MarketView for January 18

Summary

The Dow Jones Industrial Average and the S&P 500 indexes closed at five-year highs on Friday as the market registered a third straight week of gains on a solid start to the quarterly earnings season. For the week, the Dow was up 1.2 percent, the S&P 500 gained 0.9 percent and the Nasdaq was up 0.3 percent.

Morgan Stanley was the latest Wall Street bank to report strong results. The bank reported a fourth-quarter profit after a year-earlier loss, helped by higher revenue at the bank's institutional securities business. Its better-than-expected earnings followed similar report cards from Goldman Sachs and JP Morgan Chase earlier in the week. Morgan Stanley ended the day with a gain of 7.9 percent to close at $22.38.

Despite the gains by Morgan Stanley, financial stocks sagged as Capital One reported disappointing profit numbers. Capital One ended the day down 7.5 percent to $56.99.

Also reporting stronger-than-expected earnings on Friday was General Electric (GE.N), whose shares rose 3.5 percent to $22.04.

However, overall the market was held back by shares of Intel, which ended the day down 6.3 percent to $21.25, a day after the company forecasted quarterly revenue numbers below Street estimates, while at the same time announcing plans for increased capital spending amid slow demand for personal computers.

Another factor that has been weighing on the market before the upcoming three-day weekend is uncertainty about the federal debt limit and spending cuts that could hamper economic growth. Wall Street will be closed on Monday for the Martin Luther King Jr. holiday.

There were signs on Friday that the question of raising the debt limit would be put off for a while. House Republican leaders said they would seek to pass a three-month extension of federal borrowing authority next week to buy time for the Democratic-controlled Senate to pass a budget that shrinks deficits.

The CBOE Volatility index, Wall Street's so-called fear gauge, fell 8.2 percent. The VIX usually moves inversely to the S&P 500 as it is used as a hedge against further market decline.

Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.5 percent, according to Thomson Reuter’s data. That estimate is above the 1.9 percent forecast from a week ago but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.

Economic data from China also provided some support to the market. China's economy grew at a modestly faster-than-expected 7.9 percent in the fourth quarter, the latest sign the world's second-biggest economy was pulling out of a post-global financial crisis slowdown which saw it grow in 2012 at its weakest pace since 1999.

Approximately 6.6 billion shares changed hands on the three major equity exchanges, as compared to the 2012 average daily closing volume of about 6.45 billion shares.