MarketView for July 12

MarketView for Friday, July 12
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Friday, July 12, 2013

 

 

Dow Jones Industrial Average

15,464.30

p

+3.38

+0.02%

Dow Jones Transportation Average

6,436.93

q

-35.39

-0.55%

Dow Jones Utilities Average

498.03

p

+1.98

+0.40%

NASDAQ Composite

3,600.080

p

+21.78

+0.61%

S&P 500

1,680.19

p

+5.17

+0.31%

 

 

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.