MarketView for January 23

Summary

It was an uneventful trading session on Wall Street on Monday as the major equity indexes finished out the day virtually unchanged as many of those on the Street held back pending the earnings releases from a variety of bellwether companies such as Apple, due to release numbers after the closing bell on Tuesday.

The S&P 500 is up nearly 5 percent this year as an improving economy has pushed the level of investor optimism upward to a degree that we have not seen for quite some time. The Dow Jones industrial average and the S&P 500 both had their best weekly performances in a month last week.

According to Thomson Reuters data, 15 percent of S&P 500 companies have reported earnings, and just 59 percent posted results above Wall Street's expectations. That percentage trails the average of about 70 percent, though the rate is expected to improve as the earnings season gathers steam. This week alone, 117 S&P 500 companies expected to report earnings. A number of Dow components are due to report earnings on Tuesday, notably Verizon, Travelers, McDonald's, DuPont and Johnson & Johnson.

The euro-zone crisis remained in the background for the market but has had less of an effect on stocks lately. Germany and France pushed for a deal between Greece and its private creditors, and the two said they still were dedicated to a new bailout that Athens needs by March to stave off default.

After the closing bell, Texas Instruments saw its share price rise 2.5 percent to $34.00, as a result of the company reporting higher-than-expected fourth-quarter revenues.

Wall Street's agenda this week includes the Federal Reserve's first policymaking meeting of the New Year, which will begin on Tuesday and conclude on Wednesday with a statement. The Fed is likely to say that it will not start raising interest rates again until the first half of 2014, more than five years after cutting them to near zero. The Fed will begin a new practice of announcing policymakers' interest-rate projections when this week's meeting ends on Wednesday.

During Monday's regular session, Halliburton fell 2.1 percent to $35.44 after the world's second-largest oilfield services group warned that the deep slump in natural gas prices could cause near-term disruptions that pinch first-quarter earnings.

On a positive note, Chesapeake Energy rose 6.3 percent to $22.28 after it said it will reduce dry gas drilling and cut production in response to natural gas prices falling below "economically attractive" levels. Natural gas companies' shares were among the day's best performers.

Research In Motion fell 8.5 percent to $15.56 due to skepticism over the resignation of the BlackBerry maker's co-chief executives and the appointment of a new CEO.

Sears Holding fell 3.3 percent to $47.39 after rising as high as $54.76 in what was likely a short squeeze. The shares are among those most shorted among companies making up the S&P 500, according to Data Explorers, with 94 percent of shares available used to sell short. The retailer has been the best-performing stock in the index for the year, up more than 50 percent.

Trading volume had about 6.6 billion shares changing hands on the major equity exchanges, in line with the daily average of 6.68 billion shares.

IMF Suggests Changes to Solving Euro Problem

The head of the IMF called on European governments to sharply increase the size of their rescue fund and consider financial risk-sharing steps like common euro zone bonds as a way out of their sovereign debt crisis. In a speech at the German Council on Foreign Relations in Berlin on Monday, International Monetary Fund (IMF) Managing Director Christine Lagarde said the world economy faced a "defining moment" that required quick, collective action.

To help meet the challenge, she urged leading powers to back an increase in resources for the Washington-based lender to help fill a global financing hole that the IMF believes could reach $1 trillion over the coming years.

"The longer we wait, the worse it will get. The only solution is to move forward together," Lagarde said, according to an embargoed copy of her remarks provided by the IMF before delivery.

"We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral."

The IMF has helped fund a series of euro zone bailouts over the past two years, but with big European countries like Italy now under threat, it wants to boost its lending capacity, currently estimated at around $380 billion.

Members of the single currency bloc have agreed to inject close to $200 billion, but countries like the United States, Canada, China and Japan have been cool on channeling more funds to the IMF. Many are keen for Europe to take more decisive steps to resolve its debt crisis first.

Lagarde said the IMF was seeking to increase its lending resources by up to $500 billion, including the funds already pledged by Europe. The Fund estimates that up to $1 trillion in global financing could be needed over the coming years.

"I am convinced that we must step up the Fund's lending capacity," Lagarde said.

She praised decisions by euro zone governments to enforce stricter fiscal discipline and a move by the European Central Bank to provide long-term liquidity to banks, but said these steps formed mere "pieces" of a comprehensive crisis solution.

Lagarde warned specifically about the risks that higher funding costs for Italy and Spain lead to a solvency crisis, saying this would have disastrous consequences for systemic stability.

"Adding substantial real resources to what is currently available by folding the EFSF into the ESM, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly," Lagarde said, referring to the euro zone's current and future rescue funds.

She urged European leaders to complement the "fiscal compact" they agreed last month with some form of financial risk-sharing, mentioning euro zone bonds or bills, or a debt redemption fund as possible options.

Lagarde also called for bolder steps from countries outside of Europe, saying the United States had a special responsibility as the world's largest economy.

She said emerging and advanced countries with large current account surpluses should take steps to encourage domestic demand as a way to support global growth.

In an apparent reference to Germany, she said there was a "large core" in Europe where fiscal consolidation could be more gradual. Lagarde also stressed the need for timely easing of monetary policy as euro zone economies and inflation fall.