MarketView for March 12

Summary

It was an uneventful close on Wednesday, with the Nasdaq up for the first session in five, as the Street tried to come to grips with the evolving situation in Ukraine but shrugged off concern over weakness in China's economy. Meanwhile, the EU agreed a framework for its first sanctions on Russia since the Cold War, a stronger response to the Ukraine crisis than many had expected and a mark of solidarity with Washington in the effort to make Moscow pay for seizing Crimea.

London copper prices, a proxy for economic health due to the metal's broad industrial use, rebounded after hitting its lowest level since July 2010 on concerns over credit problems in China. Copper has fallen 7.7 percent over four sessions. Spot gold hit a six-month high on its safe-haven appeal.

However, despite money being on the sidelines, investors are still worried about missing another leg up in the five-year U.S. equity bull market and therefore are keeping indexes near recent highs.

Geopolitical developments have moved to the forefront this week on a lack of major corporate results and market-moving economic data. The S&P 500 rose 30 percent last year and, after a recent decline, hit a record high last Friday.

Herbalife was down 7.4 percent to $60.57 after the company indicated that the Federal Trade Commission had opened an inquiry into its operations. Shares briefly fell as much as 16 percent.

Shares of Fannie Mae and Freddie Mac  fell sharply, a day after leaders of the Senate Banking Committee announced an agreement on legislation to wind down the government-owned mortgage financiers. Fannie lost 12.2 percent to $3.54 and Freddie fell 16.8 percent to $3.36.

EPL Oil & Gas rose 28.8 percent to $37.50 after the company agreed to be acquired by larger rival Energy XXI Ltd for $2.3 billion including debt. Energy XXI shares fell 7.8 percent to close at $21.54.

Express was down 12 percent to $16.05 after the apparel retailer reported fourth-quarter earnings and forecast a profit for the current quarter that fell far short of analyst expectations.

Oxigene was up 77.3 percent to $4.29. The company said its experimental drug Zybrestat, combined with Roche's cancer drug Avastin, significantly slowed progression of recurrent ovarian cancer better than Avastin alone in a mid-stage clinical trial.

Geron closed down 61.6 percent to $1.69. The company said the FDA ordered a halt to trials of a cancer drug over concerns about potential liver damage.

Approximately 6.4 billion shares changed hands on the major equity exchanges, according to the latest available data from BATS Global Markets, a number that was below the 6.9 billion daily share average so far this month.

Economic Growth Could Surprise

Economic growth during the fourth-quarter could surprise and come in at a higher level than had been expected. Specifically, services industry data on Wednesday suggested a stronger rate of consumer spending than the government had previously assumed.

The government last month reduced its gross domestic product estimate for the October-December quarter to a 2.4 percent annual pace from a previously reported 3.2 percent rate.

Meanwhile, JPMorgan and forecasting firm Macroeconomic Advisers said the quarterly services survey, from which the government's estimates for services consumption is derived, showed a greater pace of consumer spending in the fourth quarter than the government's estimated 2.6 percent rate.

Macroeconomic Advisers raised its tracking estimate of fourth-quarter GDP growth by five-tenths of a percentage point to 2.9 percent.

"Key components of the quarterly services survey were above the government's assumption, with the largest positive surprise at non-profit hospitals," said Ben Herzon, a senior economist at Macroeconomic Advisers in St. Louis.

The economy grew at a 4.1 percent rate in the third quarter.

It is not unusual for the government to make large revisions to GDP numbers as it does not have complete data when it makes its first and second estimates. The quarterly services survey has caused revisions to GDP growth over the last several years.

Should the government raise fourth-quarter growth that would suggest underlying strength in the economy at the end of 2013 and strengthen the argument that a decline in growth at the start of this year was due to the weather and would likely be only a temporary restraint.

"Improved momentum from an upward revision to fourth-quarter services consumption suggests faster growth of services consumption in the first quarter," said Herzon. "As a result, we raised our tracking forecast of first-quarter GDP growth by two-tenths to 1.6 percent."

The government will publish its third GDP growth estimate for the fourth quarter on March 27.

Stanley Fischer Jumps into the Fray

Stanley Fischer, U.S. President Barack Obama's candidate for the No. 2 spot at the Federal Reserve, jumped into the fray of one of the most important debates at the Fed as he called for making financial stability an "explicit" policy focus.

The Fed is mandated by Congress to pursue just two goals, maximum employment and price stability, but since the 2007-2009 recession has increasingly taken on responsibility for battling cracks in the financial system.

"Almost always, these goals are complementary," Fischer said in written testimony released on Wednesday for a U.S. Senate confirmation hearing set for Thursday. "But each of them must be an explicit focus of Fed policy."

The former chief of the Bank of Israel was chosen to be Fed Chair Janet Yellen's second-in-command in part for his crisis-management credentials, especially during a seven-year stint as the No. 2 official at the International Monetary Fund.

In his remarks, he also expressed support for Yellen's policy of continued monetary accommodation to bring down overly high unemployment and boost uncomfortably low inflation, "even though the degree of expansion is being gradually and cautiously cut back" as the Fed trims its massive bond-buying program.

Wall Street will watch closely his testimony before the Senate Banking Committee on Thursday. As nominee for Fed vice chair, Fischer would be expected to fall in line with Yellen on most major policy issues. He has said he believes the Fed's program of quantitative easing has been effective.

Fischer made it clear that he'll also be strongly focused ensuring the Fed does "everything we can" to strengthen bank supervision to prevent another financial crisis.

Lael Brainard, a former deputy at the Treasury Department nominated to be a Fed governor, and Fed Governor Jerome Powell, who has been re-nominated, also stressed the importance of financial stability in their prepared testimony.

"I cannot think of a more important moment for the work of the Federal Reserve in promoting price stability and maximum employment alongside financial stability," Brainard said.

Powell said: "The task for monetary policy will be to provide continued support as long as necessary, and to return policy to a normal stance over time without sparking inflation or financial instability."

Confirmation of the nominees would bring the Fed's policymaking panel up to 11, just shy of its full 12-member maximum, with the pending departure of Governor Sarah Bloom Raskin. The Senate on Wednesday confirmed her to be the No. 2 official at the Treasury Department.