MarketView for June 10

Summary

The major equity indexes ended the day on Monday little changed in weak volume receiving only a brief push upward after the credit status of the United States was revised to stable from negative.

The reaction to rating agency Standard & Poor's revision of the U.S. sovereign credit outlook to stable from negative gave stocks only a short-lived lift. The action put the likelihood of a near-term downgrade of the rating at "less than one in three. The agency had downgraded the United States to "AA+" from the top-rated "AAA" in the summer of 2011.

Shares of Apple fell 0.7 percent to $438.89, reversing early gains to become the largest drag on both the S&P 500 and Nasdaq composite indexes. The company kicked off its annual conference in San Francisco for its developers.

Homebuilders were among the day’s top losers, led by Lennar, off 3.3 percent end the day at $37.31 after JP Morgan downgraded the company's shares to "neutral" from "overweight". D.R. Horton fell 2.1 percent to $23.06.

Remarkably, the market is still cautious about when or if the Federal Reserve might reduce its stimulus efforts despite comments by Fed Chairman Ben Bernanke to the contrary. The market ended last week with sharp gains, and the Dow posted its best daily percentage increase since January 2 after the U.S. jobs report on Friday eased some of the Fed worries.

While last week's employment report eased jitters that the Fed could cool the pace of its bond buying in the very near term, some investors still are preparing for the Fed to reduce its quantitative easing by the end of the year. Others expect the market's uptrend to continue for the near term. The S&P 500 is up 16.3 percent for the year so far.

McDonald's was among the day’s best performers after it said sales at its established restaurants around the world rose in May, sending its shares up 1.3 percent at $99.53. Facebook rose 4.5 percent to $24.33 after Stifel Nicolaus raised its rating on the social networking company's stock.

Approximately 5.5 billion shares changed hands on the three major equity exchanges, a number that was below the average daily closing volume of about 6.4 billion shares this year.

In after hours trading, shares of Lululemon Athletica fell 13.8 percent to $70.90 on news that the company’s chief executive will step down. The announcement comes three months after the yoga wear retailer's recall of see-through pants.

S&P Now Believes U.S. Credit Outlook is Stable

Standard & Poor's on Monday removed the near-term threat of another credit rating downgrade for the United States by revising its outlook to stable from negative, citing an improved economic and fiscal outlook. The change effectively means there is less than a one-third chance of a downgrade in the next two years.

S&P said a key factor to its revision in the U.S. rating outlook was the agreement reached by the U.S. Congress to avoid the 'fiscal cliff', which had threatened some $600 billion in automatic tax increases and spending cuts.

S&P cut the credit rating in August 2011 to AA-plus from the highly coveted top grade of AAA, citing political brinkmanship and gridlock in Washington that delayed an otherwise routine raising of the nation's debt ceiling.

"We did get some movement from both sides and we think that is encouraging, at least to the point of convincing us that the dynamics in Washington are not likely to get substantially worse in the medium term," Nikola Swann, S&P's lead sovereign analyst for the United States, said in a webcast with reporters.

Moody's Investors Service and Fitch Ratings give the U.S. credit their highest rating but both have negative outlooks.

The Treasury Department, which had argued that S&P's initial downgrade was misguided, welcomed the latest action. "We're pleased that they are recognizing the progress in the U.S. economy and fiscal results," Treasury Under Secretary Mary Miller told reporters.

S&P said it does not expect the debate later in 2013 regarding increasing the debt ceiling to result in "a sudden unplanned contraction in current spending - which could be disruptive - let alone debt service." The current rating already factors in a "lesser" ability of U.S. elected officials to move quickly and effectively to deal with public finance pressures.

S&P estimates the government will need to authorize a further increase in the amount of debt it can issue near the end of the fiscal year in September.

Another factor helping the U.S. fiscal position were the automatic spending cuts, known as sequestration. They were meant to be so severe that Republics and Democrats would be forced to reach an agreement on a budget to avoid them. They failed, resulting in cuts going into effect on March 1.

S&P said it expects the U.S. debt-to-GDP ratio to stabilize around 84 percent over the next three to five years. Economic growth is expected in the 2 to 3 percent range, on average, over the same period.

Fitch affirmed its AAA rating in January, effectively stepping back from its threat to downgrade the U.S. credit after a deal was reached to avoid the fiscal cliff.

Moody's has maintained that it is looking for improvement in the ratio of the United States' debt to gross domestic product and setting a downward trajectory on the overall level of debt.