MarketView for May 8

Summary

The S&P 500 closed at an all-time high for a fifth day on Wednesday in a broad rally that keeps surprising investors with its longevity and resilience. The Dow also ended at a record high for a second straight day, pushing further above 15,000. Financials, materials and technology sectors were among the strongest performers, with shares of IBM.N leading the Dow higher. IBM's stock ended the day up 1.1 percent at $204.82.

Among the S&P 500's largest percentage gainers was Whole Foods, whose shares rose 10.1 percent to $102.19 a day after it reported a rebound in same-store sales and raised its full-year profit view.

Apple ended the day up 1.1 percent at $463.84 after falling in the previous session.

While volume has been below average all week, the three major equity indexes have ended sessions higher than where they began, suggesting momentum will continue.

Solid corporate earnings along with continued accommodative monetary policies have supported the market's climb, which had been led by mostly defensive sectors. The recent rally, though, appears to reflect a shift to growth-oriented sectors leading the advance.

After the bell, shares of Groupon rose 11.5 percent to $6.23 after the world's largest daily deal company reported a stronger-than-expected quarterly profit.

Shares of New Corp ended the day up 3.6 percent to $33 in after-hours trading following the release of the last quarterly results for Rupert Murdoch's company before its entertainment and publishing businesses are separated.

During the session, the Dow also reached an all-time intraday high of 15,106.81 and the S&P 500 set a record intraday high of 1,632.78. The S&P 500 has climbed 14.5 percent so far this year, while the Dow has advanced 15.3 percent and the Nasdaq has gained 13 percent.

Despite the gains, the market remains below overbought territory, with the relative strength index on the S&P 500 slightly below 70.

Results are in from about 440 companies so far. Earnings have largely been better than expected this quarter, with the majority of companies surpassing estimates.

Some of the day's biggest movers were stocks cited by prominent investors at the Sohn Investment Conference, a hedge fund industry event in New York.

Shares of some housing stocks rose after Steven Eisman, founder and portfolio manager of hedge fund Emrys Partners, L.P., said during the conference that he is positive on U.S. housing, but wary of Canada's housing market.

Among his picks were Lennar, which edged up 0.1 percent to $42.25, and Forestar Group, which gained 5.9 percent to $24.08.

Approximately 6.2 billion shares changed hands on the three major equity exchanges, a number that was below the average daily closing volume of about 6.4 billion shares this year.

Profit Up at Freddie Mac

Freddie Mac, the second largest provider of mortgage money, on Wednesday said it reaped its second-largest profit ever in the first quarter, a reflection of housing market gains that have taken the steam out of efforts to revamp the nation's home loan system.

The government-controlled company reported net income of $4.6 billion for the first three months of the year, up from $577 million in the year-ago quarter. It cited rising home prices, falling mortgage delinquencies and increased refinance activity for the improved performance. It was the company's sixth straight quarterly profit and the largest since a $5.7 billion gain in the third quarter of 2002.

"The strong rebound in the housing market ... continues to be reflected in our excellent financial performance," Freddie Mac Chief Executive Officer Donald Layton told reporters on a conference call.

Freddie Mac, which faced insolvency when it was seized by the government in 2008 along with its larger rival Fannie Mae, paid $5.8 billion to the Treasury Department in the first quarter as a dividend payment under the terms of its government bail-out.

It said it would make another $7 billion payment in June, and suggested it could record gains on $30.1 billion worth of assets it had written down as early as in the second quarter, leading to an even bigger payment.

Freddie Mac and Fannie Mae, which together own or guarantee about half of U.S. home loans, have tapped $187.5 billion in taxpayer aid since being placed in conservatorship. But they have both returned to profitability, helped by the Federal Reserve's aggressive efforts to lower interest rates.

The swing in their financial fortunes has undercut the urgency the Obama administration and lawmakers have felt to wind them down, particularly given a steady stream of dividends that now totals more than $65 billion.

Fannie Mae and Freddie Mac do not make loans, but provide financing to banks and other lenders by purchasing mortgages, which they either hold or repackage as securities that are sold to investors with guarantee.

The government guarantee they offer makes it hard for private financial firms to compete. So-called private label residential mortgage-backed security issuance has been just $4 billion year to date, compared with $637 billion from government-sponsored enterprises, according to the Securities Industry and Financial Markets Association, a Wall Street lobby group.

Under new bailout terms put in place this year, Freddie Mac and Fannie Mae must turn over most of their profits to the government. Previously, the two were required to pay a 10 percent dividend even if they faced a loss, and in some quarters they had to draw on taxpayer funds just to make the payment, even if they had a small increase in net income.

Their return to profitability has allowed them to consider booking gains from so-called deferred tax assets they had written down, which would increase their net worth and lead to large one-time payments to the Treasury.

Freddie Mac decided in the first quarter not to reverse about $30.1 billion in the write-downs of its deferred tax assets, but said it would likely reverse the write-down in either the second or third quarters. The company has certain requirements and thresholds set up with auditors that it must meet before writing up the assets. Fannie Mae is weighing whether to reverse a write-down on about $60 billion.

Despite their now steady dividend payments, Fannie Mae and Freddie Mac will never be able to free themselves of government control under the current terms of their bailout, which do not allow them to build equity or purchase the preferred shares the government has taken.