MarketView for March 28

Summary 

Despite spending most of the day in positive territory, the major equity indexes ended the day in negative territory on Monday as the corporate outlook was clouded ahead of earnings and uncertainty continued to creep from abroad, while volume hit its lowest level of the year.

A warning from hotel operator Marriott that hurt hotel and other consumer shares during the regular session was followed after the bell by oilfield services company Halliburton’s announcement that first-quarter earnings could be trimmed. Marriott International fell 6.3 percent to $35.30 during the regular session, while Halliburton dropped 1.9 percent to $47 after the bell.

The only real strength came from the telecommunications sector that was aided by the consumer spending data. As a group the telecom stocks ended the day with a 1.4 percent gain. Global communication handset maker Nokia put on a strong performance with help from an upgrade by analysts at Goldman Sachs. Goldman also upgraded a number of other companies, including AT&T and Verizon. AT&T rose 1.8 percent to close at $29.36, while Verizon gained 1.2 percent to close at $37.75, curbing losses in the blue-chip index.

Analysts at Instinet in New York said a battle over the territory just beyond the day's highs on the S&P 500 was likely to continue in the upcoming sessions. "Over the very near term ... the odds point toward another short-term firefight in the 1,320-1,330 area," Instinet's note said.

About 5.9 billion shares traded on the changed hands on the three major exchanges, the lowest volume in 2011. Last Tuesday's 6.54 billion was the lowest until Monday.

Consumer spending rose slightly more than forecast in February, while inflation accelerated at its fastest pace since June 2009.

Eastman Kodak closed up 5.3 percent at $3.58, making it the NYSE's third-most active stock after a U.S. trade panel agreed last week to review a case that could bring the struggling photography company hundreds of millions of dollars in royalties.

EBay plans to buy e-commerce service provider GSI Commerce for nearly $2 billion to build up its online marketplaces as it ramps up its battle with Amazon.com. GSI shares closed up 50.7 percent to $29.20 in Nasdaq trading, while eBay lost 4.3 percent to close at $30.34 and Amazon was down nearly 1 percent to end the day at $169.35.

Also adding to the day’s concerns on the Street was the news that highly radioactive water has leaked from a reactor at Japan's crippled nuclear complex, according to the plant's operator, while environmental group Greenpeace said it had detected high levels of radiation outside an exclusion zone, adding to mounting problems in Japan's battle to contain the world's worst atomic crisis since Chernobyl.

Does Growth Portend Inflation

According to a report released on Monday by the Commerce Department, consumers increased their spending for an eighth straight month in February, but much of the gain went to cover rising food and energy costs, providing only a modest lift to the economy. Another report indicated pending sales of previously owned homes rose unexpectedly in February, pointing to a rebound in sales in March after a string of poor housing market data.

While the latest economic data does suggest that the rising cost of living could indeed reduce the rate of growth in the first quarter, the recovery from the worst recession since the 1930s remains intact. Spending rose 0.3 percent, when adjusted for inflation, after being flat in January. Prices rose 0.4 percent, the most in just over 1-1/2 years. Consumer spending accounts for about 70 percent of U.S. economic activity.

Before adjusting for inflation, spending rose 0.7 percent. Incomes rose 0.3 percent after rising 1.2 percent in January. With consumption outpacing income growth, households cut back on saving to cover higher living costs. Savings fell to an annual rate of $676.7 billion from $710.5 billion in January.

Consumer spending rose at a 4 percent annual rate in the last three months of 2010, the quickest in more than four years. That helped spur the economy ahead at a 3.1 percent pace. Many economists expect spending to grow at a fairly tepid rate of between 2 and 2.5 percent in the first quarter, with the overall economy expanding between 2.5 and 3.5 percent. But some see auto sales firming and expect overall spending to be fairly solid. Automakers release March's sales figures on Friday.

Consumers last month spent more freely on long-lasting goods, such as cars, and some economists took that as a sign of confidence in the economy. However, the spending report also showed food and energy prices pushing up inflation in February. The personal consumption expenditures price index rose 0.4 percent, the fastest since June 2009, after gaining 0.3 percent in January.

In contrast, a core price measure, which strips out food and energy costs to provide a better view of inflation trends, rose just 0.2 percent, the same as in January. The core index, which is closely monitored by officials at the Federal Reserve, was up 0.9 percent in the 12 months through January. The index hit a record low of 0.7 percent in December.

Fed Chairman Ben Bernanke has said high food and energy costs should prove transitory, but that the central bank was prepared to act if needed to ensure an inflation psychology does not take root.

With growth picking up and the labor market improving, Federal Reserve policymakers have been debating whether it is time to curtail the central bank's $600 billion bond buying program aimed at supporting the economy by keeping interest rates low.