MarketView for June 3

Summary

The major equity indexes ended the day in negative territory on Tuesday, although trading volume was light. Both the Dow Jones Industrial Average and the S&P 500 indexes fell back from Monday's record closing levels as investors found little reason to buy following the latest rally. A rise in semiconductor companies' shares limited losses. Approximately half of the 10 primary S&P 500 sector indexes were settled in negative territory, led by the telecom sector. Google weighed heavily on the Nasdaq, ending the day down1.7 percent to close at $544.51.

The CBOE Volatility Index rose for a second straight day, up 2.5 percent, though it remained under 12, well below the historical average of 20. While the level of the VIX indicates a lack of fear in the market, some investors are concerned that it also reflects a sense of complacency.

Shares of semiconductor companies ranked among the market's leaders after Skyworks Solutions raised its earnings and revenue outlook, driving its stock price up 6 percent to $45.65. Broadcom also gave chipmakers a lift, ending the day up 3 percent at $35.88,.

Automakers attracted attention after both General Motors and Ford Motor reported May sales that exceeded expectations. GM ended the day up 1.1 percent to close at $35.26 while Ford gained 0.7 percent to end the day at $16.55.

Hillshire Brands rose 9.5 percent to $58.65 after Pilgrim's Pride raised its offer to buy Hillshire and topped an offer from Tyson Foods. Hillshire said it would talk with both parties. Pilgrim's stock fell 2.2 percent to $25.34. Tyson ended the day down 3 percent to close at $42.08.

In the latest economic data, April factory orders rose 0.7 percent, topping forecasts.

Trading volume was light with about 5.1 billion shares changing hands on the major equity exchanges, a number that was below last month's average of 5.75 billion shares, according to data from BATS Global Markets.

Factories Continue to Improve

New factory orders rose for a third straight month in April, while automakers reported robust vehicle sales in May, boosting the outlook for second-quarter economic growth. Tuesday's reports added to bullish employment and other manufacturing data in suggesting the economy has rebounded smartly from the first quarter's weather-induced slump.

Factory orders increased 0.7 percent after an upwardly revised 1.5 percent advance in March, the Commerce Department said. March's orders had previously been reported as having risen 0.9 percent. Excluding the volatile transportation category, orders rose 0.5 percent, the third straight monthly gain. Unfilled factory orders recorded their largest gain since November, indicating factories will be busy in the months ahead, and shipments rose for a third consecutive month.

Surprisingly strong U.S. sales from automakers in May bolstered the upbeat view on the factory sector and suggested manufacturing was poised for further growth. Auto sales surged 11.4 percent from a year earlier to a seasonally adjusted annual 16.77 million unit rate, the strongest pace since February 2007, according to research firm Autodata.

General Motors and Chrysler said May sales were the best for that month in seven years. Nissan set a sales record for May and Hyundai had its best month ever.

The economy should also get a lift as businesses rebuild inventories after hunkering down in the first quarter to work through piles of stocks accumulated late last year. Factory inventories rose 0.4 percent in April.

The rise in inventories combined with the increase in auto sales prompted Barclays to raise its estimate of second-quarter GDP growth by two-tenths of a percentage point to a 3.0 percent annual rate.

Forecasting firm Macroeconomic Advisers lifted its forecast to 3.9 percent from 3.8 percent, based on factory inventories, while Goldman Sachs upped its estimate by one-tenth to 3.8 percent. The U.S. economy contracted at a 1.0 percent rate in the first quarter.