MarketView for June 29

Summary

The major equity indexes were up sharply on Friday to close out a sour quarter on a high note as Wall Street took heart in an agreement by European leaders to stabilize the region's banks, a pact that helped remove some of the uncertainty that has plagued markets. The broad rally was the S&P 500's best day since December 20 and helped the benchmark index trim its quarterly loss to 3.3 percent. In addition the usual end-of-quarter portfolio adjustments helped to fuel Friday's gains.

The decline marked the S&P 500's first down quarter in the last three after tumultuous Greek elections and concerns about the solvency of Spanish banks roiled financial markets around the world.

Euro-zone leaders agreed that countries would be able to recapitalize banks directly without increasing a country's budget deficit. Such a move creates a catalyst to snap the cycle that markets fell into when policymakers bailed out Spanish banks with $125 billion, but ended up further exacerbating Spain's sovereign debt problem and shunting existing bondholders down the food chain.

Among Wall Street's few decliners in Friday's session, Ford Motor fell 5 percent to close at $9.59 after the automaker became the latest large multinational to warn on weakness stemming from Europe, joining the likes of Procter & Gamble and Hewlett-Packard.

Sectors sensitive to euro-zone developments ranked among the best performers. Bank stocks were among the market leaders. As a result, Bank of America ended the day up 5.7 percent to close at $8.18.

For the week, the Dow gained 1.9 percent, the S&P 500 rose 2 percent and the Nasdaq advanced 1.5 percent.  For the month of June, the Dow rose 3.9 percent, the S&P climbed 4 percent and the Nasdaq added 3.8 percent. However, for the second quarter, the Dow fell 2.5 percent, the S&P 500 lost 3.3 percent and the Nasdaq dropped 5.1 percent.

Italian and Spanish borrowing costs fell, though they remained not far from recent highs. Investors' expectations for any action during a two-day European Union summit had dissipated, giving markets room to bounce on the unexpected good news.

Brent and U.S. crude oil prices also rose sharply on the back of the EU agreement. Energy futures received a boost from the euro's jump of almost 2 percent against the dollar. The EU summit news overshadowed a batch of mixed economic data including consumer spending, which stalled in May as auto purchases flagged while consumer sentiment hit a six-month low in June in the latest signs of trouble for the economy.

Although another report on Friday showed manufacturing activity in the Midwest picked up this month, factories saw a modest decline in new orders.

Attention in Europe now turns to next week's European Central Bank meeting. The consensus is that the bank will cut its main refinancing rate by 25 basis points to 0.75 percent and may trim the deposit rate - the rate it pays banks for parking money with it - by 25 basis points to 0 percent.

"You have more fireworks coming next week when the ECB meets on the fifth because I have to believe they are going to cut their interest rates by at least a half to stimulate growth," Mendelsohn said.

Shares of KB Homes rose 12.6 percent to close at $9.80 after the fifth-largest U.S. homebuilder reported a narrower second-quarter loss, helped by higher sale prices and net orders.

Nike fell 9.4 percent to $87.78 a day after the company missed quarterly profit estimates for the first time in at least two years.

Research in Motion was also down, in this case about 19.1 percent to close at $7.39 in the wake of the company's decision to delay the make-or-break launch of its next-generation BlackBerry phones until next year.

Volume was active with about 7.69 billion shares changing hands on the three major equity exchanges, a number that was above the daily average of 6.85 billion shares.