MarketView for January 15

Summary

The S&P 500 and Nasdaq indexes were lower on Friday as results from Intel and General Electric were the latest to dampen the view on fourth-quarter earnings. Volatility picked up late in the session, thanks in part to selling related to options expiration. Meanwhile, the Dow Jones Industrial Average ended the day higher as a result of a rally in American Express and Visa. AmEx ended the day up 3.6 percent to close at $90.97 a day after reporting quarterly results.

Intel was down2.6 percent to $25.85 a day after the company gave a lukewarm forecast for first-quarter revenue and posted fourth-quarter earnings that missed expectations by a penny. Also hurting the performance of the major indexes was General Electric whose shares ended the day down 2.3 percent to $26.58 after the company reported disappointing 2013 profit margins.

On a more positive note, Visa ended the day up 4.7 percent to close at $232.18. A U.S. appeals judge appeared to side with the Federal Reserve over a group of retailers in a dispute over the level of fees set by the Fed on the use of debit cards. Among the other positive performers of the day, Morgan Stanley closed up 4.4 percent at $33.40 after previously hitting $33.52, its highest level since November 2009. The bank reported a sharp drop in quarterly earnings as it was hit by legal bills, but adjusted earnings exceeded estimates.

Deutsche Bank fell 3 percent to $52.27 after a Wall Street Journal report indicated that the bank is considering a profit warning as executives believe its upcoming quarterly results will be below Street expectations.

The Dow Jones Transportation Average fell 0.4 percent partially because of United Parcel Service. UPS saw its share fall 0.6 percent to $99.91 and the stock of Con-Way fell 2 percent to $40.59 after disappointing fourth-quarter outlooks.

For the week, the Dow was up 0.13 percent, the S&P 500 fell 0.20 percent and the Nasdaq gained 0.55 percent.

Earnings season is still in the early phase, but S&P 500 companies so far are exceeding Street consensus at a rate that's below what's typical, according to Thomson Reuters data. With earnings from 10 percent of the S&P 500 companies so far, 50 percent have exceeded expectations, a number that was below the historical average of 63 percent for a full season, Thomson Reuters data showed.

After the S&P 500's 30 percent surge in 2013, largely due to stimulus from the Federal Reserve, the benchmark index started the year on a weak note. Nonetheless, the S&P 500 recovered recently to set a record closing high on Wednesday.

The economy, expected to show further signs of recovery as the Fed slowly withdraws its stimulus, gave reassuring signs. Specifically, industrial output rose at its fastest rate in 3-1/2 years during the fourth quarter as factory activity closed out the year on a strong note.

Volume was above the average for the month with approximately 6.8 billion shares changing hands on the major equity exchanges, as compared with an average of 6.6 billion shares so far this month, according to data from BATS Global Markets.

Industrial Output Up Sharply

Industrial output climbed at its fastest rate in 3-1/2 years during the fourth quarter as factory activity closed out the year on a strong note, a sign of the economy's brightening prospects. Manufacturing production rose a stronger-than-expected 0.4 percent in December after an out-sized 1.0 percent increase the prior month, a Federal Reserve report on Friday showed.

The report on industrial output showed that industry employed 79.2 percent of its capacity in December - the most since June 2008. Still, capacity use remained 1 percentage point below its long-run average, the Fed said.

That helped push overall output at the nation's factories, mines and utilities up 0.3 percent last month. For the fourth quarter as a whole, industrial production advanced at a 6.8 percent pace, the largest quarterly increase since the second quarter of 2010.

Fourth-quarter growth is shaping up to be far stronger than economists had anticipated, with estimates ranging as high as a 3.9 percent annual rate. But that does not seem to have inspired U.S. households.

A separate report indicated that the Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 80.4 early this month from 82.5 in December.

Job growth slowed sharply in December, largely blamed on cold weather that blanketed large parts of the country. At the same time, incomes barely grew, sapping household morale. Frigid temperatures also helped to put a dent in homebuilding last month. Groundbreaking for new homes dropped 9.8 percent to a seasonally adjusted annual rate of 999,000-unit pace in December, another report from the Commerce Department showed.

It was the largest percentage decline since April, but housing starts were coming off a six-year high reached in November and the decline was smaller than economists had expected. For all of 2013, starts increased 18.3 percent to an average of 923,400-units, the highest since 2007.

Groundbreaking for single-family homes, the largest segment of the market, fell 7.0 percent to a 667,000-unit pace in December. Starts for the volatile multi-family homes segment declined 14.9 percent to a 332,000-unit rate. Starts in the Midwest, which experienced unseasonably colder weather, tumbled 33.5 percent, suggesting the weather might have weighed on home building in the region last month.

Residential construction has been on the rise after a brief lull last year in the wake of a run-up in mortgage rates. Increasing household formation and a tight supply of houses has increased home building, which in turn is supporting the labor market.

Permits to build homes fell 3.0 percent in December to a 986,000-unit pace. It was the second straight month of declines. They were weighed down by a 4.8 percent drop in permits for single-family homes. Multifamily sector permits were flat.

For all of 2013, permits increased 17.5 percent to an average of 974,700-units, also the highest since 2007.