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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Thursday, June 26, 2014
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.
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MarketView for June 26
MarketView for Thursday, June 26