MarketView for June 7

Summary  

It was another down day for the stock market on Monday, although much of the decline came in the last hour of trading. Although the decline was led by the large cap industrials and technology companies, with United Technologies down 2.9 percent at $63.22 and Caterpillar down 3.3 percent to at $55.83, overall it was the Nasdaq that fared the worst. Research in Motion closed down 5.2 percent at $56.56 over concerns over future BlackBerry's sales due in no small part to the introduction of Apple's latest iPhone. Nonetheless, Apple itself was down 1.9 percent to close at $251.03. The Street was working off the premise that Apple’s latest iPhone announcement was already priced into the stock.

Meanwhile, the S&P 500 is down 13.7 percent from its April 23 closing high for the year, firmly in correction territory. The benchmark index breached a key technical support level around 1,060 late in the afternoon.

The stock market has been sensitive to recent news flow, particularly out of Europe, and that has prompted some abrupt intraday swings in the S&P 500. The CBOE Volatility Index also known as the VIX, remains at an elevated level, though it has eased back since May. The VIX closed up 3.1 percent at 36.57.

Google lost 2.7 percent to $485.52 after Connecticut's attorney general sent a letter to the company asking if it had collected data from personal and business wireless networks without the owners' permission. Bank of America fell 3.4 percent to $14.83 after the company's Countrywide Financial Corp unit agreed to pay $108 million to settle government charges of misleading and overcharging consumers.

Shares of Goldman Sachs Group fell 2.6 percent to $138.68 following news that a government commission investigating the 2008 financial crisis has issued a subpoena to the company after the bank flooded the panel with billions of pages of digitized records.

Goldman Subpoenaed by Frustrated Financial Crisis Commission

The commission probing the financial crisis subpoenaed Goldman Sachs, claiming the firm had flooded the panel with 2.5 billion pages of records. The Financial Crisis Inquiry Commission had asked Goldman to provide documents and grant interviews in connection with the panel's probe.

In response, the Wall Street firm produced 5 terabytes of records, with each terabyte containing 500 million pages of digitized records, FCIC Chairman Phil Angelides told reporters on a conference call.

FCIC Vice Chairman Bill Thomas said Goldman, knowing the panel's limited resources, had sent commission staff hunting for a needle in a haystack.

"We expect them to provide us with the needle," Thomas said.

The FCIC called Goldman's response "abysmal." Angelides and Thomas said other banks had received and complied with similar FCIC requests.

Goldman spokesman Samuel Robinson said in a statement that "we have been and continue to be committed to providing the FCIC with the information they have requested."

Disclosure concerns have followed Goldman in recent months. It has been criticized for not immediately telling investors that it received a so-called Wells Notice from the SEC last September, signaling the possibility of civil charges. The SEC is suing Goldman for civil fraud in connection with the structuring and sale of a $1 billion collateralized debt obligation.

Meanwhile, the FCIC has shown a willingness to use its subpoena power. In April it issued a subpoena to Moody's because Moody’s failed to comply with a request for documents and interviews in a timely manner. The FCIC also used a subpoena to compel Warren Buffett to testify after the Berkshire Hathaway Inc chief rebuffed earlier requests to submit to voluntary questioning.

Headwinds Remain Says Fed

The global economy is beginning to recover from the worst of the recent economic downturn, but "significant headwinds remain," San Francisco Federal Reserve Bank President Janet Yellen said on Monday.

"Those headwinds come from structural imbalances from financial sector weaknesses and uncertainties from unanticipated environmental and political events," Yellen said in brief introductory comments at the opening of the bank's two-day Asian Banking and Finance Conference. She did not elaborate.

Final Lap for Financial Reform Bill

Negotiators from the Senate and House will begin meeting this week to craft a final Wall Street reform bill, with banks facing changes that threaten their profits, if not their business models. As it stands now, some congressional Democrats want to fashion a bill that forces a basic banking industry restructuring, but leaders will have to balance that agenda against the need to forge compromise legislation that retains some Republican support.

The delicate task of crafting a winning compromise will fall to Representative Barney Frank, who will chair the "conference committee" getting under way in a few days, and Senator Christopher Dodd, a consensus builder who will lead the Senate negotiating team.

Both lawmakers are old-school liberal Democrats with more than 60 years on Capitol Hill between them. They will need all of that experience to finish up a legislative project that is at the top of President Barack Obama's priority list.

Disputes loom over banks' lucrative dealings in derivative contracts, such as credit default swaps; the amount of capital they must set aside for hard times; and the trading they do on their own books unrelated to customers' needs.

A late amendment to the Senate's version of financial reform, approved last month, would limit fees on debit card transactions. It directly threatens the profits of card issuers, and banks are resisting it.

In all these areas, the banks are working to protect and preserve business models that have changed remarkably little since the 2007-2009 credit crisis that hammered economies globally and triggered huge taxpayer bailouts. While key issues remain unsettled, enactment of a reform package -- probably by mid-year -- is seen as certain. It would be the biggest regulatory revamp since the Great Depression.

The Senate approved its bill on May 20; the House passed a bill in December. The two versions must now be merged by the conference committee, whose final report must then be approved once more in each chamber before going to Obama to be enacted.

The Senate's 12 conference negotiators -- both Democrats and Republicans -- have been named. In the House, Frank has recommended eight Democrats to join the panel, but House Speaker Nancy Pelosi has final say. House Republicans have not yet named their members. The definitive word on panel membership -- a factor in shaping the bill -- is expected on Tuesday or Wednesday.

Frank hopes to complete the panel's work by June 24, when the Group of 20 leading nations begins a conference in Toronto where international regulatory cooperation will be a topic. EU nations are also pursuing regulatory reforms.

A final U.S. package could give President Barack Obama leverage to push other G20 nations to step up to the plate with their own reforms. The G20 has already shelved an idea for a universal bank tax that get the industry to cover the cost of any future bailouts.