MarketView for June 12

Summary

The major equity indexes staged a major comeback rally on Tuesday, thereby ending the day up more than 1 percent as Spanish bond yields came off euro-era record highs. Trading on Wall Street has been choppy this week as investors struggle for clarity over whether the $125 billion bailout for Spanish banks agreed to over the weekend will be effective and have in-turn looked to bond yields as a thermometer for risk aversion.

Economically sensitive sectors that had sold off recently were the strongest performers, suggesting traders and investors alike saw value in beaten down shares, while traders looked for an oversold bounce as the S&P 500 slipped back toward 1,300.

Economically sensitive shares that rise and fall as fears ebb and flow were the day’s largest gainers. Materials, financial and industrial shares were up over 1.5 percent. Boeing led the parade among the companies making up the Dow Jones Industrial Average, closing up 3.5 percent, helped in part by an upgrade by Sanford C. Bernstein, which said it saw a better outlook for the company's new Dreamliner aircraft.

Bank of America said it will reduce its long-term debt by about $40 billion in the second quarter, as it tries to reduce its interest expense by $230 million per quarter. Its shares rose 2.9 percent to $7.49.

Trading was volatile during the day. Wall Street dipped earlier as yields on Spain's 10-year bond hit 6.86 percent, the highest level since the 1999 launch of the euro, pointing to stress in the nation's debt markets shortly after the bailout deal was agreed. With the news flow so uncertain, many traders are taking their cues from market levels, with 1,300 on the S&P 500 emerging again as a focus this week.

Volume was low for a third day as about 6.2 billion shares changed hands on the three major equity exchanges, or about 12 percent below the 20-day moving average. Meanwhile, data indicated that short interest on the NYSE jumped 6.1 percent to 14.3 billion shares in late May, the highest level since early October, indicating an increased expectation that stocks will fall.

Investors are also staring down the barrel of upcoming elections in Greece. The ballot on Sunday is viewed as a major risk that could result in the country leaving the euro zone. But it could also spark a rally if the outcome favors Greece's bailout agreement with international lenders.

Nasdaq halted short sales of Zynga as shares of the social gaming company fell 10.3 percent on increased concerns that the craze for games on Facebook has already peaked. The stock was the most traded issue on the Nasdaq.

Also in company news on Tuesday, shares of Michael Kors Holdings Ltd rose 7.6 percent to $41.10 after the designer clothing company reported a stronger-than-expected fourth-quarter profit and gave a full-year outlook that exceeded Wall Street's forecast.

Budget Deficit $125 Billion in May

The government posted a budget deficit of $125 billion in May, more than twice the level registered in the same month last year.

The budget has become a key point of political contention in Washington during this election year. Economists worry another budget impasse like the one that cost the United States its AAA credit rating last year could be in store at the end of 2012, potentially derailing a fragile economic recovery.

The May deficit, which was close to analyst forecasts, followed a rare month of surplus in April that was due to higher budget receipts during tax season but also other temporary factors. So far this fiscal year, the budget deficit stands at $844.5 billion, narrower than at the same time a year ago.

Under the government's accounting system, October is the opening month of fiscal 2012. During fiscal 2011 which ended September 30, the budget deficit totaled $1.296 trillion.