MarketView for June 18

Summary  

Share prices were a bit higher on Friday as indicated by the three major equity indexes, although trading volume was light. Nonetheless, it was still the second straight week that the indexes were in positive territory for the week even though housing and labor market data raised concern regarding the strength of the recovery. The S&P 500 closed above its 200-day moving average for the third straight session, which is a positive indicator for most technical analysts.

Energy shares helped support both the Dow Jones industrial average and S&P 500 indexes as bottom feeders went after companies whose shares were unduly sold off as a result of the disaster in the Gulf of Mexico. Cameron International rose 1 percent to $37.98 while Halliburton ended the day up 2.2 percent at $26.98. The market has found it difficult to chalk up much in the way of gains after the strong rum-up on Tuesday that resulted from the successful debt auctions in Europe.

For the week, the Dow and the S&P 500 gained 2.4 percent and the Nasdaq added 3 percent. Energy shares rose with crude oil ending higher at $77.18 a barrel. Exxon Mobil closed up 0.8 percent at $63.10, and was among the better performers within the Dow industrials.

BP’s shares edged upward by 0.2 percent, a day after its chief executive underwent a bruising appearance before a congressional committee over the oil spill. Shortly after his testimony, BP announced that it planned to establish a $20 billion compensation and clean-up fund.

Caterpillar reported an 11 percent increase in the global dealer sales of its heavy machinery for the three months ended in May, driven by strong growth in the Asia-Pacific region. The company's shares closed up 1.5 percent at $65.85.

The convergence of four key expirations, known as quadruple witching, had added to volatility top the markets. Stock options and index futures expired earlier in the session. The June SPDR S&P 500 fund options, an exchange-traded fund that tracks the S&P 500 benchmark, showed a light volume ahead of expiration at the close later in the day.

Although the S&P 500 held above its 200-day moving average since Tuesday, it has found resistance near 1,121, a key level that marks the halfway point between the October 2007 historic highs and the lows of March 2009.

Walgreen and CVS Make Nice

Walgreen CVS's and Caremark ended an 11-day standoff over reimbursements for drug prescriptions, saving a relationship worth billions of dollars and lifting shares of the two largest drugstore chains.

Caremark members would continue to be able to have their prescriptions filled at Walgreen's pharmacies, the companies said in a statement on Friday. They did not disclose the exact terms of the agreement, but said it was a "multi-year" deal.

Walgreen said early last week that it would end its arrangement to fill prescriptions for millions of CVS Caremark drug plan members. It cited CVS's efforts to divert customers to its own pharmacies and inadequate reimbursement rates. CVS responded two days later, stating that it would drop Walgreen from its network by July 9.

CVS's pharmacy benefits management business administers prescription drug benefits for employers and health plans. It also operates a large mail-order pharmacy.

Walgreen's arrangement with CVS's Caremark unit accounts for about 7 percent of sales, but apparently Walgreen was willing to risk severing that relationship to send a larger message out to other PBMs that it would fight a trend to shrink reimbursements. Meanwhile, CVS was eager to show investors that its $27 billion purchase in 2007 of Caremark and its PBM business was a good deal, after losing $4.8 billion worth of contracts last year.

CVS could ill afford the disruption its standoff with Walgreen was creating as its campaign to sell its plans to large employers was peaking. Walgreen holds great sway in the PBM business in part because it fills about one in five prescriptions. And it operates about 7,500 stores out of the 64,000 pharmacies served by Caremark's network.