MarketView for June 19

Summary

It was another record high for the S&P 500 index on Thursday, extending gains for a fifth day and due in no small part to the comments by Fed Chair Janet Yellen indicating that the Fed will keep interest rates low for a long period of time. The advance marked the S&P 500's second record close in a row. However, the gain was slim, as was the gain by the Dow Jones industrial average, however, with both indexes recovering late in the session from earlier losses. Retailers, including Coach, weighed on the index.

The CBOE Volatility Index bounced back slightly, ending up 0.1 percent at 10.62, a day after closing at its lowest since February 2007.

Energy shares ranked among the day’s best performers. Oil prices ended higher after President Barack Obama said he was sending up to 300 military advisers to Iraq as the Iraqi government's troops fought Sunni rebels for control of the country's largest refinery.

Shares of Chevron closed up 1.3 percent at $131.99, while Coach ended the day down 8.9 percent at $35.69 and was the S&P 500's largest percentage loser. The upscale retailer, known for its handbags, said during an investor day presentation that it expected revenue to fall by low double digits in percentage terms for the year ending June 2015. It also said it would close 70 underperforming stores.

At the same time, Michael Kors, a Coach rival, fell 1.6 percent to $89.36. Shares of Pier 1 Imports fell 13.1 percent to $15.86 after the home decor retailer cut its full-year earnings forecast.

BlackBerry saw its share price rise by 9.7 percent to $9.09 after the Canadian smartphone maker reported a smaller-than-expected first-quarter loss.

Initial claims for state unemployment benefits fell by 6,000 claims to a seasonally adjusted 312,000 claims.

Factory activity in the Mid-Atlantic region grew at a faster pace than expected in June. The Philadelphia Federal Reserve Bank said its business activity index hit 17.8, up from 15.4 in May.

Approximately 5.8 billion shares changed hands on the major equity exchanges, a number that was higher than the average of 5.4 billion shares traded during the month to date, according to data from BATS Global Markets.

Unemployment Claims Fall

The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to strengthening labor market conditions. The Labor Department reported Thursday morning that initial claims for state unemployment benefits declined by 6,000 claims to a seasonally adjusted 312,000 claims for the week ended June 14. A Labor Department analyst said there were no special factors influencing the state level data.

The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, fell by 3,750 claims bringing the average down to 311,750 claims last week.

The data covered the survey week for June's nonfarm payrolls. The four-week average for claims declined 11,000 between the May and June survey periods, suggesting payroll growth will probably increase from last month's gain of 217,000 jobs.

The economy, which has recovered all the 8.7 million jobs lost during the recession, has enjoyed four straight months of job gains above 200,000, a stretch last seen in early 2000. Other measures such as job openings and hiring intentions by small businesses have also pointed to a normalization of the labor market.

The claims report showed the number of people still receiving benefits after an initial week of aid dropped by 54,000 to 2.56 million in the week ended June 7, the lowest level since October 2007.

The so-called continuing claims have been trending lower, an indication that some long-term unemployed were finding work. The unemployment rate for people collecting unemployment benefits fell to 1.9 percent during the week ended June 7, the lowest since October 2007, from 2.0 percent the prior week.

Fed Meeting Recap

The Federal Reserve reduced its 2014 economic growth forecast to a range of between 2.1 to 2.3 percent, the result of a larger-than-expected contraction in the first quarter of the year. However, the Federal Open Markets Committee left its forecast for interest rates largely intact, predicting as earlier that an initial increase of the benchmark federal funds rate from the current zero level would not take place until next year, and the rate would not rise rapidly after that.

The FOMC, as expected, decided to ratchet down its bond-buying stimulus program by another $10 billion, taking it to $35 billion a month from $85 billion in December.

The central bank policymakers said economic growth "has rebounded in recent months" from the first-quarter contraction. Household spending and business investment are both rising, the committee said in their policy statement. However, they also said that unemployment, even with the rate now at 6.3 percent, "remains elevated", and that the recovery of the housing sector is slow.

In March the Fed forecast gross domestic product growth at 2.8-3.0 percent, before the depth of the winter setback, partially due to extremely harsh weather across much of the country, was known. But central bank officials stayed with their prediction for GDP growth of 3.0-3.2 percent in 2015, with inflation holding at around 2.0 percent.

They also see the unemployment rate, a key indicator for monetary policy, falling from the current 6.3 percent to 6.0-6.1 percent by year-end, and 5.4-5.7 percent in 2015, both slightly lower than previously forecast.

There was a very slight upward change to the FOMC's much-watched "dot chart" plotting out where participants in the monetary policy meeting see interest rates going for the next three years. On average the fed funds rate is predicted to reach 1.125 percent by the end of 2015, as compared to a previous forecast of 2.0 percent, and 2.125 percent at the end of 2016. At the same time, the committee reduced slightly their forecast for further increases after that.