MarketView for June 26

MarketView for Thursday, June 26
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Thursday, June 26, 2014

 

 

Dow Jones Industrial Average

16,846.13

q

-21.38

-0.13%

Dow Jones Transportation Average

8,149.97

q

-14.50

-0.18%

Dow Jones Utilities Average

569.99

p

+0.82

+0.14%

NASDAQ Composite

4,379.05

q

-0.71

-0.02%

S&P 500

1,957.22

q

-2.31

-0.12%

 

Summary 

 

The major equity indexes were slightly lower on Thursday after St. Louis Fed President James Bullard reiterated his belief that raising rates by the end of the first quarter of 2015 would be appropriate. He said the jobless rate will fall below 6 percent and inflation looks likely to rise back to 2 percent later this year, putting the economy closer to normal than most realize. Bullard is a non-voting member of the Federal Open Markets Committee, the Fed's policy-making panel.

 

The Fed had hinted after its meeting this month about a slightly faster pace of interest-rate increases starting next year, but suggested rates in the long run would be lower than it had indicated previously.

 

Barclays fell 7.4 percent to $14.55 after New York State's attorney general filed a securities fraud lawsuit against Barclays, accusing the British bank of giving an unfair edge in the United States to high-frequency trading clients. The Barclays fallout hit other European banks. Shares of UBS were down 2.4 percent to $18.47. Credit Suisse fell 3.6 percent to $28.29.

 

Look for an increase in trading volume ahead of the close on Friday, when Russell Investments announces the final reconstitution of its indexes.

 

The CBOE Volatility Index edged up just 0.4 percent to 11.63, or about half of its historical average. That actually makes sense, given the stock market's recent record highs.

 

In after-hours trading shares of Nike rose 3 percent to $79.15 after reporting a higher quarterly profit. Shares of Manitowoc were up 11.4 percent to $33.10 after sources said Relational Investors has amassed a stake in the company with the intent of a breakup.

 

During the regular session, Bed Bath & Beyond fell 7.2 percent to $56.70. The stock was the S&P 500's biggest percentage decliner, a day after the retailer gave a second-quarter earnings outlook that was below expectations.

 

The stock of the wearable sports camera maker GoPro surged 30.6 percent to $31.34 in the first day of trading.

 

Alcoa rose 2.7 percent to $14.94 after the company agreed to buy aircraft parts maker Firth Rixson from private equity firm Oak Hill Capital Partners for $2.85 billion in cash and stock.

 

Market reaction was muted to data that showed consumer spending rose less than expected in May. It was probably held back by weak healthcare spending, which could prompt economists to temper their second-quarter growth estimates.

 

In a separate report, the Labor Department said new applications for state unemployment benefits slipped 2,000 to a seasonally adjusted 312,000 for the week ended June 21.

 

Approximately 5.1 billion shares changed hands on the major equity exchanges, a number that was below the 5.6 billion share average month-to-date, according to BATS Global Markets.

 

Economic Data is Mixed Once Again

 

Consumer spending rose less than expected in May, prompting a downgrade of estimates for second-quarter growth. However, there is little doubt the economy is expanding. Another report on Thursday showed the number of Americans seeking unemployment benefits fell again last week.

 

Even as growth forecasts were lowered for this quarter, there was an increase in spending on durable goods. At the same time there is a question of how much spending was really down given problems calculating outlays for healthcare. Healthcare spending has been volatile with the implementation of President Barack Obama's signature law early this year, but the swings should subside as the year progresses.

 

The Commerce Department reported that consumer spending increased 0.2 percent in May after being flat in April, but had declined for the second straight month when adjusted for inflation. That suggests consumer spending, which accounts for more than two-thirds of all economic activity, could struggle to regain momentum this quarter after growing at its slowest pace in nearly five years in the first three months of the year.

 

Yet again spending in May was probably constrained by healthcare, as inflation-adjusted outlays on services fell for a second month. Healthcare was behind a sharp downward revision to first-quarter gross domestic product data, released on Wednesday.

 

The government reduced its growth estimate to show the economy contracting at a 2.9 percent annual rate, the worst performance in five years, instead of only a 1 percent pace. However, spending on automobiles rose sharply accounting for more than half of the 1 percent rise in durable goods.

 

At the same time, income increased for a fifth successive month, with savings hitting an eight-month high.

 

In the wake of the spending data, second-quarter growth estimates which had ranged as high as a 4.0 percent rate were cut to as low as a 2.2 percent pace.

 

In a separate report, the Labor Department said new applications for state unemployment benefits slipped 2,000 to a seasonally adjusted 312,000 for the week ended June 21.

 

The declining claims suggest a recent streak of monthly payroll job gains above 200,000 is likely to be sustained, lending the economy enough momentum for inflation to start perking up.

 

The four-week average of claims, a less-volatile measure than the weekly figure, rose to 314,250 from 312,250 the week before. The number of people continuing to receive jobless benefits climbed by 12,000 to 2.57 million in the week ended June 14. The unemployment rate among people eligible for benefits rose to 2 percent during that period from 1.9 percent, today's report showed.

 

A price index for consumer spending increased 0.2 percent in May, rising by the same margin for a third consecutive month.

 

In the 12 months through May, the personal consumption expenditures (PCE) price index was up 1.8 percent, the largest gain since October 2012. It had advanced 1.6 percent in April.

 

Excluding food and energy, prices also posted a 0.2 percent gain. This so-called core index increased 1.5 percent from a year ago, the biggest gain since February last year. Both gauges, however, remain below the Fed's 2 percent goal.