MarketView for March 30

Summary 

The major equity indexes closed out their strongest quarter in more than two years on Friday, led by recently underperforming sectors, including energy and health care. Despite falling six out of the last nine sessions, the S&P 500 gained 12 percent in the first quarter, its best start of the year since 1998 and the best overall quarter since the third quarter of 2009.

Apple, down 1.7 percent at $599.55, was among the day's losers and reined in the Nasdaq. Still, the iPhone maker's stock soared 48 percent this quarter to close with a market capitalization of $558.9 billion.

Consumer-oriented shares were much sought after when data indicated that consumer spending rose by the most in seven months during February, though personal income rose only modestly.

However, volume was lackluster during the quarter with an average of 6.82 billion shares traded daily on the three major equity exchanges, down from last year's 7.94 billion average in the first three months. On Friday, about 6.5 billion shares changed hands.

The pace of business activity in the U.S. Midwest slowed more than expected in March as employment and new orders dropped from elevated levels last month, according to the Chicago PMI report from the Institute for Supply Management-Chicago.

In a more upbeat report, consumer sentiment rebounded to its highest level in more than a year in March as optimism about jobs and income overcame higher prices at the gasoline pump, according to the Thomson Reuters/University of Michigan Surveys of Consumers.

Research in Motion rose 7.1 percent to $14.70 a day after it reported its first quarterly loss since 2005. In a candid diagnosis of the company's problems, the new chief executive said on Thursday he might consider selling RIM, but he stopped short of saying that was the direction he was taking.

Increase in Consumer Spending

According to a report released by the Commerce Department on Friday, consumer spending increased by the greatest amount in seven months during February, indicating the possibility of higher than expected first quarter GDP growth. Even with gasoline around $4 a gallon, consumers were more optimistic about the economy's prospects this month than at any other time over the past year, drawing solace from a firming labor market.

According to the released day, consumer spending rose 0.8 percent in February as demand for long-lasting goods, like automobiles, rose sharply. It also said spending in January was double the previously reported 0.2 percent gain. When adjusted for inflation, spending advanced 0.5 percent, the largest gain since September.

Separately, the Thomson Reuters/University of Michigan's final March reading for the overall consumer sentiment index rose to 76.2, the highest level since February 2011, from 75.3 in February.

With confidence holding up, consumer spending should remain supported in the first half of the year and soften the impact of reduced factory activity.

However, another report indicated that the growth in factory activity in the Midwest slowed in March, with employment and new orders pulling back from recent lofty levels. The Institute for Supply Management-Chicago's business barometer slipped to 62.2 from 64.0 in February. A reading above 50 indicates expansion in the regional economy.

Last month's increase in consumer spending suggested households were taking surging gasoline prices in stride. Prices at the pump averaged $3.97 a gallon in the week to Monday and have risen 62 cents since the start of the year.

Earlier this week, Wal-Mart said that sales in the last two months had withstood rising gas prices and a tough economy that worried many of its shoppers. Apparently the higher gasoline prices are being mitigated by falling natural gas prices, which have been depressed by abnormally warm weather that has curbed demand for heating.

A modest 0.2 percent rise in income helped cover some of the rise in spending last month, but consumers also saved less. The saving rate, the amount of disposable income socked away, dropped to 3.7 percent, the lowest rate since August 2009.

Disposable income that amount left after taxes and inflation, declined for a second straight month, a worrying trend that could eventually put the brakes on spending. Spending on goods meant to last three years or more rose 1.6 percent after advancing 1.4 percent the prior month, a reflection of a pickup in auto sales, which reached their highest level in four years in February.

Spending on services, which accounts for about two thirds of consumption, notched its strongest gain in nearly two years. Despite rising gasoline costs, inflation was largely contained.

A price index for personal spending rose 0.3 percent in February after increasing 0.2 percent the prior month. In the 12 months through February, the so-called PCE price index was up 2.3 percent. It increased 2.4 percent in January.

A core inflation measure, which strips out food and energy costs, edged up 0.1 percent after rising 0.2 percent in January. In the 12 months through February, core prices rose 1.9 percent, the same as in January.