MarketView for March 15

 

 

Summary

 

The S&P 500 closed above 1,400 for the first time since the 2008 financial crisis on Thursday as stocks resumed the upward climb that has produced a steady stream of gains this year. The benchmark index is up for six of the past seven sessions and is on target for its best week since early February. Though 1,400, which marks the highest level for the index since June 2008, it does not have much technical importance; rather it is viewed as a bullish psychological marker.

 

Some investors have called for a pullback, given the 11 percent rise in the S&P 500 since the start of the year. However, interruptions in the rally have been brief, lasting only a couple of days at the most.

 

Apple closed down 0.7 percent to $585.56, ending a six-day streak of gains, though it hit a new all-time high at $600.01 in early trading. Some analysts have predicted the stock will move to $700 within 12 months.

 

New claims for unemployment benefits unexpectedly fell back to a four-year low last week, another sign of improving labor market conditions, while producer prices, excluding food and energy, were contained.

 

Manufacturing data in New York and the mid-Atlantic region also improved, according to regional Federal Reserve surveys.

 

Trading was volatile at the start of "quadruple witching," the dates of expiration and settlement of four types of equity futures and options contracts.

 

Helping transport stocks but hurting energy companies was Britain's decision to cooperate with the United States in a bilateral agreement to release strategic oil stocks in an effort to prevent high fuel prices derailing economic growth in a U.S. election year. Brent crude futures fell 1.1 percent.

 

Cisco ended the day down 1.4 percent to close at $19.91 after it agreed to buy NDS for $5 billion, the Dow component's first major acquisition in over two years.

 

Semiconductors moved higher, led by Advanced Micro Devices, which rose 6.3 percent to $8.25 after Jefferies upgraded the stock to a "buy."

 

Ross Stores reported a higher profit for the holiday quarter as shoppers sought out popular clothing brands at discount prices, and the off-price chain forecast "respectable" sales and profit gains for this fiscal year. Nonetheless, its shares fell 0.4 percent to close at $56.35.

 

Approximately 7.05 billion changed hands on the three major equity exchanges, a number that was below last year's daily average of 7.84 billion shares.

 

Jobless Claims Down – Manufacturing Up

 

Economic growth showed signs of becoming more self-sustaining as the number of Americans claiming new jobless benefits fell back to a four-year low last week and manufacturing activity in the Northeast picked up this month.

 

Thursday's initial claims data for state unemployment benefits was further evidence of an improving labor market after the jobless rate held at a three-year low of 8.3 percent in February. Initial claims dropped 14,000 to a seasonally adjusted 351,000 last week, the Labor Department said, taking claims back to a four-year low reached in February.

 

The four-week moving average for new jobless claims, considered a better measure of labor market trends, was unchanged at 355,750. The firming tone in the job market was reinforced by the manufacturing surveys, which showed factories increased employment this month.

 

First-time applications for jobless benefits have remained in a tight range since mid-February, a hopeful sign for the labor market, which has enjoyed three straight months of employment gains above 200,000.

 

Looking at manufacturing, the New York Federal Reserve said its Empire State general business conditions index rose to 20.21 - its highest level since June 2010 - from 19.53 in February. However the components were mixed with new orders easing, while prices paid chalked up its largest monthly increase in 6-1/2 years.

 

That was in contrast to a report on factory activity in the mid-Atlantic region, where prices paid rose more slowly in March than in February. The Philadelphia Federal Reserve Bank's business activity index showed manufacturing also continued to grow in the region, rising to 12.5 from 10.2.

 

Thursday's reports were the latest to imply the economy was holding its own, even though the pace of growth was expected to slow this quarter from the fourth quarter's 3.0 percent annualized clip.

 

Producer Price Index Up

 

The Labor Department reported on Thursday that its seasonally adjusted producer price index increased 0.4 percent last month, an increase from January's 0.1 percent gain. Wholesale prices excluding volatile food and energy costs rose 0.2 percent, moderating from January's 0.4 percent increase. While that was in line with economists' expectations, it was the third consecutive month of increases in core PPI.

 

Overall producer prices were lifted by a 1.3 percent increase in energy prices after a 0.5 percent drop in January. Food prices dipped 0.1 percent after falling 0.3 percent the prior month. The Fed said on Tuesday the recent steep run-up in oil and gasoline prices would push inflation up only temporarily.

 

Foreclosures Decline

 

Reports on the housing market offered signals that the backlog of foreclosures was starting to move, albeit at a slow pace.

 

Data from RealtyTrac showed the number of Americans receiving delinquency notices on their homes rose 1 percent in February from a month earlier, but overall foreclosure filings, which include default notices, scheduled auctions and bank repossessions, dropped 2 percent.

 

A separate report from CoreLogic showed more foreclosures were finished in January than the month before, but the amount was still short of levels seen a year ago.

 

The pipeline of foreclosures, which have been held up as banks sorted out legal problems with loan documentation, is one of the major challenges facing the housing market. Clearing this inventory could put further downward pressure on home prices, but eventually lay the ground for a healthier market.

 

Oil Slips

 

Oil prices fell as much as $3 a barrel on Thursday after Reuters quoted two UK sources as saying Britain had agreed to cooperate with the United States in releasing strategic oil reserves later this year.

 

Brent oil fell more than $3 a barrel following the report, later paring losses to $1.72. U.S. crude reversed earlier gains and fell more than 56 cents a barrel.

 

A formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves is expected "shortly", one source said. It was discussed at a meeting on Wednesday in Washington between President Barack Obama and Prime Minister David Cameron.

 

The timing and volume of any releases have not been agreed upon, but a detailed plan is expected by the summer, the British sources said. Oil prices recouped some of their losses as traders awaited more details on the plans.

 

An Obama administration official confirmed there have been talks surrounding energy issues between the United States and Britain, but said the White House plans to continue monitoring the oil market and has not struck any deals on Strategic Petroleum Reserve (SPR) use.

 

A release of emergency stockpiles would be the latest effort to prevent high fuel prices derailing economic growth in a U.S. election year. They could also help to combat any oil price spikes due to supply disruptions from Iran.

 

Fuel prices are at record-high seasonal levels and threaten to derail the recovery and draw the ire of motorists, especially those that vote.