MarketView for June 19

Summary  

The S&P 500 and Nasdaq indexes were both higher on Friday as positive comments from an analyst helped to send the price of Microsoft’s shares higher, while at the same time adding to the momentum of technology stocks in general. However, it did not prevent the major equity indexes from losing ground for the week for the first time in five weeks.

After a sharp three-month rally, indexes eased this week as worries that the economic recovery could be tepid have dented optimism that has driven the S&P 500 up as much as 40 percent from March's 12-year low. For the week, the Dow Jones industrial average fell 3 percent, the S&P was down 2.6 percent, and the Nasdaq was down 1.7 percent for the week. Nonetheless, the S&P 500 is up 36.2 percent in an impressive run-up from March 9's closing low.

Microsoft closed up 2.4 percent at $24.07 after Goldman Sachs added shares of the world's largest software company to its Americas "conviction buy" list and said new products and an increase in information technology spending should underpin growth.

Apple’s shares were up 2.7 percent to $139.48 as its latest iPhone hit stores. While the new product release drew crowds to Apple's flagship New York store, the line was shorter than for previous launches.

Energy shares pulled the Dow lower and dragged on the S&P 500 as oil prices fell below $70 a barrel on the belief that there would be ample fuel supply for the summer vacation season. Although rising oil prices can be a positive signal that demand and the global economy are strengthening, higher prices generally also means that consumers are likely to keep a tight grip on their wallets. Exxon Mobil ended the day down 0.6 percent to close at $71.05.

Stocks were also buffeted by the end of the two-day quadruple witching period, the expiration and settlement of June stock and index futures and options. Volume was higher due to the expiration. Four types of June futures and options contracts expire or settle on Friday, a quarterly event that tends to generate high volume as investors adjust or exercise their derivative positions.

Financial shares helped support the S&P 500 after the sector retreated earlier in the week. JPMorgan was up 2.4 percent to $35 and ranked among the Dow's largest advancers. Bank of America closed up 2.5 percent at $13.22.

Price of Crude Down Sharply

Crude oil futures were sharply lower on Friday, the result of a sell-off in the gasoline market as dealers bet there would ample fuel supply in the United States to meet summer driving demand.

Domestic sweet crude futures for July delivery settled down $1.00 per barrel at $70.37. Brent crude settled down 97 cents per barrel at $70.09.

Domestic gasoline supplies rose unexpectedly last week as refiners boosted output to prepare for an expected seasonal uptick in demand, according to government data issued Wednesday.

The level of gasoline consumption during the summer driving season is still a question mark. as the effects of the recession counter-balance relatively low prices at the pumps. At the same time, the Transportation Department said on Friday that Americans drove more miles in April than they did a year earlier, marking the first monthly rise in highway travel in more than a year.

Nigeria's main militant group MEND said it had attacked a pipeline operated by Italy's Agip, close on the heels of previous attacks on facilities operated by Royal Dutch Shell and Chevron. Together, the attacks have cut at least 133,000 barrels of daily output.

Rebels in Nigeria, the world's seventh-largest oil exporter, have been carrying out attacks on the oil industry for years in what they claim is a struggle aimed at spreading the region's energy wealth to the poor local communities.

Oil prices also received support from political turmoil in Iran, the world's fifth largest exporter, in the wake of its presidential election.

The price of crude oil has nearly doubled since February on signs of a potential economic recovery but the pace of the rally has sparked concerns prices are not well supported by fundamentals.

Dollar Falls

The dollar edged lower against major currencies on Friday, as a recent economic data added to the expectation that the global economy was reaching the bottom of the recession. As a result, investors were comfortable buying higher-yielding currencies such as the Australian and New Zealand dollars as they pared back holdings of the dollar, considered to be a safe haven currency in troubled times.

The positive outlook stemmed from Thursday's data showing the number of people staying on jobless benefits fell for the first time since January, while manufacturing in the Mid-Atlantic region shrank much less than expected in June.

Moves in the foreign-exchange market were limited in anticipation of the Federal Reserve policy meeting and the release of additional economic data next week, in hopes of receiving additional clues as to the  health of the global economy.

In late New York trading, the euro was up 0.3 percent against the dollar at $1.3947, after hitting a session peak of $1.4011. The dollar fell 0.4 percent to 96.22 yen, while the euro was down 0.1 percent at 134.21 yen.

Adding to recent optimism, International Monetary Fund First Deputy Managing Director John Lipsky on Friday pointed to signs the decline in global output has moderated and said the IMF is likely to revise up its 2010 economic growth forecasts.

This helped push European stocks higher and bolstered commodity currencies. The Australian dollar gained 0.8 percent to US$0.8052 and the New Zealand dollar rose 1 percent to $0.6440. The improved risk sentiment in the market also pushed sterling 1 percent higher to trade at $1.6496

The Federal Reserve's Open Market Committee meeting is next Tuesday and Wednesday and the Street will be anxiously anticipating possible clues from the Fed regarding how it plans to exit from the recent unconventional measures and whether it may extend its purchase of Treasuries. An aggressive expansion of its buying is seen as unlikely.

Another record $104 billion of debt will be offered next week and will also be closely followed for signs of how demand is holding up in the face of an avalanche of new government paper.