MarketView for July 11

 

 

Summary

 

The Dow Jones Industrial Index and the S&P 500 index ended the day on Thursday at record highs; a day after Federal Reserve Chairman Ben Bernanke indicated that the Fed will maintain its easy monetary policy for some time in order to attempt to lower the unemployment rate.

 

Bernanke said after the market's close on Wednesday that the jobless rate of 7.6 percent overstated the health of the labor market. He went on to say that a "highly accommodative" monetary policy is needed for the foreseeable future, immediately triggering a rally in equity futures.

 

As a result, more than 85 percent of shares on the New York Stock Exchange and almost 70 percent of those on the Nasdaq rose on Thursday. All 10 of the S&P 500 industry sectors advanced, with five of them rising more than 1.5 percent.

 

Bernanke's remarks calmed concerns in the Treasury market, and stock investors flocked to housing-related stocks on bets on a decline in mortgage rates. D.R. Horton ended the day up 9.2 percent to close at $22.98 and at least six other homebuilder stocks rose 7 percent or more.

 

Advanced Micro Devices closed up by 11.8 percent to $4.45 and was the S&P 500's top performer after Bank of America Merrill Lynch upgraded the stock. The PHLX semiconductor index rose 2.1 percent to its highest point in almost six years.

 

Celgene closed up 7.9 percent at $134.90 and was among the top performers for both the S&P 500 and the Nasdaq 100 after the company said a late-stage trial of a cancer drug met the main goal of improving survival in newly diagnosed blood cancer patients.

 

Microsoft chalked up a gain of 2.8 percent to $35.69 after an announced reorganization designed to streamline the software company's operations.

 

RadioShack fell as much as 22.6 percent after trade publication, Debtwire, reported the electronics chain is considering hiring a financial adviser to help improve its finances. The stock ended the day down 7.1 percent to close at $2.63.

 

Earnings reports are expected on Friday from JPMorgan Chase and Wells Fargo.

 

Thomson Reuters data show analysts expect S&P 500 companies' second-quarter earnings to have grown 2.5 percent from a year earlier, with revenue up 1.5 percent.

 

Approximately 6.5 billion shares changed hands on the three major equity exchanges, a number that was slightly above the daily average this year of 6.4 billion shares.

 

Unemployment Claims Up

 

The number of Americans filing new claims for unemployment benefits rose last week, although the level still pointed to further healing in the labor market.

 

According to the report released on Thursday, Initial claims for state unemployment benefits increased by 16,000 to a seasonally adjusted 360,000 claims. The four-week moving average was up by 6,000 claims to a total of 351,750 claims. However, the numbers were likely clouded by seasonal factors.

 

It is not unusual for the Labor Department to have a difficult time seasonally adjusting unemployment claims in early July because many factories shut down during the summer for retooling. At the same time, the scheduling for the shutdowns varies from year to year.

 

Even with the increase, the number of layoffs remains in the range of levels seen over the last year and is consistent with a continued drop in the unemployment rate, which has fallen more than half a percentage point since June 2012.

 

At the same time, measures of economic output are pointing to much more lackluster growth. The economy expanded at a 1.8 percent annual rate in the first quarter and many economists think a wave of federal budget cuts could slow growth to roughly half that pace in the April-June period.

 

In a separate report, the Labor Department indicated that export prices fell 0.1 percent last month. The decline probably reflects weakness in global demand, which has been hit by Europe's debt crisis and slowing growth in China.

 

Import prices slipped 0.2 percent last month, dragged down by another month of declining costs outside of the fuels category. Petroleum prices rose 0.2 percent. Economists polled by Reuters had expected overall import prices to be unchanged last month.

 

Prices for both imports and exports have fallen every month since March, the longest such streak since 2008 when the world was mired in a financial crisis. The drop in prices last month for imported cars and other consumer goods could help some U.S. consumers.

 

There is some concern that the weak demand could raise the risk of deflation, which entails a spiral of falling prices and wages that is difficult for central banks to fight.

 

Microsoft Reorganizes

 

Microsoft Corp launched its biggest internal overhaul in five years to streamline the development of products from Windows to tablets, hoping to catch nimbler rivals in mobile and cloud computing.

 

Lack of coordination and infighting have hurt innovation within the $74 billion revenue, 98,000-employee organization, which hopes to accelerate the design of products that appeal to a new generation of users more accustomed to smartphones and tablets than laptops or desktop PCs.

 

Development of Windows will now be folded into one group headed by Terry Myerson. He previously focused only on Windows Phone and now has responsibility for tailoring the flagship operating software for devices ranging from the traditional PC to tablets and gaming consoles.

 

Julie Larson-Green, previously the co-chief of the main Windows division, will oversee a new division charged with all hardware devices, from the Surface tablet to the Xbox.

 

Nearly all of the most senior managers have a new role after the reorganization, which did not include any major new hires.

 

The moves re-align the company that helped revolutionize the personal computing industry in the 1980s into what Chief Executive Steve Ballmer calls a "devices and services" corporation -- a nod to Apple Inc, which has surpassed it in profit and market value in past years.

 

It is also an implicit rejection of "software", the business which Microsoft helped pioneer and drove the worldwide adoption of personal computing, but in which it now faces stiff competition from new rivals that have popularized Internet-based services.

 

Some analysts see Thursday's moves, which include centralizing business-oriented functions such as marketing and research expenses under separate units, as helping shore up Ballmer's control over the sprawling corporation.

 

Removing major responsibilities for profit and revenue accounting allows the main divisions to focus on innovative products and eliminates the fiefdoms -- Windows, Office for instance -- that may have encouraged infighting in recent years, analysts said.

 

Executives told reporters and analysts on a conference call they did not plan layoffs for now. But a certain amount of employee disruption is to be expected as the company modifies its device marketing and development strategies.

 

"It can be a major distraction. The details have to be ironed out, there will be a lot of water-cooler talk and that's happening as the company has some critical products coming out, like a unified phone, Xbox," Gillis said.

 

Microsoft's shares have gained almost 30 percent this year, helped by a rally that began in late April when the company released strong revenue and earnings during what was one of the worst quarters for PC sales on record. The shares ended the day up 2.8 percent to close at $35.69.

 

Microsoft's shares reached a high of over $59 at the height of the first dotcom bubble, but have been in a range of $23-$32 for the last decade. Meanwhile, Apple and Google have moved well ahead in market value. Nonetheless, Microsoft is unique in its ability to remain near the top of the tech pyramid, and its Windows and Office businesses keep it a profitable.

 

Ballmer, who took over as CEO from co-founder Bill Gates in 2000, said he wants the company to be more like Apple, which has roared past Microsoft in sales and stock market value in the past few years by smoothly melding its devices with online services such as iTunes.

 

Ballmer is now trying to bring products to the market faster and make the company more efficient, and wants to entice people to use Microsoft products on a variety of devices besides personal computers.

 

Microsoft, which has been struggling to compete in a world of mobile devices and Web-based services dominated by Apple and Google Inc, launched the Surface tablet in 2012. But the device has failed to make meaningful headway against the iPad or Android devices made by Samsung Electronics and others.

 

Its Windows 8 release last year also alienated PC users accustomed to a long-established interface, prompting Microsoft to bring back, among other things, the familiar "Start" button in a hasty update. All operating systems now come under Terry Myerson, who previously headed up Windows Phone and the software giant's efforts to crack the mobile market.

 

"We are rallying behind a single strategy as one company — not a collection of divisional strategies," Ballmer said in a memo to employees published on Microsoft's website on Thursday.

 

Microsoft's last significant reorganization came in July 2008 when Ballmer split Microsoft's 'Platforms & Services Division' into three separate units - Windows, Online Services and Server and Tools - in the wake of the failure to buy Yahoo.

 

Microsoft has been struggling with sharply declining personal computer sales that cut into its software revenue as consumers and some businesses increasingly favor smartphones and tablets. Worldwide PC shipments declined 11.4 percent in the second quarter, the fifth consecutive quarter of year-on-year decline, according to industry research firm IDC.

 

Now, the four new engineering groups include Myerson's operating systems unit, and applications and services engineering to be led by Qi Lu, who previously oversaw the perennially money-losing online services arm. He also will be responsible for Office software, one of Microsoft's biggest cash cows.

 

Kurt DelBene, the former president of Microsoft Office, will retire. His departure follows that of gaming chief Don Mattrick, now CEO of Zynga, and Steven Sinofsky, formerly head of the Windows unit.

 

Satya Nadella, the company's leading authority on Internet infrastructure, takes over all Web-based cloud services such as Azure.

 

It was unclear whether the changes will mean that Microsoft will offer less financial data about certain products.