MarketView for June 12

Summary

The equity indexes took a major hit on Wednesday, with the Dow Jones Industrial Average sliding more than 100 points on another volatile day as Wall Street extended a selloff driven by concern about central banks winding down their stimulus measures.

The S&P 500 was caught between support near its 50-day moving average at 1,610.55 and resistance at its 14-day moving average at 1,637.27. The S&P 500 has closed below its 50-day moving average only once this year - in mid-April. The S&P 500 has fallen 3.4 percent from its record closing high of 1,669.16 set on May 21.

On Wednesday, the benchmark index closed 2 points above its 50-day moving average of 1,610.55. If the S&P 500 falls below that level, the selloff could intensify.

The focus seems to be continuous on the possibility that the Federal Reserve will reduce its monthly bond purchases in coming months, removing one of the pillars of the stock market's rally this year. These worries have sparked volatility and triggered a pullback in stock indexes from historic highs.

The Dow on Wednesday swung more than 200 points for the seventh time in the past 15 trading days, going back to Fed Chairman Ben Bernanke's latest congressional testimony on May 22. At the time, he hinted that the Fed may begin to reduce its quantitative easing - consisting of $85 billion a month in bond purchases - in the coming months.

The CBOE Volatility Index .VIX, known as the VIX, is up 8.9 percent to 18.59. The VIX is up more than 20 percent so far this week.

American Express ended the day down 2.4 percent at $74.72. It was the Dow's largest loser in terms of percentages. In contrast, Hewlett-Packard was the day’s largest percentage gainer among the blue chips after its chief executive said revenue growth was "still possible" in fiscal 2014. The computer manufacturer's shares ended the day up  2.8 percent, closing at $24.91.

Going against the sharp downturn was Cooper Tire & Rubber. The shares rose 41.1 percent to close at $34.66 after India's Apollo agreed to buy the second-biggest U.S. tire firm for about $2.5 billion.

Shares of Booz Allen Hamilton fell 3.5 percent to $16.54 after Susquehanna Financial Group's analysts said intelligence agencies probably will freeze some of the company's projects temporarily, pending a review of how it handles classified information. Booz Allen said on Sunday that one of its employees was responsible for leaking details of a top secret U.S. surveillance program.

Shares of supermarket operator Safeway rose 31.5 percent to $30.40 in after-hours trading after Empire, parent of Canada's second largest grocer Sobey's, said it is acquiring Safeway's Canadian arm for $5.7 billion in cash.

Approximately 6.2 billion shares changed hands on the three major equity exchanges, a number that was slightly below the daily average so far this year of nearly 6.38 billion shares.

Could Yellen Succeed Bernanke?

Janet Yellen, the Federal Reserve's powerful vice chair, is a likely candidate to replace Ben Bernanke when his second term at the helm of the U.S. central bank ends early next year.

A poll by Reuters found that an overwhelming 40 of 44 economists said Yellen, the former president of the San Francisco Federal Reserve Bank, will take over for her boss in February 2014. Support for her nomination was strong but less decisive, with 23 of 38 economists backing Yellen's bid for the top job.

Yellen, a 66-year old economist who is seen as a monetary policy dove, has held the No. 2 spot at the central bank since 2010. She has been a forceful advocate of the aggressive steps taken under Bernanke to spur economic growth and increase employment.

Bernanke has not said whether he wants a third term but has done nothing to dispel growing speculation he will step down.

Only three of the economists in the survey predicted Bernanke would stick around for another four years, while one felt Fed Governor Jeremy Stein would get the job.

Other names that have been floated as possible successors are Larry Summers, a former adviser to President Barack Obama, former Treasury Secretary Timothy Geithner and former Fed vice chairs Roger Ferguson and Don Kohn. However, none of those candidates were identified as likely successors, although two economists said Obama would be wise to tap Summers and one said ideally Ferguson would get the nod.

Whoever succeeds Bernanke will face the difficult task of managing an economy that remains fragile. The Fed's next leader will also presumably have to gracefully manage the Fed's retreat from its extraordinary stimulus measures, a balancing act whose trickiness has been highlighted by recent market turbulence.

Risky assets and Treasury bonds have sold off sharply since Bernanke suggested on May 22 that the Fed could begin scaling back the $85 billion in bonds it is buying each month at one of its "next few meetings."

The Fed, which brought interest rates to effectively zero in late 2008, is on track to buy more than $3 trillion in mortgage and government bonds to boost growth. It has committed to keep purchasing assets until the outlook for jobs improves substantially.

The jobless rate has fallen from around 8 percent last summer to 7.6 percent in May, while employment growth has averaged around 176,000 over the last 12 months.

Economic growth remains erratic. Housing is on the mend, and the blow from fiscal tightening from Washington has not been as severe as some feared.

Manufacturing remains weak, however, and economic growth appears to have shifted down in the second quarter after expanding at a modest 2.4 percent annualized rate in the first three months of this year.

Bernanke, a Republican, was originally appointed to the Fed chairmanship by President George W. Bush. Obama reappointed him in the aftermath of the financial crisis.