MarketView for July 17

Summary 

Wall Street ended its best week in four months on a flat note on Friday as strong earnings from IBM softened the blow of disappointing results from General Electric. IBM rose 4.3 percent to $115.42 and pushed the Dow slightly higher after raising the tech giant raised its profit outlook for the year on Thursday after the close. However, both GE and Bank of America held check on the Dow Jones industrial average after BofA's, rising credit losses, along with GE's unexpected drop in revenue, doused cold water on the rising tone of optimism we saw earlier in the week from companies such as Intel and Goldman Sachs, both of whom posted surprisingly strong quarterly results.  

Nonetheless, all three major equity indexes recorded their best week since mid-March, as both the Dow and the S&P 500 ended four-week losing streaks. This week's gains marked the resumption of the rally from March 9, when the S&P 500 hit a 12-year closing low. For the week, the Dow was up 7.3 percent, the S&P 500 chalked up a gain of 7 percent and the Nasdaq was up 7.4 percent.

GE's earnings fell nearly 50 percent as the falling returns that burdened its finance and media units spread to its industrial units, prompting CEO Jeff Immelt to cut profit views for those parts of the company. GE’s quarterly revenue fell 17 percent. GE was the Dow's top percentage decliner.

Google saw its share price fall 2.8 percent to $430.25 after a slump in advertising spending took a toll on Google's quarterly revenue growth, overshadowing results that topped Wall Street's forecasts. Citigroup fell 0.3 percent to $3.02, erasing slight gains made after it announced results. The bnak relied on a gain from its Smith Barney deal with Morgan Stanley to turn a profit.

Shares of CIT were up nearly 71 percent to 70 cents and ranked among the most actively traded names on the Big Board after  reports the small business lender, which has a sizable clientele among fashion labels and retailers, was in talks with JP Morgan Chase and Goldman Sachs in efforts to raise short-term financing as it seeks to avoid bankruptcy.

Helping sentiment was new data indicating housing starts and building permits rose more than expected in June, due to an increase in single-family home starts.

Housing Industry Looking Better

According to a report by the Commerce Department on Friday, new home starts rose sharply in June, with starts for single-family homes rising at the fastest rate in 4-1/2 years, suggesting that the housing sector was beginning to stabilize.

Housing starts were up 3.6 percent to an annual rate of 582,000 units in June, from May's upwardly revised 562,000 units, the Department said. Single-family home starts were up 14.4 percent, the largest increase since December 2004. Single-family starts are now up for two straight months for the first time since early 2007. June permits to start construction, an indicator of builder confidence, leaped 8.7 percent to 563,000 units, the highest since December.

Housing prices, inflated by years of rock-bottom borrowing costs, began to fall sharply in 2006, a major contributor to the worst financial crisis since the Great Depression and the longest recession since World War II as soured credits had a contagious effect on banks, businesses and households.

In recent weeks, builder confidence has improved as first-time buyer tax credits and low interest rates and home prices are seen as improving buying conditions. However, the glut of unsold homes continues to weigh heavily on housing markets. Adding to those pressures, U.S. home foreclosure activity set a record in the first half of the year despite government prevention programs.

Crude Prices Rise

The future’s price of sweet domestic crude oil rose 2.5 percent on Friday, making it the first weekly gain in a month. Oil rose for a fifth day and gained 6.1 percent on the week, partially reversing its 10 percent plunge last week.

Renewed violent protests over the contested presidential election in Iran on Friday, and a tropical wave in the Central Atlantic that posed a threat of developing into a tropical storm, also spurred oil buying ahead of the weekend.

Sweet domestic crude for August delivery settled up $1.54 per barrel at $63.56. London Brent for September delivery settled up $1.63 per barrel at $65.38.

In Indonesia, an OPEC oil producer, bombs ripped through two luxury hotels in Jakarta, killing eight and wounding dozens in coordinated attacks.

Oil rose in spite of a 0.3 percent strengthening of the U.S. dollar against a basket of foreign currencies. A strengthening dollar often weakens oil prices, which had fallen in earlier trade, as it makes crude more expensive in most regions.

In China, refiners increased production by 6 percent in June to a record high, after a rise in domestic motor fuel prices aided margins, although higher inventories and rising exports suggested domestic demand was lagging. Data earlier this week showed Chinese economic growth hit 7.9 percent in the second quarter, fueled by state spending and bank lending.

Meanwhile, crude oil prices are down more than $6 a barrel since early July, partly reversing last quarter's 40 percent surge, on concerns over energy demand. In the United States, distillate inventories hit a fresh 25-year high last week, while refiners have been running at lower-than-normal rates for the summer season.