MarketView for June 26

Summary 

Major stock indexes bounced back on Tuesday, but trading was light with the outlook clouded by doubts before yet another summit to tackle the European debt crisis. The end result resulted in a partial recovery from losses of more than 1 percent on Monday, led by housing shares after stronger-than-expected data on home prices. The S&P/Case Shiller data showed home prices in 20 U.S. metropolitan areas gained 0.7 percent on a seasonally adjusted basis, exceeding expectations for a 0.4 percent gain.

The consumer discretionary sector was the top gainer on the S&P 500, followed by energy shares, which received some positive momentum from a 2.3 percent increase in Brent crude prices. Nonetheless, the Street continued to watch Spanish short-term borrowing costs, which nearly tripled as consumer confidence fell in June to its lowest level in five months.

Spanish 10-year bond yields rose after demand at a shorter-term bill sale fell despite significantly higher yields. Hopes faded that the European Union summit later this week would produce game-changing measures to ease the debt crisis. Madrid has formally asked for funds to bail out its banks in a move some see as a prelude for a full-blown bailout of the euro zone's fourth-largest economy.

Rupert Murdoch's News Corp. said it was considering splitting into two publicly traded companies, and sources familiar with the matter said publishing would be separated from entertainment. The Company’s share price rose 8.3 percent to $21.76 on volume of 73.1 million shares, making it the day's most actively traded stock on the Nasdaq.

JPMorgan Chase rose 1.1 percent to close at $35.71 after Goldman Sachs added the bank to its conviction buy list. Morgan Stanley which was cut to "neutral" by Goldman, added 0.2 percent to $13.51.

About 5.9 billion shares changed hands on the three major equity exchanges, a number that was below the daily average of 6.82 billion so far this year.

Home Prices Rise

Home prices picked up in April for the third month in a row, the latest indication that a recovery in the housing market is gaining traction. The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7 percent on a seasonally adjusted basis, topping economists' expectations for a 0.4 percent gain.

Compared to a year ago, home prices fell 1.9 percent in the 20 cities, above expectations for a decline of 2.5 percent, and an improvement from the 2.6 percent annual decline seen in March.

Six years after the housing market's far-reaching collapse that sent prices down more than 30 percent, recent data suggests the sector has finally hit bottom with leaner inventories and record-low mortgage rates encouraging buying.

April's gain made for the longest streak of consecutive monthly gains since prices were boosted by the homebuyer tax credit from mid-2009 into early 2010. Nonetheless, the housing market has a long way to go before full recovery as it faces a large pipeline of foreclosures, tight credit restrictions and weak demand.

Robert Shiller, co-creator of the S&P/Case Shiller index, was less convinced than some that it was a definitive sign prices have stabilized, saying it was encouraging but still too soon to tell.

Even as the housing market is firming, the broader economy is struggling under the weight of a sluggish labor market and fears over the fallout of Europe's debt crisis.

The Conference Board, an industry group, said its index of consumer attitudes fell to 62.0 from a downwardly revised 64.4 in May, falling short of economists' expectations. It was the lowest level since January.

While consumers' assessment of their current situation improved, they were less upbeat about their expectations for the next six months. Fewer respondents expected business conditions or employment would improve in the coming months.

The consumer confidence index is down nearly 10 points from the peak hit in February. Consumer spending, a major engine of economic growth during the housing boom, accounts for about 70 percent of U.S. economic activity.

Analysts expect the economic recovery will continue at a sluggish pace after growing at a 1.9 percent rate in the first quarter. Standard & Poor's said the United States faces 20-percent odds of falling back into recession, although a slow recovery is still the ratings agency's baseline forecast.

With the labor market disappointingly weak, the Organization for Economic Cooperation and Development gave a warning on the impact of long-term joblessness, saying it risks leaving a lasting scar of higher unemployment on the U.S. economy.

Manufacturing activity in the central Atlantic region contracted in June, a report from the Federal Reserve Bank of Richmond showed. Other regional manufacturing surveys, including New York and Philadelphia, also showed weakness this month, boding poorly for the national report on manufacturing due in early July.