MarketView for June 15

Summary

The major equity indexes rallied once gain on Friday to closeout a second straight week of gains. The hope driving the markets was that there would be collective action from global central banks if Sunday's election in Greece triggers market turmoil. The news helped offset the latest round of weak economic data, which pointed to sluggish domestic growth. However, investors were cautious and safe-haven Treasury prices moved higher on Friday.

For the week, the Dow Jones industrial average was up 1.7 percent, the S&P 500 up about 1.3 percent and the Nasdaq showed a 0.5 percent gain. Despite the stock market's gains, the safe-haven Treasury 10-year note ended the day up 18/32 in price, with the yield at 1.579 percent.

Spain's banking system remains an issue weighing on markets and the country's 10-year bond yield, at 6.92 percent, was still too close to the 7 percent mark at which other highly indebted euro-zone nations were forced to seek bailouts.

Some investors fear the Sunday elections in Greece may set the nation on the path to an exit from the euro zone. That possibility created volatility this week.

A gauge of manufacturing in New York state fell sharply in June, though it still showed growth, while an early June reading on consumer sentiment slipped to a six-month low on concerns over the job market and Europe's debt crisis. The consumer sentiment reading was below consensus forecasts.

Recent economic indicators, including Thursday's unexpected rise in jobless claims, have pointed to sluggish growth in the economy. However, equities have largely tracked European developments in recent months, and shrugged off weak domestic data on occasion.

The lackluster data, alongside the possible turmoil following the Greek elections, could increase the chance that the Federal Reserve will signal more stimulus to counter slowing growth when it releases its policy statement next Wednesday at the close of a two-day meeting.

About 7.5 billion shares changed hands on the three major equity exchanges, as compared to a daily average of about 6.84 billion shares so far this year.

Economic Data Remains Weak

Factory output contracted in May for the second time in three months and families took a dimmer view of their economic prospects in early June, signs that the economy's recovery is on shaky ground. Data released on Friday was the latest in a series of weak economic reports that have led analysts to cut growth forecasts while raising expectations the Fed might undertake new stimulus measures.

Until recently, manufacturing had been a buttress for the economy, helping it resist headwinds from Europe's snowballing debt crisis. However, in May, factory output shrank 0.4 percent, with factories producing fewer cars and less machinery, Federal Reserve data showed.

Other reports pointed to cooling factory activity in New York State this month, along with a drop in household confidence in the economy.

Consumer sentiment fell in early June to a six-month low. A gauge of household confidence in the economy's future also dropped to its lowest since December. The Thomson Reuters/University of Michigan's index on consumer sentiment slipped to 74.1. While manufacturing is an anchor of the economy, consumer spending is its foundation, accounting for about two-thirds of gross domestic product.

The slackening recovery and a worsening debt crisis in Europe have bolstered expectations of a further easing of monetary policy by the Fed, although there is a divisive opinion on whether the central bank will act when it meets on Tuesday and Wednesday.

Hiring by U.S. employers has slowed for four straight months, while retail sales contracted in May and new applications for jobless benefits have risen in five of the last six weeks. Also looming over the outlook, Europe's snowballing debt crisis threatens to send the global economy into recession.

Within the Fed's report on U.S. industry in May, the softness in the factory sector was widespread. Output for durable - or long-lasting - goods dropped 0.5 percent as auto production slid 1.5 percent. Production of nondurables fell 0.2 percent. Total industrial output, covering factories, mines and utilities, declined 0.1 percent. Analysts polled by Reuters had expected industrial production to rise 0.1 percent.

In a sign the factory sector's weakness could continue into June, the New York Federal Reserve Bank's "Empire State" index fell to 2.3, a 15-point drop from the previous month and the lowest level since November 2011. That number was also well below expectations but nonetheless still points to a degree of growth.