MarketView for June 16

Summary  

It was another volatile trading day on Thursday, thanks only to technical factors and options expirations that had investors looking towards large cap dividend paying stocks. The commitment to equities would have been even higher except that the uncertainty over Greece’s reorganization prevented a stronger rally, despite the fact that U.S. banks' exposure to Greek debt may be smaller than many market participants fear, possibly amounting to something in the neighborhood of only $16 billion. Still, the market needs resolution of the situation soon, as the lack of a deal to resolve the Greek debt crisis stifles investor confidence and curbs the market's advance.

The impending expiration of stock-index futures, single-stock futures, equity options and stock-index options for June -- known as quadruple witching -- created exceptional volatility, pushing the S&P 500 to swing more than 1 percent from its session low to its intraday high.

Quadruple witching is a term used by pros to describe the quarterly expiration and settlement of four types of June equity futures and options contracts -- an event that can add volume and volatility as investors adjust their derivatives positions. The two-day event begins when June stock-index futures and certain options on the cash indexes such as the S&P 500 and the Nasdaq 100 stop trading at Thursday's close. These contracts then settle on Friday's morning opening.

Meanwhile, the benchmark S&P 500 Index appeared to bounce back from a technical support test at 1,257.88, its 200-day moving average, recovering from an intraday low of 1,258.07.

Dow component American Express rose 2.4 percent to $48.42, helping to bolster the blue-chip average.

Among the day's upbeat company news, shares of Kroger, the largest domestic supermarket operator, rose 4.5 percent to $23.99 after it posted a higher-than-expected quarterly profit that was helped by cost controls and a rise in sales. Kroger also increased its full-year earnings forecast.

In after hours trading, Research in Motion fell as much as 15 percent after the Canadian company reported lower earnings and revenue missed its lowered forecast, forcing RIM to again reduce its outlook.

Factory activity in the Mid-Atlantic region fell unexpectedly during June, another sign of weakness in the manufacturing sector, according to the June reading of the Philadelphia Federal Reserve Bank's business activity index.

First time unemployment claims fell last week, while housing starts and building permits rose in May. Volume was modestly active with about 7.78 billion shares changing hands on the major exchanges, a number that was slightly above the daily average of 7.58 billion shares.

Factory Data Anemic

Factory activity in the Mid-Atlantic region contracted in June to a near two-year low, overshadowing better than expected readings on the nation's labor and housing markets. The Philadelphia Federal Reserve Bank's business activity index, which measures Mid-Atlantic factory activity, dropped to -7.7, the lowest level since July 2009. It was the first contraction in nine months and suggested national factory activity could be faltering.

Coming on the heels of a survey on Wednesday showing a drop in factory activity in New York State, the Philadelphia Fed report fueled fears of a sharp slowdown in manufacturing, a sector that has powered the U.S. economic recovery. Factory activity is being hampered by supply chain disruptions, particularly in the auto sector, following the March earthquake and tsunami in Japan. But the Philadelphia Fed and New York Fed surveys, where auto assemblies are not be a big factor, suggested fundamental weakness.

In the Philadelphia survey, the six-month business conditions index hit its lowest level since December 2008 and the new orders measure tumbled to a two-year low.

While the mixed reports on Thursday were the latest confirmation the economic slowdown during the second quarter, they also offered evidence that the recovery was on course to regain momentum as the year progresses.

First-time applications for state unemployment insurance fell 16,000 to 414,000, hinting at some improvement in a jobs market that stumbled badly in May. New home starts rose 3.5 percent to an annual rate of 560,000 units last month, retracing almost half of April's steep decline. New building permits unexpectedly rebounded 8.7 percent to the highest level since December.

Despite the modest improvements in jobless claims and housing data, they remained at levels consistent with a muted economic recovery. Initial jobless claims held above the 400,000 level for a tenth straight week. Economists associate claims below that level with a stable labor market.

While both housing starts and permits rose last month, they are still weak with builders facing stiff competition from a glut of unsold previously owned homes on the market.