MarketView for July 16

Summary

The S&P 500 ended its eight-day winning streak on Tuesday as concerns rose over  disappointing sales from Coca-Cola, and the usual unknowns regarding  the upcoming congressional testimony by Fed Chairman Ben Bernanke, which begins on Wednesday. The market's pullback came a day after both the Dow Jones Industrial Average and the S&P 500 indexes ended at record closing highs for the third consecutive session.

Coca-Cola was the largest drag in terms of points on the S&P 500 after the world's largest soft drink manufacturer reported weaker-than-expected second-quarter sales, which it blamed on economic malaise and unusually cold and wet weather. The stock, which was the Dow's biggest percentage loser, fell 1.9 percent to $40.23.

Wall Street is eager to hear Federal Reserve Chairman Ben Bernanke's testimony about monetary policy on Wednesday before the House Financial Services Committee. His comments will be closely analyzed for signs of when the central bank may start reducing its stimulus efforts.

Bernanke's comments in late May, which raised the prospect of trimming the Fed's $85 billion in monthly stimulus, triggered a brief selloff and interrupted this year's rally. The S&P 500 is still up 17.5 percent since December 31.

The day's economic data indicated that consumer prices picked up in June. The overall CPI increased 0.5 percent, the largest gain since February, after inching up 0.1 percent in May. U.S. homebuilder confidence rose in July to its strongest level in 7-1/2 years.

Financial stocks, which started the day as outperformers, also dropped despite strong earnings from Goldman Sachs. The S&P financial sector index fell 0.4 percent.

Goldman Sachs reported quarterly profit doubled as the bank made more money trading bonds before an interest-rate spike hit markets in June. But Goldman's stock slid 1.7 percent to $160.24 as investors fretted that the results could not be easily repeated.

In other earnings reports, Johnson & Johnson shares were flat at $90.40 after the Dow component reported higher-than-expected second-quarter earnings. Strong sales of prescription drugs and medical devices more than offset anemic growth of its consumer products, Johnson & Johnson said.

Analysts expect S&P 500 companies' second-quarter earnings to have grown 3 percent from a year earlier, with revenue up 1.5 percent, data from Thomson Reuters showed.

Shares of Tesla Motors fell 14.3 percent to $109.05 after Goldman Sachs set a new price target far below the stock's current trading price.

After the bell, shares of Yahoo fell 2.7 percent to close at $26.15 following the release of its results. In Tuesday's regular session, Yahoo shares fell 1.7 percent to $26.88.

The day's volume was well below the average daily closing volume for the year with about 6.4 billion shares changing hands on the three major exchanges.

CPI Hits 0.5 Percent

Consumer prices picked up in June and underlying inflation pressures showing signs of stabilizing, keeping on course expectations the Federal Reserve will start reducing its bond purchases later this year.

While inflation remains benign, the increase last month should help ease worries among some Fed officials that price pressures in the economy were too low.

The Labor Department reported on Tuesday that its Consumer Price Index increased 0.5 percent, the largest gain since February, after nudging up 0.1 percent in May. A 6.3 percent surge in gasoline prices accounted for about two thirds of the increase. In the 12 months through June, the CPI advanced 1.8 percent, an acceleration from the 1.4 percent logged in the period through May and the largest increase since February.

Stripping out energy and food, consumer prices increased 0.2 percent for a second straight month. That took the increase over the past 12 months to 1.6 percent, the smallest rise since June 2011. The core CPI had gained 1.7 percent in May.

Although both inflation measures remain below the Federal Reserve's 2 percent target, the report showed signs of fading disinflation pressures, with medical care costs increasing after being subdued for the past two months. Prices for new motor vehicles, apparel and household furnishings also rose.

The signs of stabilization offered by the monthly core measure fit in with Fed Chairman Ben Bernanke's assessment that a downward drift in the inflation rate was temporary.

Bernanke said last month the central bank would likely later this year start cutting back the $85 billion in bonds it is purchasing each month to keep borrowing costs low. Economists expect the Fed to begin reducing the amount in September.

While the year-on-year core CPI rate could slip further in coming months, reversing course as economic growth accelerates over the last half of the year. That optimism about the economy's prospects was bolstered by a separate report from the Fed showing output at the nation's factories, mines and utilities rose 0.3 percent in June after a flat reading in May.

The increase reflected a 0.3 percent rise in manufacturing output and suggests some pickup in economic activity at the end of the second quarter. Growth in the April-June period is forecast at an annual pace of between 0.5 percent and 1.0 percent, far below the first-quarter's 1.8 percent rate.

Another report on Tuesday indicated confidence among single-family home builders soared to a 7-1/2 year high in July, amid expectations of stronger sales and buyer traffic.

Last month, owners' equivalent rent, which accounts for about a third of the core CPI, increased 0.2 percent after a similar gain in May. Apparel prices recorded their largest increase in nearly two years, while new motor vehicle prices rose after being flat in May.

Medical care services rose 0.4 percent, the largest increase in a year. Medical care, which makes up about 10 percent of the core CPI, had been subdued in April and May. The cost of medical care commodities rebounded 0.5 percent, reversing the prior month's decline, as the price of prescription drugs increased.

Tame medical care costs have been one of the key contributors to the low inflation rate over the past months.

There are a number of reasons for the lack of pressure on health care costs, ranging from the expiration of patents on several popular prescription drugs to government spending cuts that have cut payments to doctors and hospitals for Medicare.