MarketView for June 16

Summary

The major equity indexes were slightly higher on Monday, with the exception of the Dow Jones transportation average, supported primarily by M&A news. At the same time the turmoil in Iraq drove oil prices up and kept trading choppy. The United States said it is considering air strikes and cooperation with its arch-enemy, Iran, to help the Iraqi government fend off an Islamist insurgency.

Energy stocks were the day's winners, with the S&P energy index up 0.5 percent. The S&P financial sector index was the biggest decliner, down 0.4 percent.

On the merger front, medical device maker Medtronic agreed to acquire Covidien for $42.9 billion and shift its executive headquarters to Ireland in the latest move by U.S. companies to take advantage of lower tax rates abroad. Medtronic shares ended the day down 1.1 percent to close at $60.03. In contrast, Covidien's stock closed up 20.5 percent to $86.75, making it the S&P 500's biggest percentage gainer.

Williams Companies ended the day up 18.7 percent to $56.02. The stock was the S&P 500's second largest percentage gainer. The pipeline operator said it agreed to acquire control of Access Midstream Partners LP for $5.99 billion as the first step toward merging it with its operations.

Level 3 Communications agreed to acquire Internet services provider tw telecom for $40.86 per share in a cash-and-stock deal. Level 3 shares fell 4.1 percent to $42.30, while tw telecom's stock ended the day up 7.3 percent to $38.99.

Fusion-io closed up 22.4 percent to $11.36 after SanDisk announced it planned to acquire the company for about $1.1 billion to boost its flash storage drive business. SanDisk ended the day up 3.6 percent to close at $102.00.

Crude oil futures were higher in choppy trading as advances by Sunni insurgents in Iraq fed concerns about a potential disruption to oil exports from the second-largest OPEC producer. Brent crude for August delivery rose 48 cents to settle at $112.94 a barrel, off an intraday high of $113.28.

Economic data was positive. New York State accelerated sharply this month, adding to the idea that we will see a strong rebound in economic growth this quarter.

Approximately 5.28 billion shares changed hands on the major equity exchanges, a number that was slightly below last month's average of about 5.76 billion shares, according to data from BATS Global Markets.

Factory Production Rises

Manufacturing output was higher during the month of May and factory activity in New York state accelerated sharply this month, adding to the forecast of a strong rebound in economic growth this quarter.

The Federal Reserve reported on Monday that factory production increased 0.6 percent during May across the board. Output had slipped 0.1 percent in April and economists had expected it to rise 0.5 percent last month.

New orders hit their highest level in four years. Although factory job growth slowed, employers increased hours for their workers. This was the latest evidence the economy was regaining steam after a dismal first quarter, when growth contracted at a 1.0 percent annual pace.

Data ranging from employment to services industries have pointed to a strong come back in the economy. Growth rate estimates for the April-June quarter range as high as 4 percent.

Manufacturing output saw a 1.5 percent increase in motor vehicle production. That came on the heels of a 0.1 percent decline in April. There were also gains in the production of machinery, computer and electronic products, electrical equipment and appliances, and fabricated metal products.

Production of primary metals slipped. Mining output rose 1.3 percent in May, adding to April's 1.6 percent increase. But utilities production fell 0.8 percent, declining for a fourth consecutive month.

The rise in manufacturing and mining output helped boost overall industrial production by 0.6 percent in May. It had declined 0.3 percent in April.

The amount of manufacturing capacity in use rose to 77.0 percent last month, the highest level since March 2008, from 76.7 percent in April. Overall industrial capacity increased to 79.1 percent from 78.9 percent. It remained 1.0 percentage point below its long-run average.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy, and how much room there is for growth to run before it becomes inflationary.

In a separate report, the Federal Reserve Bank of New York said its "Empire State" general business conditions index rose to 19.28 this month, the highest reading since June 2010, from 19.01 in May. Readings above zero indicate growth.

Home Builder Confidence Rises

Confidence among homebuilders rose for the first time this year as builders felt better about their prospects of selling new homes, according to the National Association of Home Builders/Wells Fargo index. The index was up four points to 49 in June, coming in just a point below the level that indicates favorable conditions. June's index came in above May's 45 showing, which was the weakest since May 2013. A reading below 50 means more builders view market conditions as poor than favorable. The June reading was the index's fifth in a row to come in below 50.

The housing market is still finding its feet after a slump brought on by protracted winter weather conditions that put a damper on construction and sales. Homebuilders have expressed concern about the continued tighter credit conditions, a shortage of building lots, and rising homes prices.

The index's single-family home sales component rose to 54, also the first rise this year, from last months' reading of 48. The gauge of single-family sales expectations for the next six months edged up to 59 from 56 in May, the highest reading for this component since January. May’s number was previously reported at 57. The index of prospective buyer traffic rose to 36 from May's reading of 33.