MarketView for May 17

Summary 

The major equity indexes hit a four-month low on Thursday as rising Spanish bond yields increased investor anxiety over that country's banks. It did not help that the latest U.S. economic data was on the weak side.

Growing worries over developments in the euro zone and lackluster economic data pushed the S&P's losing streak to five consecutive days. The index, which closed at a level not seen since mid-January, has now relinquished more than half of its gains from the first quarter. The S&P is down 6.1 percent so far in May, and while volatility is expected to continue, the persistence of the losses have some analysts forecasting a near-term rebound.

Spain's El Mundo newspaper reported that customers at troubled Spanish lender Bankia had withdrawn more than 1 billion euros over the past week, a report which the Spanish government denied. Adding to concerns about the region, Spain's borrowing costs shot up at a bond auction. Bankia shares fell 14 percent in European trading after sliding as much as 30 percent earlier.

News that some Greek banks face emergency funding needs hurt sentiment and caused a further decline in risk assets, which have dropped over recent weeks.

Caterpillar fell 4.5 percent to close at $87.77 making it the largest drag on the Dow Jones Industrial Average after the heavy equipment company's dealers reported slowing sales for April. The Dow declined for an eleventh session in the past 12.

A gauge of future economic activity fell in April for the first time in seven months, and the Philadelphia Federal Reserve's index of business conditions hit its lowest since September. In addition, the weekly claims for jobless benefits showed no improvement, a sign the pace of hiring remains lackluster.

With a pattern of brief gains during recent trading sessions fizzling quickly, bulls saw little reason to fight the selling pressure.

In after-hours trading, Gap rose 6 percent to $27.89 after the clothing retailer reported first-quarter earnings that topped Wall Street expectations and boosted its yearly profit forecast.

Facebook priced its initial public offering at $38 per share, giving the company a $104 billion valuation in the third largest offering in U.S. history. The stock begins trading on Friday on the Nasdaq.

The Nasdaq fell on weakness in tech shares. Apple lost 2.9 percent to close at $530.12 and Qualcomm fell 3.3 percent to close at $57.16. Dollar Tree was down 6.1 percent to close at $95.13 and was one of the largest percentage decliners on the Nasdaq 100 after reporting a second-quarter profit outlook that was below expectations.

Wal-Mart advanced 4.2 percent to close at $61.68 after reporting better-than-expected quarterly profit. Sears Holdings gained 3.1 percent to close at $52.42 after the company said it plans to spin off a large part of its stake in its Canada unit to better focus on its U.S. business.

GameStop fell 11.1 percent to end the day at $18.52, the largest percentage decliner on the S&P, after it forecast second-quarter earnings that were below expectations.

Volume was heavy with about 8.35 billion shares changing hands on the three major equity exchanges, a number that was above the daily average of 6.81 billion shares.

Facebook Prices IPO at Top End

Facebook is set to raise up to $18.4 billion in its IPO and become the first U.S. company to be worth more than $100 billion at its debut, as investors bet on a big pop in the stock when it begins trading on the Nasdaq on Friday.

Frenzied demand, especially from individual investors hoping to buy into an Internet juggernaut that touches hundreds of millions of people every day, is expected to drive Facebook well above its initial public offering price of $38 a share, which was already at the top end of its target of $34 to $38.

Analysts were divided on how high the price might go on the first day of trade, with some expecting a relatively modest gain of 10 percent to 20 percent while others said anything short of a 50 percent jump would be disappointing. Facebook is selling an up to 18 percent stake in the company at a valuation of $104 billion, comparable to the market worth of Amazon and exceeding that of Hewlett-Packard and Dell combined.

The highly anticipated offering is the second-largest in U.S. history after Visa and sends the eight-year-old Facebook to the front ranks of corporate America. And it will give 28-year-old Chief Executive Mark Zuckerberg, who started Facebook in his Harvard dorm room, a net worth of nearly $20 billion.

Enthusiasm for Facebook shares comes despite questions about the company's long-term money-making capabilities, particularly after it reported a quarter-to-quarter revenue slide in April. Others warn that the price tag, equivalent to over 100 times historical earnings, versus Apple's 14 times and Google's 19 times, thereby making Facebook a risky bet.

Wall Street's top brokerages fought tooth-and-nail to ensure their wealthiest and most reliable clients got a slice of the IPO. Those with big accounts and a long history as customers likely received first crack, while would-be buyers who had no such ties were lucky if they receive so much as a share.

The brokerage arm of Morgan Stanley -- the lead underwriter on the IPO and therefore expected to get the most shares -- initially capped the number each retail client account could receive to 500 shares, which was lower than Bank of America Merrill Lynch's ceiling of 2,000 shares. However, Morgan Stanley Smith Barney emailed its wealth advisers late on Thursday afternoon to say that it had raised the cap to 5,000 shares.

For most retail investors, their first chance to invest in Facebook, which has some 900 million users, will be on Friday, when they risk getting trampled by institutional funds. Be forewarned that if the stock skyrockets, the average person might end up getting orders filled at a price much higher than they wanted and then face the possibility of losses as funds steamroll in and then flip the shares, taking the price off its highs.

Facebook shares will begin trading at around 11 a.m. on Friday. Facebook will celebrate its Wall Street debut with an all-night "hackathon" at its Menlo Park, California, headquarters starting on Thursday evening, a tradition in which programmers work on side projects that sometimes turn into mainstream offerings.

Zuckerberg will control roughly 56 percent of the company's voting shares after the offering. His majority control has raised flags among some investors, uneasy with ceding so much power to the "hoodie"-wearing executive who wrote in a letter to potential shareholders that "we don't build services to make money; we make money to build better services."

Facebook also faces challenges maintaining its growth momentum. Some worry the company has not yet figured out a way to make money from the growing number of users who access Facebook on mobile devices such as tablets and smartphones. Meanwhile the revenue growth from Facebook's online advertising business has slowed in recent months. GM said on Tuesday it would stop placing ads on Facebook, raising questions about whether display ads on the site are as effective as traditional media.

This week, Facebook increased the size of its IPO by almost 25 percent to 421 million shares, or a 15 percent stake in the company -- a day after hiking its target price range about 14 percent. If a greenshoe option for underwriters is exercised, as expected, the stake sold increases to 18 percent, raising north of $18.4 billion.

More than half of the proceeds of the IPO will go to existing shareholders, including early backers such as Accel Partners and Russia's DST Global. The more bullish had expected Facebook to price at $40 per share. However, the Nasdaq Composite Index fell by more than 2 percent on Thursday, quelling such optimism.