MarketView for June 15

Summary  

Finally, after several recent disappointments we get a decent rally on Wall Street, one that makes it to the closing bell without losing steam. The end result was that the S&P 500 index turned positive for the year and rose above its 200-day moving average for the first time in a month, suggesting the recent downtrend may be nearing an end.

What motivated the Street in part were some successful debt auctions in Spain, Belgium and Ireland, which helped to overcome some of Europe's ongoing concerns over the multifaceted debt crisis. The euro rallied against the dollar sending commodity prices higher.

Semiconductor shares led the way after two large Taiwanese chip producers pointed to growing global demand. TSMC and UMC, the world's two largest contract chip makers, forecast growing demand in the coming months amid an improving global economy and rising sales of new personal computers and other consumer gadgets. As a result, Intel ended the day up 2.8 percent to close at $21.48, while Broadcom added 5.7 percent to close at $35.84. Marvell Technology Group ended the day up 8.3 percent to close at $18.94.

Stocks linked to global growth also rallied sharply, with Caterpillar’s shares chalking up a 4 percent gain to close at $63.46. Other multinationals that have a heavy exposure to Europe, such as Boeing, were also higher along with the euro. Boeing ended the day up 4.1 percent, to close at $67.48.

Shares of CBOE Holdings rose as much as 16.4 percent in their stock market debut as investors saw bright prospects for the parent of the Chicago Board Options Exchange. The $339 million IPO was the largest one so far this year. CBOE's shares ended the day at $32.49, up 12 percent from its offering price of $29.

The S&P 500 index rose above its 200-day moving average, a level it has struggled to breach for the last month, and a milestone that could signal bullish momentum for investors. The index last closed above its 200-day moving average on May 19.

The euro, used to assess risk appetite in the current climate of concern about Europe's debt situation, rose above $1.23 versus the dollar to its highest level since June 3. Meanwhile, the CBOE volatility index .VIX, a gauge of Wall Street's anxiety, fell 9.5 percent to 25.87, its lowest level since the middle of May.

There was also some bottom-feeding going on among the beaten-down energy names as industry executives were grilled by a congressional panel, with some investors betting the stocks may have hit a bottom.

As a result, BP ended the day up 2.4 percent at $31.39, while Halliburton closed up 6 percent at $25.46. Cameron International gained 4.4 percent to close at $37.38.

Manufacturing Sector Grows in New York State

Manufacturing in New York State grew in June even as hiring slowed; supporting views the factory sector is recovering, while import prices recorded their largest decline in nearly a year in May. The data is the latest sign of strength in manufacturing. The Empire State general business conditions index edged up to 19.57 in June from 19.11 in May, the report from the New York Federal Reserve said on Tuesday. The June reading was slightly below what economists polled by Reuters had forecast. However, the index for the number of employees fell in June from May.

A separate report released on Tuesday showed U.S. import prices declined in May as petroleum costs plummeted, bolstering projections of tame inflation and low interest rates. Import prices fell 0.6 percent, the biggest decline since July, after rising by a revised 1.1 percent in April, the Labor Department said.

May's decline in import prices, although less than economists' expectations of a 1.2 percent fall, was the first drop since February. April import prices were previously reported to have increased 0.9 percent. In the 12 months to May, import prices rose 8.6 percent. The monthly decline in import prices reflected a 5.0 percent fall in the cost of imported petroleum and petroleum products, the largest drop since December 2008, after a 3.7 percent gain in April.

Excluding petroleum, import prices rose 0.5 percent after rising by the same margin in April. Export prices were lifted by agricultural products, foods and industrial supplies and materials. The year-on-year gain in export prices was the largest since September 2008.

Strength in the dollar is also helping to keep inflation pressures muted and this should allow the Fed to renew its low interest rate pledge at next week's monetary policy-setting meeting.

Credit Card Delinquencies Drop

Consumers are closer to getting their debt levels under control even if the economy remains sluggish as credit card delinquencies fall. The lower delinquencies, the fifth straight month of improvement, should translate to banks writing off less debt as uncollectable in the coming months.

Capital One Financial, Discover Financial Services, JPMorgan Chase, American Express, Citigroup and Bank of America all said on Tuesday that their 30-day delinquency rates for credit cards fell to their lowest levels this year.

With unemployment still hovering near 10 percent, credit losses remain high at most U.S. credit card lenders by historical standards. However, losses from uncollectable loans have ebbed from last year's peak, which helped many of the largest banks record better-than-expected profits in the first quarter.

Banks may be more willing to spend money to expand their credit card business, after a year of clamping down and trying to shed problem loans. Credit card mailings to U.S. households in the first quarter rose 29 percent from a year earlier, to 481.3 million, according to market researcher Synovate.

Even if credit losses continue to improve, credit card industry revenues may be hit by new laws and regulations.

American Express continued to lead its competitors out of recovery, reporting on Tuesday that merely 2.9 percent of its credit card loans were more than 30 days delinquent in May, compared with 3.1 percent in April. Losses declined to 6.3 percent from 6.7 percent.

At the other end of the spectrum, delinquencies also fell at Bank of America, although it continued to post the highest default levels of the major lenders. The company's delinquencies fell to 6.39 percent in May from 6.73 percent in April, while net charge-offs rose to 13.33 percent from 12.71 percent in April.

Citigroup's 30-day delinquencies fell to 5.59 percent in May, from 5.85 in April. Its net charge-offs inched down to 11.16 percent from 11.23 percent. Capital One's annualized net charge-off rate for U.S. credit cards fell to 9.48 percent in May from 9.68 percent in April. Its accounts at least 30 days delinquent declined to 4.80 percent from 5.07 percent. At Discover, 30-day delinquencies fell to 4.95 percent in May from 5.2 percent in April. But after two months of improvement, Discover's net charge-offs edged back up to 8.82 percent from 8.42 percent.

Accounts that were more than 30 days past due at JPMorgan Chase continued to improve, falling to 4.22 percent in May from 4.4 percent in April. The lender's charge-off rate also fell to 8.95 percent from 9.03 percent.

Shares of American Express, JPMorgan, Discover, Capital One, Citigroup and Bank of America all closed higher on Tuesday.

The major credit card lenders report the performance of their loan portfolios in monthly regulatory filings.