MarketView for June 24

Summary 

The major equity indexes were down more than 1 percent on Monday, adding to a sell-off built on concerns about reduced stimulus from the Federal Reserve but that was mostly the result of the overnight losses in Chinese equity markets. Although the major indexes did recover somewhat as the afternoon wore on, it was the third time in the past four sessions that the S&P 500 index has been down more than 1 percent.

Losses at one point extended as far as 2 percent, but stocks retraced some ground after two Fed officials downplayed the notion of an imminent end to monetary stimulus. Richard Fisher, the hawkish head of the Dallas Fed, said the strength of the dollar reflects confidence in the economy. Fisher strongly backed Bernanke's timetable for QE3, repeating the unprecedented stimulus should be slowly removed.

Markets have been under pressure as investors cashed out of losing positions in the last several days since the Fed suggested it would cut back on its $85 billion in monthly bond purchases before long.

The S&P 500 posted its worst weekly performance in two months last week, and looked set to extend the sell-off coming out of the weekend as developments in China's financial system dampened sentiment on the Street. As a result, all 10 industry sectors on the S&P 500 ended lower, led by declines in materials, industrials and financial shares. Those sectors are most sensitive to the growth outlook and rising interest rates.

The People's Bank of China said banks needed to do a better job of managing their cash and lending as the central bank attempts to move China away from credit-driven investment. Shares in Shanghai fell 5.3 percent while Chinese financial shares dropped more than 7 percent.

Materials shares, which are often affected by expectations for China's growth, dropped 1.7 percent. Cliffs Natural Resources fell 7.6 percent to $15.88, making it one of the worst performers on the S&P.

Stocks were able to cut losses after Treasuries rebounded from substantial declines. The yield on the 10-year Treasury note, which moves in the opposite direction of the price, rose as high as 2.67 percent but later dipped to 2.55 percent.

The S&P 500 is down 4.8 percent over the past four sessions and breached both its 100-day and 50-day moving averages, a sign that near-term momentum may be toward the downside.

The S&P 500 has fallen 3.5 percent in June, putting the benchmark index on track to end a seven-month rise as well as its worst monthly performance since May 2012. The index is down 5.8 percent from its all-time closing high on May 21.

Energy stocks were weak. Consol Energy fell 5.8 percent to $28.05 and Peabody Energy was down 7.2 percent to end the day at $14.85.

Tenet Healthcare agreed to acquire Vanguard Health Systems for $4.3 billion or $21 per share including debt to expand into new locations. Vanguard shares closed up 67.3 percent to $20.70 and Tenet gained 4.5 percent end the day at $43.73, making it the S&P's top performer.

Volume was again above-average, with 8.33 billion shares traded on U.S. exchanges, a sign that the pullback has not abated yet.

Oracle and Microsoft Opt to be On Same Team – At Least Temporarily

Microsoft said on Monday it would support Oracle’s software on its cloud-based platforms, a tie-up aimed at improving the rivals' chances against nimbler Web-based computing companies chipping away at their traditional businesses.

The two industry leaders have competed for decades to sell technology to the world's largest companies. However, both companies face growing pressure from new rivals selling often-cheaper services based in remote data centers, and they are rushing to adapt.

The two companies have long collaborated out of the public eye to meet customers' needs, Microsoft Chief Executive Steve Ballmer said on a conference call. "In the world of cloud computing, I think behind-the-scenes collaboration is not enough."

The tie-up does not resolve major competitive challenges the two tech pioneers face in the cloud market, but their cooperation was seen as a symbolically important step.

Is it a game changer? No, but It shows both companies are serious about their cloud endeavors. The fact that historical competitors are now friends speaks to how big the cloud opportunity is. And it opens up potential avenues of growth down the road

Under the agreement, customers will be able to run Oracle software on Microsoft's Server Hyper-V and on Windows Azure platforms, the companies said.

Microsoft will offer Oracle's Java, Database and WebLogic Server to Windows Azure customers, while Oracle will also make Linux available to Windows Azure customers, the companies said in a news release.

Ironically, the pact means Microsoft is effectively promoting Linux and Java-based software, longtime rivals to its own Windows platform. But the software maker stands to benefit from getting any customer to pay for its datacenter services, regardless of the underlying software being used.

No. 3 software maker Oracle last week missed expectations for software sales for the fourth quarter, sending its shares plunging. Investors worried that the company may have trouble competing with software providers like Salesforce.com and Workday, as well as Amazon.com, which has also become a major player in cloud computing infrastructure.

Top software maker Microsoft's large-scale cloud computing initiative, called Azure, has failed to catch up with Amazon's cloud offering, called AWS (Amazon Web Services), which blazed the trail in elastic online computing services in the cloud.

The rivalry between Oracle and Microsoft dates back several decades and has been marked by a personal rivalry between the companies' best-known cofounders: Larry Ellison and Bill Gates.

In 1995, as the Windows franchise was taking off, Ellison began a high-profile but unsuccessful effort to promote a less expensive competitor to the personal computer known as the Network Computer. Gates began aggressively attacking Oracle's core database business in the late 1990s, infuriating Ellison as Microsoft's less-expensive SQL Server gained market share.

In recent years, both have come under attack from a wave of younger companies, like Workday and Salesforce, which charge a single subscription fee for software and support, at far lower margins than for Oracle's traditional products.

Ellison told analysts on last Thursday's quarterly conference call that Oracle had forged alliances with Microsoft and Salesforce.com, which uses Oracle's technology, and said he would announce details this week.

Over the past five years, shares of Amazon.com, which rents remote computing and storage to other companies, have surged 237 percent. Salesforce.com, founded by former Oracle executive Marc Benioff, is up 105 percent. During the same half decade, Oracle's stock is up 38 percent and Microsoft's shares are up 21 percent.