MarketView for June 18

Summary  

Both the Dow Jones industrial average and the S&P 500 indexes managed to break their losing streak as Wall Street regained some of its confidence on the release of job market data and regional manufacturing. Financials gave the markets much of their support after being some of the previous few days’ worst performers.

Specifically, the most recent data showed that the number of people staying on jobless benefits fell for the first time since January, while manufacturing in the Mid-Atlantic region contracted much less than expected in June. Unfortunately, the Nasdaq had little to show for the day, ending little changed as some big-cap technology companies fell.

For example, Research In Motion fell 5.2 percent to $72.54 after the bell after the company offered up an outlook that disappoint investors. The shares had ended Nasdaq's regular session at $76.55, down almost 1 percent.

Healthcare companies and other defensive names that were deemed to be in a better position to withstand a still uncertain economy, also buoyed the market. Merck rose 3.6 percent to close at $25.65.

Friday marks the end of the two-day quadruple witching period, referring to the expiration and settlement of June stock and index futures and options, which may increase volatility. The CBOE Volatility Index .VIX was down 4.8 percent, but slightly above the psychologically important 30 level.

On the downside, Caterpillar was down 2.1 percent to $34.08 after the heavy machinery maker said its retail sales of machines had fallen at a faster pace in May. The stock was the Dow's biggest drag.

Government data showed that while the number of workers filing new claims for jobless benefits rose last week, the number of people collecting aid after the initial week marked its biggest decline since November 2001.

Though regional manufacturing contracted in June, it was far less severe than the previous month, adding to stabilization hopes.

Crude Prices Level Off

The price of crude oil steadied above $71 a barrel after the recent economic data and supply concerns in OPEC member Nigeria had pushed prices higher a day earlier.

Oil prices have nearly doubled since February on signs of a potential economic recovery but the pace of the rally has also sparked concerns that prices do not fully reflect improvements in oil fundamentals, and costly crude may hurt any nascent recovery.

President Barack Obama remains concerned about speculation in the oil markets even though he has not proposed concrete steps to rein it in, White House spokesman Robert Gibbs said on Thursday.

Oil prices also found support after Royal Dutch Shell confirmed some oil production had been halted following an attack on one of its pipelines on Wednesday in Bayelsa state in Nigeria.

Economic News Continues To Show Improvement

The economic news continues to show improvement as evidenced in data released on Thursday, with weekly jobs figures showing unexpected improvement and the slumping factory sector revealing dramatic signs of a rebound.

The number of workers filing new claims for unemployment insurance rose in the latest week; however the data also indicated the first drop in the number of unemployed people remaining on benefit rolls since January and the biggest decline since November 2001.

Initial claims for state unemployment insurance rose 3,000 to a higher-than-expected 608,000 last week, the Labor Department said. That was practically the only bad news in the day's numbers.

In the same weekly jobs report, continued claims tumbled 148,000 to a smaller-than-anticipated 6.69 million in the week to June 6, the latest week for which data is available. It was the lowest since May 9 and the largest one-week drop since November 2001.

In another sign labor market weakness may be easing, the four-week moving average for new claims, considered a better gauge of underlying trends as it smoothes out week-to-week volatility, dipped to 615,750, the lowest since February 14.

At the same time, a Federal Reserve report on manufacturing in the Mid-Atlantic area, where activity contracted in June for the ninth consecutive month but much less severely than anticipated and far less than the previous month. The Philadelphia Fed said its business activity index jumped to its highest level since last September, rising to minus 2.2 in June from minus 22.6 in May.

A reading below zero indicates contraction in the region's manufacturing sector, but there was vast improvement throughout the report. New orders, a measure of future business, also hit their highest level since September and the employment gauge hit its highest level since November.

Further support came from the Conference Board's forward-looking measure of the U.S. economy, which posted its biggest increase in five years in May. The Conference Board's index of leading indicators suggested economic improvement was more than a regional story.

The index, which is supposed to forecast economic trends six to nine months ahead, rose 1.2 percent in May after a revised 1.1 percent increase in April. It was the second consecutive rise and the largest since a 1.4 percent jump in March 2004.