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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Friday, July 12, 2013
Summary
The major equity indexes advanced on Friday,
supported by strong bank earnings, but Boeing limited the Dow's gain
after an airplane fire in London. Both the Dow Jones Industrial Average
and the S&P 500 index ended trading on Friday at record closing highs.
The S&P 500 scored its best weekly performance since January and a third
consecutive week of gains. Financial stocks were the day's best
performers. The Nasdaq closed at a 52-week high. Over the past three weeks, the benchmark S&P 500 has
erased the losses of nearly 6 percent from the selloff triggered by
Federal Reserve Chairman Ben Bernanke in late May, when he first raised
the prospect of trimming the central bank's $85 billion in monthly bond
purchases. Since then, the market has been getting reassurance from
Bernanke and other Fed officials that the Fed will keep monetary policy
loose for some time. Shares of Wells Fargo rose 1.8 percent to $42.63
after the company posted quarterly numbers that exceeded expectations.
Citigroup ended the day up 1.5 percent to close at $50.81. Bank of
America rose 2 percent to $13.78 and ranked among the most actively
traded stocks in both the Dow and the S&P 500. JPMorgan Chase reported a 31 percent increase in
quarterly earnings. The stock, however, slipped 0.3 percent to close at
$54.97, giving up an earlier gain of more than 1 percent. The stock had
traded higher for most of the day. For the week, the Dow was up 2.2 percent, while the
S&P 500 was up 3 percent and the Nasdaq 3.5 percent. Boeing was the Dow's largest decliner, falling 4.7
percent to $101.87 after a Dreamliner operated by Ethiopian Airlines
caught fire at Britain's Heathrow airport on Friday. Shares of
Dreamliner component manufacturers also slipped, including Honeywell
International, off 0.2 percent at $82.37, and Spirit Aerosystems, down
2.3 percent at $22.61. United Parcel Service was among the S&P 500’s worst
losers, falling 5.8 percent to $86.12, after the company said
second-quarter earnings would not meet expectations. Shares of rival
FedEx fell 2 percent to end the day at $102.29. Analysts expect S&P 500 companies' second-quarter
earnings to have grown 2.8 percent from a year earlier, with revenue up
1.5 percent, data from Thomson Reuters showed. Infosys was up 4.8 percent to $46.17 after the
company reported quarterly results and maintained its revenue growth
forecast. On the economic front, the Thomson
Reuters/University of Michigan's preliminary reading for July on the
consumer sentiment index was 83.9, down from 84.1 in June and shy of
forecasts for 85. Approximately 5.4 billion shares changed hands on
the three major equity exchanges, a number that was below the 6.4
billion share daily average.
Consumer Sentiment Falls Somewhat Concerns over rising interest rates and declining
stock prices hurt consumer sentiment in early July, while other data
showed a firm rise in wholesale prices, which could make the Federal
Reserve more comfortable reducing its monetary stimulus. The preliminary reading for the Thomson
Reuters/University of Michigan's index of consumer sentiment edged down
to 83.9 from 84.1 in June. The reading, released on Friday, fell short
of forecasts although it remained near its highest level in almost six
years. The decline came after a series of signals from the
Fed that it was getting closer to ending a bond-buying program, leading
to a selloff in stocks in June and a surge in mortgage rates. However,
stocks have since recovered on reassurances from the Fed that interest
rate hikes are a long way off, and Friday's data was consistent with the
view that economic growth will accelerate toward the end of the year. The decline in sentiment was more pronounced among
upper-income consumers who worried about rising rates. Some of those
worries could be positive signals for near-term economic growth. One in
five households with incomes in the top third said it was better to
borrow before mortgage rates rose further. While consumers worried about the future, they were
much more sanguine about the present. The barometer of current economic
conditions rose to its highest level since July 2007. Investors on Wall Street were largely unfazed by the
data and stock prices were little changed after closing at a record high
a day earlier. U.S. Treasuries prices held onto gains chalked up earlier
in the day. A separate report showed producer prices rose more
than expected in June, which some took as a sign that a worrisome
downward trend in inflation might be leveling out. According to the
Labor Department, the seasonally adjusted producer price index increased
0.8 percent last month, the largest gain since September. On the other hand, the so-called number, which
strips out volatile energy and food costs, rose 0.2 percent last month,
helped by a 0.8 percent increase in the price of passenger cars. While
much of the increase in prices was fueled by a jump in gasoline, which
could weigh on consumers, a gauge of underlying inflation pressures
pointed to a bit more vigor in the economy as well. At the same time, the Fed's preferred measure of
inflation showed a 1.3 percent gain in consumer prices in the 12 months
through May, well below the Fed's 2 percent target. Several Fed
policymakers have expressed worry over inflation drifting so low, with
one arguing that the bond-buying program should continue at full steam
until inflation firms.
Another Boeing 787 Fire A Boeing 787 Dreamliner operated by Ethiopian
Airlines caught fire at Britain's Heathrow airport on Friday. As a
result, Boeing’s shares ended the day down 4.7 percent at $101.87.
Earlier in the session they fell as much as 7 percent, wiping out $5.4
billion in market capitalization after television footage showed the
Dreamliner surrounded by foam used by firefighters at Heathrow. Heathrow briefly closed both its runways to deal
with the fire which broke out while the aircraft was parked at a remote
stand. There were no passengers aboard the plane. Television footage
showed an area on the fuselage in front of the tail that appeared to be
scorched. "A Boeing 787 Dreamliner suffered an on board
internal fire," a Heathrow spokeswoman said. "The plane is now parked at
a remote parking stand several hundred meters away from any passenger
terminals." It was not clear if the fire was related to the
batteries, which were the cause of the previous incidents that led to
the grounding of the Dreamliner in January. The Dreamliner's two battery compartments are low
down, according to public Boeing diagrams, while the visible damage to
the Ethiopian plane appears to be higher up and further towards the
rear, according to footage from the scene. Boeing said it was aware of the fire and that had
people on the ground working to understand the causes of it. The Federal
Aviation Administration said it was aware of the fire and was in contact
with Boeing. Another Boeing Dreamliner operated by Thomson
Airways returned to the United Kingdom due to technical issues as a
precaution, TUI Travel said. Ethiopian Airlines said its aircraft had been parked
at Heathrow for more than eight hours before smoke was detected. Boeing's 787 Dreamliner was grounded by regulators
in January after batteries overheated on two of the jets within two
weeks, including a fire at Boston airport on a parked Japan Airlines
plane. Asked whether the incident could lead to the renewed
grounding of Dreamliner jets, a spokesman for Britain's Civil Aviation
Authority said decisions on the airworthiness of particular models of
plane were made by the European Aviation Safety Agency (EASA). An EASA
spokesman said it was too early to say whether the aircraft would be
grounded again. United Continental and Polish airline LOT said they
would continue to operate their 787s. Ethiopian Airlines Dreamliners are
powered by General Electric GEnx engines.
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MarketView for July 12
MarketView for Friday, July 12