MarketView for May 9

Summary

The S&P 500 broke a five-day streak of record closing highs on Thursday, ending a fairly volatile session lower as the market's recent momentum faded and Apple's shares declined. The Dow also broke its two-day string of all-time closing highs, but still ended above 15,000. The length of the recent rally has surprised many investors. Analysts said it's difficult for the upward momentum to continue without further catalysts, such as first-quarter earnings reports, which are nearing an end.

Despite the declines for the day, both the Dow and the S&P 500 reached all-time intraday highs - with the Dow touching 15,144.83 and the S&P 500 reaching 1,635.01. Apple, down 0.9 percent at $456.77, led the declines of both the S&P 500 and the Nasdaq, while IBM, down 0.8 percent at $203.24, was the largest drag on the Dow.

The day's economic data was mostly positive, but failed to give much of a boost to stocks. The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in almost 5-1/2 years.

After the bell, shares of Priceline fell 3.3 percent to $713 after the online travel agency forecast second-quarter profit would fall below analysts' estimates.

After falling slightly at the opening bell, up through midday, the markets then reversed course and began to edge higher in early afternoon. Stocks then gave up those gains as we approached the closing bell.

Limiting the S&P 500's loss, News Corp gained 4.5 percent to $33.29. It reported earnings late Wednesday that beat expectations while revenue rose 14 percent. Rupert Murdoch's media company also said it was on track to split off its slow-growing publishing business by the end of June.

Among other top advancers, Tesla Motors rose 24.4 percent to $69.40 a day after posting adjusted earnings that were three times what analysts were expecting as the company sold more cars than it had initially forecast.

Shares of Barnes & Noble were up 24.3 percent to $22.08, after hitting a fresh 52-week high of $22.25. The stock's sharp advance followed a report by web publication TechCrunch that Microsoft was considering an offer to acquire all of Nook Media's digital assets for $1 billion. Microsoft ended the day down 1 percent to close at $32.66.

Both Barnes & Noble and Tesla Motors have been among favorite stocks to short, and their gains on Thursday were likely extended by traders who were forced to cover bets the stocks would fall in order to prevent further losses.

Volume was the highest of the week so far, giving more weight to the day's decline. Much of this year's rally has been on weak volume. Approximately 6.4 billion shares changed hands on the three major equity exchanges, matching the average daily closing volume this year.

Jobless Claims at Lowest Level in 5-1/2 Years

The number of Americans filing new claims for unemployment benefits fell to its lowest level in nearly 5-1/2 years last week, signaling labor market resilience in the face of fiscal austerity. According to a Labor Department report released Thursday morning initial claims for state unemployment benefits fell by 4,000 claims to a seasonally adjusted 323,000 claims, the lowest level since January 2008. Claims for the prior week were revised to show 3,000 more applications received than previously reported.

The third straight weekly decline in claims pushed them further below the 350,000 mark, which economists normally associate with a firming labor market. Claims are showing no sign of a pick-up in layoffs even as other parts of the economy such as manufacturing start to show strain from tighter fiscal policy. A Labor Department analyst said no states had been estimated and there was nothing unusual in the state-level data.

The four-week moving average for new claims, a better gauge of job market trends, dropped 6,250 to 336,750 - the lowest level since November 2007. Coming on the heels of data last week showing surprising strength in the labor market, the claims report could further assuage fears of an abrupt slowdown in the economy.

Employers added 165,000 new jobs to their payrolls in April and hiring in the previous two months was stronger than initially reported. The unemployment rate dropped to a four-year low of 7.5 percent.

The improvement in employment contrasts sharply with other data, including retail sales and manufacturing that have suggested a cooling in the economy at the end of the first quarter, which persisted early in the April-June period.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid dropped 27,000 to 3.0 million in the week ended April 27. That was the lowest level since May 2008.

Fed officials spar over QE3

Little over a week after the Fed overwhelmingly endorsed a plan to keep buying bonds to spur economic growth and hiring, they are airing their differences over their super-easy policy.

"I think we should try as hard as we can" to turn things around, Chicago Federal Reserve Bank President Charles Evans said in an interview that was a forceful defense of QE3.

Crediting QE3 for a "definitely" improved labor market, he said the Fed should not back away from the program. "I'd like to have confidence we can sustain that improvement in the labor market through this summer," he said.

Philadelphia Fed President Charles Plosser, a policy hawk and unlike Evans not a voting member of the Fed's policy committee this year, took the opposite tack and called the effects of the bond-buying program "dubious."

"I've never felt that our asset purchases have been that effective in addressing what's the biggest problem we face in this country, which is the employment market and the labor market," he said.

"I'd like to stop but I would particularly like to see us begin to slow the pace down, gradually ease our way out of this if we possibly can.

Strong differences of opinion among policymakers at the Fed are not unusual, and Plosser and Evans in particular have long sparred from opposite ends of the policy spectrum.

Low inflation has prompted one policymaker, St. Louis Fed President James Bullard, to suggest the Fed may need to add to its stimulus to defend the economy against a possible sustained drop in prices.

But on Thursday Evans, whose views have been in step with those of Bernanke, said he believes the drop in inflation is temporary, and does not call for any immediate Fed policy response.

Evans, who is hosting the Chicago Fed's annual bank structure conference this week, also waded into the debate over capital standards for banks, saying he believes financial institutions should have better quality and more capital to buffer themselves against sudden losses.

The debate about "too-big-to-fail" banks, which are perceived as implicitly relying on taxpayers to bail them out no matter how risky their business conduct, has heated up in Washington in the last few weeks.

Speaking earlier on Thursday, Richmond Fed chief Jeffrey Lacker said that requiring banks to hold more debt that converts into equity when the firms get into trouble, an idea backed by Fed Governor Daniel Tarullo, is one way to ramp up capital though perhaps not the best. He also said that broker dealers "deserve special attention" in this debate. Some of his colleagues, including Boston Fed President Eric Rosengren, have suggested requiring higher capital at such firms.