MarketView for July 17

Summary

The major equity indexes ended the day on Wednesday modestly higher, bouncing back from Tuesday's lower close, which broke the S&P 500's eight-day string of gains, after Federal Reserve Chairman Ben Bernanke said the timeline for winding down Fed's stimulus program was not set in stone.

Bernanke said the Fed still expects to start scaling back its massive bond-buying program later this year, but he emphasized that the timeline depended on the economic outlook. Bernanke’s comments on Wednesday were before the House Financial Services Committee as part of his twice-yearly report to Congress on monetary policy. On Thursday, he will appear before the Senate Banking Committee.

Bernanke's comments on May 22 triggered a drop of nearly 6 percent in the S&P 500 in the month that followed. But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines. The S&P 500 is just several points away from the all-time intraday high of 1,687 it reached on May 22. For the year, the S&P 500 is up 17.9 percent.

Shares of Bank of America and Yahoo rose after both companies reported stronger-than-expected quarterly results. Both ranked among the names giving the greatest upward momentum to the S&P 500 index.

Yahoo was up 10.3 percent to close at $29.66, its highest since May 2008. While Yahoo's results were mostly lackluster, news of its stake in the fast-growing Chinese e-commerce firm Alibaba and its product development efforts lifted the stock. Yahoo hit an intraday high at $29.73.

Bank of America’s shares rose 2.8 percent to $14.31, while BNY Mellon saw its share price fall 1.9 percent to close at $30.92. Both led the financial sector higher after the banks reported quarterly earnings.

Shares of DuPont were up 5.3 percent to $57.25 after Trian Fund Management's Nelson Peltz said he has amassed a "big stake" in the chemicals maker. The stock was the Dow's top percentage gainer.

American Express fell 1.9 percent to $76.80 after the European Commission said it would propose limits on fees that banks can charge to process debit-card and credit-card transactions. In after-hours trading, the shares fell 0.9 percent to $76.10 after it reported results. During the regular session, American Express was the Dow's biggest loser percentage wise.

Part of the day's upbeat tone came from the Federal Reserve's Beige Book, which said the U.S. economy continued to grow at a modest to moderate pace in June and early July, with manufacturing expanding in most areas of the country.

Approximately 5.7 billion shares changed hands on the three major equity exchanges, a number that was below the average daily closing volume of about 6.4 billion shares this year.

Weather Sends Housing Starts Downward

Housing starts, and permits for future home construction, fell unexpectedly during June, most likely as a result of the weather. Moreover, the decline in activity was likely to be short-lived when considering the backdrop of bullish sentiment among home builders. According to the report released by the Commerce Department on Wednesday morning, housing starts fell 9.9 percent to a seasonally adjusted annual rate of 836,000 units. That was the lowest level since August last year.

The expectation on the Street was for groundbreaking to increase to a 959,000-unit rate, but the wet weather in many parts of the country has dampened activity. Much of the decline was in the volatile multifamily segment.

Permits to build homes fell 7.5 percent last month to a 911,000-unit pace. Economists had expected permits to rise to a 1-million unit pace. Though it was the second straight month of declines in permits, they remained ahead of starts. This, together with upbeat homebuilder confidence, suggested groundbreaking activity will bounce back in July and through the remainder of this year.

Sentiment among single-family home builders hit a 7-1/2 year high in July, a report showed on Monday, amid optimism over current and future home sales. That upbeat tone was also captured by a separate report from the Federal Reserve on Wednesday, which described residential construction as increasing at a moderate to strong pace across the country in June and early July.

There was little to suggest that a recent spike in mortgage rates was restraining home building activity, economists said, pointing to the improving builder confidence. Fed Chairman Ben Bernanke in his testimony before lawmakers said the central bank was monitoring developments in the mortgage market.

According to Bernanke, "Housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates, but it will be important to monitor developments in this sector carefully."

Housing's recovery is being been aided by the still-low mortgage rates engineered by the Fed's very accommodative monetary policy and steady employment gains.

Mortgage rates increased in recent weeks after the Fed expressed its desire to start cutting back on its bond purchases later this year. The monthly $85 billion in bond purchases have been holding down interest rates.

However, Bernanke said the central bank still expected to start scaling back its massive asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook shifted.

Last month, groundbreaking for single-family homes, the largest segment of the market, slipped 0.8 percent to its lowest level since November 2012. Starts for multi-family homes declined 26.2 percent to a 245,000-unit rate. Starts were down in all four regions in June, with big declines in the Northeast, South and the Midwest.

Weak groundbreaking suggested a smaller boost to both second and third quarter gross domestic product from residential construction. Second-quarter GDP growth estimates are ranging between 0.5 percent and 1 percent. Permits for multi-family homes fell 21.4 percent last month. But permits for single-family homes rose 0.6 percent to their highest since May 2008, a hopeful sign for future construction.

Intel Cuts Revenue Forecast

Intel cut its full-year revenue forecast as the personal computer industry experiences slumping sales and a shift toward tablets and smartphones. The company on Wednesday posted second-quarter revenue of $12.8 billion and said revenue in the current quarter would be $13.5 billion, give or take $500 million.

The consensus was for $12.896 billion in revenue for the second quarter and $13.732 billion for the current quarter, according to Thomson Reuters I/B/E/S.

Intel said it expects 2013 revenue to be flat from the year before. Last quarter Intel forecast a low single digit percentage increase in 2013.

For the second quarter, Intel reported net earnings of $2.0 billion, or 39 cents a share, in line with expectations. That compared with $2.827 billion, or 54 cents, in the same quarter last year.

Shares of Intel fell 1.86 percent in after-hours trading after closing down 0.41 percent at $24.15.