MarketView for June 27

Summary 

The major equity indexes moved higher for a third consecutive day on Thursday after comments from several Federal Reserve officials soothed concerns that the central bank would begin to reduce its stimulus efforts in the near future. As a result, the Dow Jones Industrial Average closed back above 15,000 for the first time since June 19. The Dow scored its third consecutive day of triple-digit point gains for the first time since October 2011.

The rally helped the S&P 500 post its best three-day run since January after three Fed policymakers sought to downplay the notion that the central bank would bring an imminent end to its accommodative monetary policy, known as quantitative easing.

Thursday's advance was again broad-based. Nine of the 10 S&P 500 industry sectors gained, with financials, industrials and consumer discretionary shares leading the way. Stocks also got a lift from economic data showing a decline in weekly jobless claims and improvements in consumer spending and income.

William Dudley, president of the Federal Reserve Bank of New York, said the Fed's asset purchases would be more aggressive than the timeline Bernanke had outlined if U.S. economic growth and the labor market prove weaker than expected. Dudley stressed that slowing the pace of the Fed's bond buying would depend not on calendar dates but on the economic outlook, which remained unclear.

While the S&P 500 remains more than 3 percent below its all-time closing high of 1,669.16 reached on May 21, it has rallied 2.6 percent over the past three sessions after numerous Fed officials have sought to calm markets roiled by expectations of tighter monetary policy.

Atlanta Federal Reserve Bank President Dennis Lockhart echoed Dudley's comments, saying the pace of the Fed's purchases remained contingent on evolving economic conditions.

Hewlett-Packard was the Dow's best performer, advancing 3.2 percent to $24.77. Bank of America also ranked among the Dow's top gainers, adding 2 percent to $13.01.

A separate report showed consumer spending rose 0.3 percent last month while incomes grew 0.5 percent, the largest gain since February. Pending home sales rose 6.7 percent to their highest since December 2006.

ConAgra Foods rose 5.1 percent to $35.04. The stock was the S&P 500's third-best performer after the food manufacturer reported a quarterly profit slightly above Wall Street's estimates and raised its long-term outlook.

Time Warner Cable jumped 4.4 percent to $108.22 as John Malone, chairman of Liberty Media, sounded out options for cable operator Charter Communications to acquire its larger rival, according to a Bloomberg report.

The SPDR Gold Trust ETF (GLD.P) hit a 52-week low at $115.65 in the wake of gold's slide to its lowest level in almost three years. The price of gold dropped more than 2 percent to below $1,200 an ounce on Thursday, while the SPDR Gold Trust ETF lost 2 percent on heavy volume. With about 29 million shares traded, volume was more than double the daily average of 12.7 million over the past 50 days.

Approximately 6.3 billion shares changed hands on the three major equity exchanges as compared to the daily average so far this year of about 6.36 billion shares.

Economic Data Continues to Look Promising

Consumer spending rebounded in May and new applications for unemployment benefits fell last week, suggesting the economy remained on a moderate growth path. While other data on Thursday showed contracts to buy previously owned homes approached a 6-1/2 year high in May, taken together the data suggests slow economic growth but growth nonetheless, meaning the Federal Reserve is unlikely to scale back its monetary stimulus anytime soon.

"If labor market conditions and the economy's growth momentum were to be less favorable than in the Fed's outlook, and this is what has happened in recent years, I would expect that the asset purchases would continue at a higher pace for longer," New York Federal Reserve Bank President William Dudley said on Thursday.

A report Thursday morning by the Commerce Department indicated that consumer spending, which accounts for more than two-thirds of all economic activity, increased 0.3 percent last month, reversing April's 0.3 percent decline.

When adjusted for inflation, spending rose 0.2 percent. However, real spending for April was revised lower to the first contraction in six months, suggesting second-quarter economic growth could come in a bit weaker than economists had expected. The economy expanded at a sluggish 1.8 percent rate in the first three months of the year.

One good sign is that Winnebago reported that its profit nearly doubled in the quarter that ended June 1 as sales of motor homes jumped 55 percent and sales of trailers rose 10 percent.

The Labor Department said initial claims for unemployment benefits fell 9,000 last week to a seasonally adjusted 346,000. A four-week moving average that irons out week-to-week volatility fell 2,750 to 345,750. The report signaled little change in the pace of job growth, which has averaged 189,000 jobs per month so far this year.

A range of recent data, including reports on regional factory activity, business spending plans and consumer confidence, have pointed to an economy that is regaining its footing after stumbling early in the second quarter.

A big part of that stabilization is due to the strengthening housing recovery. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in May, increased 6.7 percent to 112.3; the highest level since December 2006.

While part of the jump in pending sales reflected a rush by buyers to lock in deals before mortgage rates climbed higher, it also signaled underlying strength. House price gains have helped buoy consumer spending in the face of higher taxes and tepid income growth.

Income, however, grew 0.5 percent last month, the largest gain since February, after nudging up 0.1 percent in April, the Commerce Department report showed. The gain helped lift the saving rate to a five-month high of 3.2 percent.

The report also showed a bit of inflation in the economy, pointing to some pick-up in demand. A price index for consumer spending inched up 0.1 percent in May after declining two straight months, and a core reading that strips out food and energy costs also rose 0.1 percent after being flat in April.

Over the past 12 months, inflation increased 1 percent, well below the Fed's 2 percent target but up from 0.7 percent in the period through April. Core prices were up 1.1 percent from a year ago, the same as in April. While that suggested some stabilization after a long period of disinflation, it matched a record low reached only a few times since the series started in 1960.