MarketView for July 8

Summary

Wall Street continued its upward pace on Monday as we move into the start of another earnings season. The day’s gains were a further confirmation the continuing stream of economic data sparked by last week's robust employment report and pushed the S&P 500 index closer to its all-time high set this past May.

For the record, the S&P 500 has climbed in four out of the past five sessions, putting the benchmark less than 2 percent below its May 21 all-time closing high of 1,669.16. In June, the benchmark index fell as much as 5.8 percent below that record.

Wall Street has been largely focused in recent months on when and to what degree the Federal Reserve will slow its $85 billion-a-month bond purchase program, which has been a major driver of the stock market's rally this year. The markets were rattled by Fed Chairman Ben Bernanke's comments last month that the economy is expanding briskly enough for the central bank to pull back on the pace of purchases later this year.

Nonetheless, there was considerable encouragement for investing in stocks as a result of last Friday's better-than-expected jobs report. The key reason is that the report suggested the economy was well on its way to gaining a good footing, despite the fact that the numbers also increased the likelihood that the Fed's stimulus will be cut in the near-term.

Dow component Alcoa, the largest domestic aluminum producer, reported results after the market's close, which is typically seen as the start of earnings season. According to the Company, it chalked up higher than expected earnings after excluding one-time items such as restructuring costs and legal expenses. Nonetheless, its share price fell 0.6 percent after hours. In the regular session, Alcoa rose 1.4 percent to end the day at $7.92.

Right now the Street is looking for the earnings of S&P 500 companies to increase by 2.9 percent in the second quarter from a year ago, though that is down from the 5.4 percent growth seen in the first quarter, according to Thomson Reuter’s data. Quarterly revenue is forecast to increase 1.5 percent from a year ago.

Goldman Sachs analyst David Kostin said in a note sent Sunday night to clients that rising earnings, coupled with stable margins, should lift the S&P 500 by 8 percent to Goldman's year-end target of 1,750. The index ended at 1,631.89 on Friday.

Eight of the 10 S&P 500 industry sector indexes rose, led by gains in energy, utilities and consumer staples. Consol Energy was among the S&P 500's best performers, up 4 percent to close at $27.56. At the same time, technology shares waned and the Nasdaq fared worse than the other two major indexes to end only slightly higher.

Intel weighed on the Nasdaq and was the S&P 500's worst performer, sliding 3.6 percent to $23.19, after analysts at Evercore Partners downgraded the company's stock. The drop took the stock down to its lowest level since late April.

Approximately 6.08 billion shares changed hands on the three major equity exchanges, as compared to the daily average this year of about 6.4 billion shares.

Consumer Credit Up Sharply

Consumer credit was up sharply in May, the largest rise in a year, a sign low borrowing costs were boosting economic growth although interest rates have since risen. Total consumer installment credit advanced by $19.6 billion to $2.8 trillion, Federal Reserve data showed on Monday.

The level of consumer debt grew both for non-revolving credit, which includes loans for cars and college tuition, as well as for revolving facilities like credit cards. Overall consumer debt rose the most since May 2012.

The report does not cover borrowing for homes, which has grown considerably more expensive in recent weeks as Wall Street bets the Fed will ease its monetary support for the economy by the end of the year.

Yet despite an increase in interest rates on many kinds of loans in May, non-revolving credit increased $13.0 billion during the month. Some analysts had expected a strong reading in that category because other reports showed strong vehicle sales during the month. Revolving credit jumped by $6.6 billion in May. Borrowing costs, however, have since continued to rise.

Red Ink Continues At Alcoa

Alcoa remains optimistic that global demand for aluminum will grow 7 percent this year, driven largely by demand from the aerospace and commercial transportation sectors, the largest aluminum producer in the United States said on Monday.

The company also reported a greater-than-expected earnings on productivity gains across all units, and strong performance from its engineered products and solutions business, which makes high-margin goods like aerospace fasteners, turbine blades and truck wheels.

Excluding the impact of restructuring costs and costs tied to a legacy legal matter, Alcoa reported second quarter earnings of $76 million, or 7 cents a share. The Street had been looking for earnings of 6 cents.

Quarterly revenue fell 2 percent to $5.85 billion, largely because of lower aluminum prices, but revenue topped analysts' expectations of $5.83 billion.

The London three-month aluminum price fell nearly 7 percent during the quarter ended June 30 and has tumbled around 13 percent in 2013. Aluminum touched a nearly four-year low late last month of $1,758 a ton.

Stubbornly low aluminum prices caused by a global surplus and concerns about lackluster demand have weighed on Alcoa's business of mining bauxite, refining it into alumina and then smelting alumina to produce aluminum. Alcoa and many of its rivals have responded with production cuts and shutdowns.

Alcoa is no longer the bellwether it once was, due to the plight of the aluminum industry and the price of the metal, but its quarterly results are still closely followed, as they mark the unofficial start of the earnings season in North America.

Alcoa has enjoyed tenure of more than 50 years as a component of the Dow Jones Industrial Average, but it is now by far the smallest company in the index. Its stock price has fallen more than 10 percent over the last 12 months, while the Dow itself has risen roughly 18 percent, over the same period.

The company said its net loss in the quarter ended June 30 was $119 million, or 11 cents per share. That compares with a loss of $2 million, or break-even per share, a year earlier.

Shares of Alcoa, which closed at $7.92 on the New York Stock Exchange shortly after the results, were up slightly in trading after the closing bell, following results on Monday.