MarketView for March 12

Summary 

An assortment of economic data that led to no definite conclusion as to economy’s direction also left Wall Street directionless with the major equity indexes virtually unchanged for the day but up higher for the week. February retail sales rose after forecasts had called for a decline, sending Macy’s shares up 3.3 percent to close at $21.75. At the same time, a separate report indicated that consumer sentiment moved slightly lower in early March.

For the week, the Dow posted a gain of 0.55 percent, the S&P 500 was up 1 percent and the Nasdaq a gain of 1.78 percent.

Bank shares were lower after having dominated the week's activity on what was an improved outlook for the sector. Citigroup closed down 5 percent to $3.97 on Friday, but was still up 13.4 percent for the week, its best week of gains since last August.

Shares of health insurers were lower as a group, sending Aetna’s shares down 2.6 percent to $31.84.

Caterpillar rose 2.5 percent to close at $60.36 after the heavy equipment maker said it could triple its current output of hydraulic excavators.

In other economic data, the Commerce Department reported that business inventories were unchanged in January.

Yellen is a Leading Contender to be Vice Chair of Fed

Janet Yellen is currently the leading candidate to replace Donald Kohn as Vice Chairman of the Fed. Kohn is a 40-year veteran of the Fed who announced earlier this month that he would retire on June 23. Sarah Raskin, commissioner of financial regulation for the state of Maryland, and Peter Diamond, an economics professor at MIT, are under strong consideration to fill other vacancies at the Fed.

Yellen is widely respected within the Fed system and academia, although her reputation as a "dove," giving weight to growth and employment, has caused some concern in financial markets.

The Fed's mandate is to keep inflation low and stable while ensuring low unemployment, and policymakers regularly debate which portion of the mandate deserves greater emphasis at any given phase of the business cycle.

"It's a great choice," said former Fed Vice Chairman Alan Blinder, an economics professor at Princeton University. Fed Chairman Ben "Bernanke needs someone with intellectual heft on economics, and she provides that."

The potential choices of Raskin and Diamond, who has focused extensively on the future of the government-backed Social Security retirement system, reflect a desire to bolster the Fed's regulatory credibility and address growing alarm about the unsustainable U.S. fiscal position.

Diamond's "an extraordinarily talented economist," said Alice Rivlin, another former Fed No. 2, speaking of Diamond. "He hasn't been a monetary person particularly but he's a very good macroeconomist and very smart."

If confirmed by the Senate, the three will help steer the Fed out of an unprecedented level of monetary stimulus and defend the Fed's regulatory capabilities before a skeptical Congress, which faults the central bank for lapses that contributed to a financial crisis.

Obama wants to nominate someone to be vice chairman in time to get them through the Senate confirmation process by the time Kohn retires.

Yellen would serve a four-year term as vice chairman concurrent with a separate term as a member of the Fed's board. Fed board terms are for 14 years. The board terms that need to be filled would expire in 2014, 2016 and 2024.

Higher Retail Sales

According to Friday’s report by the Commerce Department, retail sales rose an unexpected 0.3 percent last month despite heavy snow storms that were thought to have kept shoppers at home and bolstered hopes of a sustainable economic recovery.

Consumers bought an array of goods from necessities to luxury items. January sales, however, were revised down to a gain of 0.1 percent from the previously reported increase of 0.5 percent.

The rise in retail spending came even as consumers’ moods were turning increasingly negative. Thomson Reuters/University of Michigan's Surveys of Consumers' index on consumer sentiment slipped to 72.5 from 73.6 in February. That was below market expectations for 73.6.

Even more encouraging, core retail sales -- which correspond most closely with the consumer spending component of the government's gross domestic product report -- increased 0.9 percent after rising 0.6 percent in January.

A second report from the Commerce Department showed business inventories were unchanged in January after falling by 0.3 percent in December. Inventories are a key component of gross domestic product changes over the business cycle and a sharp slowdown in the pace of inventory liquidation handed the economy its fastest growth rate in six years in the fourth quarter.