MarketView for January 20

Summary  

The major equity indexes posted their best week since the holiday season, even with a mixed finish on Friday after strong earnings from tech bellwethers IBM and Intel contrasted with Google's disappointing report. Meanwhile, the market heads into the most hectic week so far in this earnings season after a mixed start, with some worries over revenue and growth offset by sharp cost-cutting to protect the bottom line.

For the week, the Dow rose 2.4 percent and the S&P 500 gained 2 percent, the Nasdaq gained 2.8 percent, making this its best week in seven.

IBM lifted the Dow a day after it offered a strong outlook and results from several big-tech names signaled they were shaking off nervousness about economic growth and boosting technology spending. IBM's stock ended the day up 4.4 percent to close at $188.52.

However, Google ended the day down 8.4 percent to close at $585.99 after the company posted quarterly earnings and revenue numbers that missed expectations on declining search advertising rates.

General Electric was unchanged at $19.15 after its revenues missed consensus forecasts. American Express fell 1.8 percent to $50.04 as it set aside more money to cover bad loans.

Intel Corp rose 2.9 percent to $26.38, while Microsoft chalked up a 5.7 percent gain to close at  $29.71. Both reported results late Thursday.

Investors also kept an eye on Greece, where a bond-swap deal between the cash-strapped country and its private bondholders appeared to be close. Hopes are an agreement would prevent the nation from spiraling into bankruptcy and bring some stability to the debt-strained euro zone.

Housing Sales Reach 11-Month Peak

Existing home sales reached an 11-month high in December and the number of properties on the market was the fewest in nearly seven years, pointing to a nascent recovery in the housing sector. According to the National Association of Realtors, existing home sales increased 5 percent to an annual rate of 4.61 million units, with all four of the nation's regions recording gains. The gain applied to both multifamily and single-family homes.

Furthermore, December marked the third straight month of gains, adding to hopes that a tentative recovery was taking shape. However, a large inventory of unsold properties is weighing on prices and stringent lending practices by banks is likely to make the sal3es cycle painfully slow.

There were 2.38 million unsold homes on the market last month, the fewest since March 2005. That represented a 6.2 months' supply at December's sales pace, the lowest since April 2006 and down from a 7.2 months' supply in November. However, the NAR noted that the inventory of unsold homes tends to decline in winter. A supply of 6 months is generally considered ideal and anything higher suggests prices will decline further.

The median sales price fell 2.5 percent to $164,500 in December from a year ago. For 2011 as a whole, prices dropped 3.9 percent to an average of $166,100, the lowest since 2002. Further pressure could come in the months ahead as banks finish working out kinks in the foreclosure process and push more homes onto the market.

The Federal Reserve has suggested a number of ways other policymakers could step in to help the beaten-up market, including giving government-controlled mortgage finance firms Fannie Mae and Freddie Mac a bigger role in refinancing loans.

Some officials at the Fed say the central bank should consider further purchase of mortgage-backed securities as a way to help spur a stronger recovery, but no action is expected at a policy meeting next Tuesday and Wednesday.

The data on previously owned homes was just the latest in a number of signals on housing to show improvement, gains economists pinned to an improving labor market. Data earlier this week showed single-family home starts rose for a third straight month in December and optimism among builders this month was the highest in four-and-a-half years.

Existing home sales in December were up 3.6 percent from a year earlier. A total of 4.26 million homes were sold last year, up 1.7 percent from 2010.

Once Again, “Maybe Good News”

Once again we hear that Greece could be closing in on an initial deal with private bond holders that would prevent it from tumbling into a chaotic default but at the same time would give current bond holders a haircut of up to 70 percent. Supposedly there will be technical talks over the weekend.

The unofficial word is that private bondholders would most likely incur a real loss of 65 to 70 percent, with the new bonds having a 30-year maturity and offering a progressive coupon, or interest rate, averaging out at 4 percent.

Cash-strapped Greece is fast running out of time as it pushes to wrap up an agreement by Monday thereby paving the way for a fresh injection of cash before 14.5 billion euros ($18.5 billion)of bond repayments comel due in March.

After a breakdown in talks last week over the coupon, or interest payment, that Greece must offer on its new bonds raised fears of a disastrous bankruptcy, the two sides resumed negotiations on Thursday.

The stakes could not be higher. Greece needs to have a deal in the bag before funds are doled out from a 130 billion euro rescue plan that the country's official lenders, the European Union and the International Monetary Fund, drew up in October.

The paperwork involved alone is expected to take weeks, meaning failure to secure a deal soon could put Athens at risk of a chaotic default in March, which in turn could jolt the financial system and tip the global economy into recession.

Adding to the pressure, officials from the "troika" of foreign lenders have begun meetings with the Greek government on Friday to discuss reforms and plans to finalize that bailout package. The swap is aimed at cutting 100 billion euros off Greece's over 350 billion euro debt load. The second bailout - drawn up on condition Greece pushes through painful cuts and structural reforms - is expected to reduce Greece's debt to a more manageable 120 percent of gross domestic product in 2020 from about 160 percent now.

Greece is stumbling through its worst economic crisis since World War Two, with unemployment at record highs and near-daily protests and strikes against austerity measures that have deepened an already brutal recession. Nearly one out of two youths is unemployed and anger against waves of tax hikes and pay cuts is running high.