nation's 9.4 percent jobless rate. Against that backdrop, the Fed announced in November it would buy an additional $600 billion in bonds over an eight month period in order to support the recovery by keeping long-term borrowing costs low.

The improvement in conditions in the Beige Book report strengthens the case, made both by some top Fed officials and outside economists, that the latest round of bond-buying might not be necessary.

Fed Chairman Ben Bernanke, however, has argued that the economy is running so far beneath its full potential that it continues to need help from the monetary authorities. The central bank has cited both weak employment conditions and very low inflation readings to justify its actions.