MarketView for May 12

Summary 

The major equity indexes seem to have pulled a rabbit out of a hat once again as early negative numbers turned positive as the day’s trading activity moved into the afternoon. The Dow Jones industrial average fell nearly 100 points in the morning but recovered later after a lackluster auction of 30-year Treasury bonds and headlines suggesting negotiations to raise the debt ceiling had intensified.

The strong performance by defensive shares, such as health care and consumer staples, suggested an ongoing attraction to stocks rather than other asset classes. Defensive stocks typically have more predictable revenues, which makes them attractive during volatile markets.

Bond yields have been declining, making bonds and other fixed income securities less attractive compared with stocks, particularly those that pay dividends such as utilities. The S&P utility index rose 0.9 percent on Thursday and has gained 5.8 percent since April 8 when the recent decline in bond yields began.

Commodities have been under pressure in recent sessions, although oil ended the day higher.

The iShares Silver Trust exchange-traded fund (SLV) took in $311.5 million of new money in the week ended Wednesday, data from Lipper showed. That followed record redemptions of $1.01 billion the previous week.

Total assets of SLV fell to $13.25 billion from $13.30 billion as the week's net inflows were more than offset by $368.9 million in declines due to market performance. The silver ETF has been among the biggest stock market losers in the recent commodities rout. The ETF fell 3.1 percent on Thursday and 29 percent since the start of the month.

The S&P consumer staples sector was higher, rising 1.3 percent, while the S&P health care index gained about 0.9 percent. Many defensive shares have been on an upward trajectory since about mid-March.

Shares of Merck rose 1.6 percent to $37.20, while Tyson Foods advanced 4.6 percent to $18.84.

Financial shares saw a bit of a sell-off after banking analyst Dick Bove put a "sell" rating on Goldman Sachs and reduced the price target on the stock to $120 from $163, citing litigation worries. Goldman shares were down 3.5 percent to $142.75 and volume topped the 50-day moving average.

Cisco warned late Wednesday it would fare worse this quarter than Wall Street had forecast. The company laid out plans for global job cuts as it struggles to revive growth. Its shares fell 4.8 percent to $16.93.

In after-hours trading shares of Nordstrom fell 3.9 percent to $47.26 after the upscale retailer posted results and cuts its full-year earnings outlook.

About 7.5 billion shares were traded on the major exchanges, as compared with an average of 7.73 billion shares per day so far in 2011.

Crude Prices Rebound a Bit

The price of crude oil rose slightly in volatile trading on Thursday, rebounding from a 5 percent decline during the previous session as a weaker dollar sent funds towards riskier assets. Crude turned higher after the euro bounced off a six-week low against the greenback as European Central Bank policy maker Luc Coene said April's interest rate rise was "certainly not" a one-off event.

On Tuesday, a steep 7.6 percent drop in gasoline futures dragged the oil complex lower, its second steep decline in a week, as concerns about fuel supplies eased ahead of the summer driving season. Gasoline futures fell 5.89 cents to $3.0639 a gallon, after plummeting nearly 26 cents on Wednesday, the biggest one-day loss for gasoline since September 2008.

A weaker dollar makes dollar-denominated oil cheaper for those using other currencies. In London, Brent crude for June delivery settled 41 cents higher at $112.98 a barrel, climbing from a session low of $110.15. Domestic sweet crude for June delivery closed 76 cents higher at $98.97 a barrel, up from the session low of $95.25.

Trade volumes, which have been strong over the past week, held well above recent levels, with Brent trading 56 percent over the 30-day moving average and domestic crude up 35 percent over that average. Open interest has swelled as well, with hitting a record 1.66 million on Wednesday for the U.S. oil contract.

Prices fell early, under pressure after the International Energy Agency cut its global demand forecast and China further tightened bank reserve requirements. China's central bank raised the reserve requirements for commercial banks by another 50 basis points as it pursued a campaign to fight inflation despite initial signs of a slowing economy. In addition, sluggish domestic economic data within the United States weighed on the financial markets.

New filings for jobless benefits fell slightly last week, but the total remained high, raising worries about the job market. Retail sales in April posted their smallest increase in nine months, with consumers pinched by high gasoline pump prices.

The International Energy Agency, advisor to 28 industrialized nations, trimmed its global oil demand growth estimates for this year by 1.5 percent to 1.29 million barrels per day, noting gasoline pump prices near $4 a gallon prompts Americans to drive less.