MarketView for March 18

Summary

The major equity indexes were higher for a second straight day on Tuesday, with the S&P moving within one percent of record levels after comments from Russian President Vladimir Putin eased concerns that tensions over Ukraine might escalate. In an address to the Russian parliament, Putin said Russia didn't want Ukraine to be divided further, and that he did not want to seize more of the country after approving plans to make Crimea part of Russia following a disputed referendum.

Late Monday, the United States and the European Union imposed personal sanctions on a handful of officials from Russia and Ukraine who were accused of involvement in Moscow's military seizure of the Black Sea peninsula, in the biggest crisis between Russia and the United States since the end of the Cold War.

Over the past two sessions, the S&P 500 index has gained about 1.4 percent. Meanwhile, the Street is looking ahead to a two-day meeting of the Fed's policy-setting committee, which begins Tuesday. The central bank is not expected to deviate from previously announced policy plans, but as the Fed's stimulus has kept a floor under equity prices, market participants will be attuned to any hint of a change.

In the latest economic data, consumer prices rose 0.1 percent in February, as expected, while housing starts fell modestly from the previous month.

In company news, Hertz said it would spin off its equipment rental business for $2.5 billion and use part of the proceeds to fund a stock buyback program. Shares ended the day down 1.4 percent to close at $26.84.

General Motors announced new recalls of 1.5 million vehicles on Monday. In an unprecedented public admission by a GM chief executive, Mary Barra acknowledged the company fell short in catching faulty ignition switches linked to 12 deaths. GM’s shares closed up 1.3 percent at $35.08.

GameStop fell 5.2 percent to $37.70 as the largest decliner on the S&P 500 after Wal-Mart said it would allow shoppers to trade in used video games for anything from groceries to gadgets.

Consumer Prices Benign

The Labor Department reported on Tuesday morning that the consumer price index rose marginally in February. According to the Department, the headline CPI was up

0.1 percent as a decline in gasoline prices offset an increase in the cost of food. The CPI had ticked up 0.1 percent in January and last month's gain was in line with economists' expectations.

In the 12 months through February, consumer prices increased 1.1 percent, slowing from a 1.6 percent rise in January. The February increase was the smallest rise since October last year.

Removing the volatile energy and food components, the so-called core CPI also rose 0.1 percent for a third straight month. In the 12 months through February, core CPI rose 1.6 percent after rising by the same margin in January.

Consumer inflation is running below the Fed's 2 percent target, which suggests interest rates will probably remain near record low levels even as the U.S. central bank cuts back on the amount of money it is injecting into the economy each month.

Last month, food prices rose 0.4 percent, the largest increase since September 2011. That accounted for more than half of the increase in the CPI last month. There were large increases in the prices of meat, fish, poultry, eggs, vegetables and fruits. Gasoline prices declined for a second month, helping to offset sharp gains in the price of heating oil and natural gas.

Within the core CPI, a 0.2 percent rise in the cost of shelter was the major contributor for the rise in the index. There were also increases in medical care, recreation and new vehicle prices. Prices for tobacco, used cars and trucks, apparel and household furnishings and operations fell.

Housing Starts Fall – Permits Rise

The Commerce Department reported on Tuesday that housing starts fell for a third straight month in February, but a rebound in building permits offered some hope for the housing market as it struggles to emerge from a soft patch. According to the Department, ground breaking for new homes fell 0.2 percent to a seasonally adjusted annual rate of 907,000 units.

That followed January's revised 11.2 percent decline and suggested underlying weakness in housing activity apart from the drag of cold weather. January starts were previously reported to have tumbled 16 percent.

Ground breaking fell 37.5 percent in the Northeast last month, indicating unusually cold temperatures continued to dampen housing activity. That was the largest decline in more than two years and sending starts in the Northeast to their lowest level since November 2012.

Starts also fell 5.5 percent in the West, which was unaffected by severe weather. The weather explanation for the weak housing data is challenged by a 7.3 percent rise in starts in the South and a 34.5 percent jump in the Midwest.

Housing started losing momentum last summer, with sales falling after a run-up in mortgage rates. While mortgage rates have dropped a bit and the weather is starting to warm up, housing will probably take a while to regain strength as high prices and a shortage of homes on the market keep out potential buyers.

A report on Monday showed homebuilders were a bit optimistic in March but downbeat about sales over the next six months. Builders were also worried about shortages of lots and skilled labor, and rising prices for materials.

Ground breaking for single-family homes, the largest segment of the market, rose 0.3 percent to a 583,000-unit pace last month. Starts for the volatile multi-family homes segment fell 1.2 percent to a 324,000-unit rate.

Permits to build homes increased 7.7 percent in February to a 1.02 million-unit pace. Permits for single-family homes fell 1.8 percent. Multifamily sector permits surged 24.3 percent.

Microsoft May Adapt Office to the iPad

In what could be a revolutionary announcement for Microsoft and Apple, the word on the Street is that Microsoft plans to unveil an iPad version of its Office software suite, potentially generating billions of dollars in revenue. Reuters reported late on Monday that new Microsoft Chief Executive Satya Nadella would unveil the iPad app at an event on March 27. The event will be Nadella's first major public appearance since his appointment last month.

Microsoft shares ended the day up $1.50 to close at $39.55. At that price, the stock was up about 10 percent since the announcement of Nadella's appointment on February 4. The shares last touched $40 in July 2000.

Microsoft has had iPad and iPhone versions of Office primed for several months now, according to Reuters, but the company has dallied on their release due to internal divisions, among other things. The lack of an Office version for the iPad may have robbed Microsoft of billions of dollars in revenue.

Investors have for years urged Microsoft to adapt Office, its most profitable product, for iPhones and iPads and devices using Google's Android software rather than shackling it to Windows as PC sales decline. Microsoft's productivity tools remain the industry standard in offices, but America's employees are increasingly using smartphone and tablets to supplement their work.

Tired of waiting for Office to be optimized for their touch screen devices, a growing contingent of younger companies are turning to cheaper touch-friendly apps that can perform word processing and other tasks in the cloud. Microsoft already offers Office Online on its Windows smart phones and as a free Web-based version. Meanwhile, Google has been making inroads into Microsoft's Office software business with its free Google Drive application, which includes spreadsheets, presentation and word-processing tools.

Last year, Apple offered free updates for life on its iWork business software, which includes rival applications to Microsoft's Excel, Word and PowerPoint, for MacBooks, Mac computers and iPad.

Apple also said today it would offer an iPad 4 tablet in place of the mid-range iPad 2 at the same price. Tablets based on Apple's iOS platform held 36 percent share of the market in 2013, trailing those based on Google's Android software that had 62 percent share, according to research firm Gartner.