MarketView for June 13

MarketView for Friday, June 13
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Friday, June 13, 2014

 

 

Dow Jones Industrial Average

16,775.74

p

+41.55

+0.25%

Dow Jones Transportation Average

8,042.85

p

+59.81

+0.75%

Dow Jones Utilities Average

542.42

p

+3.05

+0.57%

NASDAQ Composite

4,310.65

p

+13.02

+0.30%

S&P 500

1,936.16

p

+6.05

+0.31%

 

Summary

 

The major equity indexes turned in positive numbers by the closing bell on Friday, the result of some bullish news from the tech sector. However, for the week the major indexes were in negative territory as unrest in Iraq kept investors on edge. For the week, the Dow Jones industrial average was down 0.9 percent, the S&P was 0.7 percent lower and the Nasdaq was down 0.25 percent. The week's decline was the first after three weeks of consecutive gains on the S&P 500. For the year, the broad market index is up about 4.8 percent.

 

Intel was one of the S&P 500's largest gainers and one of Nasdaq's most active names, but overall gains were capped as investors kept a close watch on violence in Iraq that drove oil prices to their highest level since September. Nonetheless, the CBOE Volatility index ended the day down 3 percent to 12.18.

 

Intel ended the day up nearly 7 percent to $29.87, a day after the company increased its full-year revenue outlook, citing stronger-than-expected demand for personal computers used by businesses.

 

President Barack Obama said on Friday he needs several days to determine how the United States will help Iraq deal with a militant insurgency, but he ruled out sending U.S. troops back into combat and said any intervention would be contingent on Iraqi leaders becoming more involved.

 

OpenTable chalked up a gain of 48.3 percent to $104.48 in heavy trading after Priceline indicated that it would buy the company for $2.6 billion. Priceline fell 3 percent to $1,189.30. Among other Internet names, Yelp rose 13.8 percent to $74.92 and GrubHub was up 7 percent at $36.00.

 

Finisar fell 21.9 percent to $19.71 a day after forecasting weaker-than-expected earnings, citing higher capital expenditure in China.

 

Brent crude continued to rise above $113 a barrel on Friday, up about $4 since the start of the week, on concerns that an insurgency in Iraq could trigger civil war and eventually hit oil exports.

 

In macroeconomic news, consumer sentiment unexpectedly fell in June as views by consumers with the lowest incomes soured, according to the preliminary June read from the Thomson Reuters/University of Michigan's index.

 

Approximately 5.07 billion shares changed hands on major equity exchanges, a number that was below last month's average volume of about 5.76 billion shares, according to data from BATS Global Markets.

 

Producer Prices Fall

 

The Labor Department said on Friday its producer price index for final demand slipped 0.2 percent, braking sharply from April's 0.6 percent increase, which was the largest gain in 1-1/2 years.

 

The department revamped its PPI series at the start of the year to include services and construction. The series is volatile because of large swings in prices received for trade services, making it hard to get a good read on inflation.

 

Wholesale prices had indicated an increase in inflation pressures in recent months. However, Friday's report now indicates that inflation at the factory gate remained muted with the main gauge watched the Federal Reserve continuing to run below the U.S. central bank's 2 percent target.

 

However, with the labor market tightening, price pressures are expected to build-up a bit by year end and position the Fed to make its first interest rate hike in the second half of 2015.

 

The Fed, which is cutting back on the amount of money it is injecting into the economy through monthly bond purchases, has kept overnight lending rates near zero since December 2008.

 

In the 12 months through May, prices received by the nation's farms, factories and refineries rose 2.0 percent, moderating from April's 2.1 percent gain. Wholesale food prices fell 0.2 percent after increasing for four consecutive months, while gasoline prices fell 0.9 percent.

 

Prices received for services at the final demand level also fell 0.2 percent after gaining 0.6 percent in April. Producer prices excluding food and energy slipped 0.1 percent in April after advancing 0.5 percent the prior month. In the 12 months through May, the core PPI for final demand rose 2.0 percent, adding to the 1.9 percent gain in the period through April.

 

Consumer Sentiment Lower

 

Consumer sentiment fell in June as views by consumers with the lowest incomes soured, a survey released on Friday showed. The Thomson Reuters/University of Michigan's preliminary June reading on the overall index on consumer sentiment came in at 81.2, down from 81.9 the month before. It was below the median forecast of 83.0 among economists polled by Reuters.

 

The survey's barometer of current economic conditions rose to 95.4 from 94.5 and was below a forecast of 95.7, while a gauge of consumer expectations fell to 72.2 from 73. The survey's one-year inflation expectation was at 3.0 percent down from 3.3 percent, while the survey's five-to-10-year inflation outlook was at 2.9 percent compared with 2.8 percent.

 

OECD Sees Continued Economic Growth Through 2015

 

The Organization for Economic Cooperation and Development (OECD) reported on Friday that our domestic economic recovery should accelerate in coming months as an energy boom, steadily falling unemployment and a rebound in investment push growth to its fastest pace in a decade.

 

In its latest overview of the U.S. economy, the Paris-based group said our gross domestic product would expand 2.5 percent this year and 3.5 percent next year, which would be the strongest advance since 2004.

 

The OECD is more optimistic than most private forecasters and some other international organizations, including the World Bank, which looks for growth in 2015 of only 3.0 percent. However, the OECD said it saw several positive trends converging to make the recovery faster, more entrenched and more driven by private demand.

 

Low energy prices and continued low borrowing costs, coupled with record corporate stores of cash, should produce a surge of 10 percent in business investment in 2015, the OECD projected, while steadily falling unemployment would mean rising consumer demand and a firm recovery in housing over the next year.

 

The OECD said that the steps taken to rein in federal spending and debt in recent years were succeeding. The drag on the economy from budget cuts has diminished, while federal debt as a percentage of GDP was stabilizing at around 106 percent - high by world standards but perhaps set to decline. Yet it also warned that some trends in labor markets could hurt our prospects.

 

Despite stronger growth, the group forecast the unemployment rate would decline only slowly, remaining at 6 percent at the end of 2015 - still above the level typically regarded as full employment. The jobless rate stood at 6.3 percent in May.

 

The continued stagnation of wages among middle- and lower-income families has stunted demand and worsened income inequality, the OECD said. It called for tax law changes and an increase in the minimum wage to address the issue.

 

Declining labor force participation also poses a problem which the OECD said could be addressed through reform of immigration laws, or employee tax and training programs that encourage people to work. It recommended specifically a broadening of the earned income tax credit.

 

The OECD said the United States should also cut its 39.1 percent corporate tax rate, the highest among OECD countries, and reform the system to broaden the base of corporations paying taxes and to give businesses less incentive to book profits abroad.