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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Friday, May 10, 2013
Summary
The Dow Jones Industrial Average and S&P 500 indexes
ended at record highs on Friday, as the major equity indexes chalked up
their third consecutive week of gains as a rise in Google and other
technology shares offset a slide in energy stocks. The Nasdaq led the
day’s rise, due in part to a 1 percent rise in Google's shares, which
also led the S&P 500's upward trend. The S&P 500 is up 14.6 percent for
the year.
Indexes were flat for much of the session but
managed a late-day surge. On Thursday, the S&P 500 broke a five-day
streak of record closing highs. Aiding the rally on Wall Street has been
the Fed's accommodative monetary stance and some encouraging corporate
earnings, but analysts said momentum could wane without further positive
signs.
However, for the week, the Dow rose 1 percent, the
S&P 500 1.2 percent and the Nasdaq 1.7 percent.
Oil prices fell as the dollar hit a 4 1/2-year high
against the yen and the .DXY dollar index was on track for its strongest
week against other major currencies in 10 months. A strong dollar makes
commodities priced in the greenback, such as gold and oil, more
expensive for foreign investors, pressuring shares of energy and basic
materials companies.
Exxon Mobil lost 1 percent to $90.14 and was a
negative influence on the Dow. The S&P energy index fell 0.5 percent as
Brent and U.S. crude oil prices moved lower.
Shares of Priceline rose 3.9 percent to end the day
at $765.41, a day after the online travel company reported a
first-quarter profit that exceeded estimates. It was among several
stronger-than-expected profit reports this week that have helped stocks
as the first-quarter earnings period draws to a close. Shares of Tesla Motors exploded, rising 10.6 percent
to $76.76, adding to Thursday's gain of 24.4 percent and making it one
of the Nasdaq's top percentage gainers. Tesla is part of a group of
companies with heavy bets against them from investors. Recent upbeat
results have triggered a wave of short-covering. In contrast, shares of Hess slid 2.3 percent to
$69.30. Chief executive John Hess, son of the company's founder, is
being stripped of his duties as chairman as the oil and gas company
scrambles to avoid an embarrassing defeat by an activist investor. Approximately 5.7 billion shares changed hands on
the three major equity exchanges, number that was below the average
daily closing volume of about 6.4 billion shares this year. Volume has
been weak throughout the market's rally, and this week has seen
below-average volume on every day except Thursday when the market fell.
Fed Warns About Shadow Banking
Federal Reserve Chairman Ben Bernanke said on Friday
that the shadow banking system still posed a threat to financial
stability, and funding markets might still not be able to cope with a
major default. In a wide-ranging speech explaining the Fed's role
in monitoring the health of the banking system, Bernanke also laid out
how the central bank was looking at asset markets closely for signs of
excessive risk taking. "While the shadow banking sector is smaller today
than before the crisis...regulators and the private sector need to
address remaining vulnerabilities," Bernanke said at a banking
conference sponsored by the Chicago Federal Reserve Bank. The 2007-09 credit meltdown, and the collapse of
investment bank Lehman Brothers, brought to light a group of firms and
funding vehicles known together as shadow banks that were poorly
regulated but harbored large risk. The highest grouping of U.S. financial regulators,
the powerful Financial Stability Oversight Council, which is chaired by
Treasury Secretary Jack Lew, last month also warned that runs on shadow
banks were still possible. Asked about the issue of too-big-to-fail banks,
Bernanke said regulators should tell banks to hold more equity if they
decide that current rules do not do enough, rather than impose an
arbitrary limit on size. "Because that makes them safer, but also because it
reduces or eliminates their funding advantage and gives them an
incentive to reduce or simplify their firms," Bernanke said. Calls to cut the size of big banks, which are
perceived to rely on taxpayer bailouts no matter how risky their
business conduct, are on the rise in Washington, but Bernanke said
current global capital rules needed to be put in place first. Fed Governor Daniel Tarullo, the central bank's main
spokesman for supervision, last week said that the leverage ratio, a cap
on how much banks can borrow that is part of the global Basel III
capital accord, might need to be tougher. Tarullo also said that big banks could be told to
raise more hybrid debt, which converts into equity in case of financial
stress, and that they could get a capital bonus if they funded their
business with less-risky instruments. He has also proposed a rule that would force foreign
banks operating in the United States to hold more capital here, a
measure that has invoked the wrath of the European Union and led to a
flurry of critical letters from banks. The Fed chairman said more work was needed to ensure
the repo market - the wholesale market banks use for their everyday
funding needs - could deal with the potential consequences of a default
by a large borrower or a broker-dealer. A run on money market funds also remained a
possibility, Bernanke said. He did not address the outlook for monetary policy
or the economy, but he did say that the Fed was monitoring a wide range
of asset markets for signs investors were "reaching for yield" in a way
that might pose risks to the financial system, given that interest rates
were so low.
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MarketView for May 10
MarketView for Friday, May 10