MarketView for June 17

Summary  

The Dow Jones industrial average and S&P 500 indexes duplicated Thursday’s activity as both chalked up higher gains on Friday after France and Germany outlined an agreement to aid debt-burdened Greece, while the Nasdaq was not as fortunate. France and Germany said they would ask banks holding Greek debt to voluntarily shoulder some of the burden. Meanwhile, Greece's prime minister appointed a new finance minister to try to push through harsh economic reforms.

As a result, the Dow managed to close just above 12,000, as the S&P 500 again squeaked out a small gain for the week after six straight weeks of losses. The uncertainty surrounding a resolution of the debt crisis kept those on the Street from committing more cash to equities.

Research in Motion closed down 21.5 percent to $27.75 in its busiest day of trading in almost six years. The company’s sour results, released late Thursday, pushed the Nasdaq lower and dragged on other top technology names. The downdraft sent Apple, down 1.5 percent to close at $320.26. Shares of Marvell Technology Group fell 4.2 percent to $13.21, following Research In Motion's dismal report.

The debt crisis escalated this week as Moody's Investors Service said it may cut the credit ratings of French banks, citing exposure to Greek debt. Late Friday, Moody's said it was reviewing Italy's sovereign credit ratings for a possible downgrade.

Both the Dow and the S&P 500 finished the week with gains and broke a six-week string of losses: The Dow was up 0.4 percent for the week, while the S&P 500 was up just 0.04 percent. Unfortunately, the Nasdaq lost 1 percent for the week. For the year, the Nasdaq is down 1.4 percent. In contrast, the Dow is up 3.7 percent for the year and the S&P 500 is up 1.1 percent.

Friday's volume was slightly better than average, as activity picked up amid options expiration.

Approximately 8.29 billion shares changed hands on the major exchanges, a number that was above the daily average of 7.58 billion shares. However, recent gains in the CBOE Volatility Index show investors remain unsure as to which way the markets are going.

Economic data was mixed, with the index of leading economic indicators rising more than forecast in May to a record high, but consumer sentiment for June was weaker than expected.

Consumer Sentiment Falls

According to the Thomson Reuters/University of Michigan survey of consumer sentiment, sentiment was lower than expected in June, a result in part of renewed concerns regarding the outlook for the economy, while worries about inflation eased somewhat. Nonetheless, consumers remained pessimistic about stagnant incomes and job prospects, and their view of their own finances was largely unchanged at negative levels, the survey showed. The preliminary reading on the overall index on consumer sentiment was 71.8, down from 74.3 the month before. Even so, the data gave little evidence a new downturn is underway.

"The majority of consumers are as convinced today as they were two-and-a-half years ago that their incomes will not increase, and the majority anticipate that the unemployment rate will remain stuck at about its current level for the foreseeable future," survey director Richard Curtin said in a statement.

The survey's barometer of current economic conditions fell to 79.6, its lowest level since October 2010, from 81.9 in May. The current personal finances gauge dipped to 82 from 83, while expected personal finances edged up to 107 from 106. The survey's gauge of consumer expectations slipped to 66.8 from 69.5 and below a predicted reading of 68.6.

The survey's one-year inflation expectation fell to its lowest since February, to 4.0 percent from 4.1 percent. The survey's five-to-10-year inflation outlook was at 3.0 percent, edging up from 2.9 percent.

Leading Indicators Rise

A key gauge of future economic activity rose more than expected in May to a record high, but high gasoline prices and a weak housing market will see growth remaining moderate. The Conference Board reported on Friday that its Leading Economic Index increased 0.8 percent to a record high of 114.7 after a revised 0.4 percent drop in April.

"Modest economic growth is being buffeted by some strong headwinds, including high gas and food prices and a soft housing market," said Ken Goldstein, a Conference Board economist. "The economy will likely continue to grow through the summer and fall, however it will be choppy."

Eight of the 10 separate measures of activity that are gauged by the index increased in May, led by improved consumer sentiment, building permits and lower unemployment insurance claims, among others.

China Exports Trouble

More than fifteen Chinese companies whose shares trade in the United States have yet to file required year-end forms with and the shares could face more downward pressure as deadlines approach. Some of these companies, if they are foreign issuers, would be required to file a 20-F report with the Securities and Exchange Commission by the end of June if their fiscal year ended December 31. Others that are considered companies have already delayed certain filings. For example, China-Biotics, said it would not file its annual report on time, citing "serious issues" raised by its auditors.

The 20-F form is a foreign issuer's version of a 10-K, which much be filed within six months of the end of the company's fiscal year. Trading in shares of China-Biotics was halted after tumbling on Wednesday and has not traded since.

Bets against Chinese names have grown recently, with average short interest in about 80 Chinese companies traded on U.S. exchanges to 5.92 percent as of June 13. AutoChina International Ltd, a Shijiazhuang-based commercial vehicle financing company with a market cap of more than $540 million, is among the companies that have not filed the 20-F form, due June 30.

Jason Wang, the company's chief financial officer, said he was aware the deadline was approaching but directed all further queries to the company's investor relations contact, who was out of the country and did not immediately return a request for a comment.

Concord Medical Services Holdings Limited and eLong are also among the companies with market capitalizations above $100 million that have yet to file. Both are foreign issuers, so should be filing form 20-F by the end of June.

Investors have been more guarded over China since Sino-Forest was recently accused of fraud by short-selling research firm Muddy Waters in a report that sparked a drop of more than 80 percent in the company's shares even as it denied the charges. Those high-profile allegations followed a number of similar charges against other Chinese names, which have led to de-listings and steep stock declines.

As a result of the growing controversies, Interactive Brokers Group joined other brokers in barring its clients from buying a list of more than 160 Chinese securities on margin, citing risk concerns. The SEC followed by issuing a bulletin of risk against investing in reverse merger companies, a category that includes many of the firms that have yet to file with the regulator.