MarketView for May 15

Summary

Stocks edged up on Wednesday, with the Dow and S&P 500 hitting new all-time highs as the market's recent upward momentum persisted, but a steep decline in Apple (AAPL.O) kept gains in check.

The day's gains were broad, with eight of the S&P 500's 10 sectors trading higher. Among the top gainers was the S&P consumer staples index, up 0.8 percent. In contrast, the S&P energy index was down 0.8 percent and was the S&P 500's biggest decliner.

Further strengthening the rally was an options gauge, which looks at the level of anxiety, indicated that investors are placing optimistic wagers on the stock market, positioning the current run-up to extend for the next three months.

The S&P 500 and the Nasdaq have risen for four straight sessions, extending their gains for the year. Equities have rallied in recent weeks as investors bet that central bank stimulus measures will keep supporting market gains. The Fed’s policies have helped spur advances of about 15 percent in major equity indexes this year, despite data showing some signs of lackluster growth.

In the latest reads on the economy, activity in New York State’s manufacturing sector unexpectedly contracted in May, falling to minus 1.43 from 3.05, below expectations for an increase to 4. Another report showed that U.S. industrial production fell 0.5 percent in April, more than expected.

During the session, the Dow touched an all-time intraday high at 15,301, while the S&P 500 reached a record intraday peak at 1,661.49. The Nasdaq dipped into negative territory with Apple leading the decline. Apple shares were off nearly 4 percent at $426.29 on news that a prominent hedge fund has cut its stake in the tech giant. Earlier, the Nasdaq had hit a fresh 52-week high at 3,475.

The Credit Suisse Fear Barometer, known as the CSFB Index, fell 11.4 points over the past two weeks - the largest decline on record - and is now at a one-year low of 21.73. The indicator essentially tracks the willingness of investors to pay for downside protection with zero-premium so-called collar trades that expire in three months using S&P 500 index options.

Looking at some of the day’s movers and shakers, Agilent Tech was one of the S&P 500's top percentage gainers a day after the company posted adjusted earnings that beat expectations and doubled its stock buyback program to $1 billion. The company also said it would cut 2 percent of its global work force. Shares ended the day up 4 percent to $45.73.

Tech shares also received a lift from Netflix, up 3.7 percent at $242.70, and Yahoo, up 2.3 percent at $27.25. In contrast, Computer Sciences was the S&P 500's biggest loser, dropping 10 percent to $44.39 after reporting results.

Deere & Co fell 4.6 percent to $89.48 after the farm equipment maker gave a cautious outlook, though earnings were stronger than expected.

Shares of Bristol-Myers Squibb rose 5.3 percent to $44.41 in anticipation of favorable data from clinical trials of its melanoma drug. Limited data is expected to be released this evening ahead of the annual meeting of the American Society for Clinical Oncology, which begins on May 31.

In other data released on Wednesday, the U.S. Producer Price Index recorded its largest drop in three years in April, falling a seasonally adjusted 0.7 percent.

Producer Price Index Down Sharply

Producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.

According to a report released by the Labor Department Wednesday morning, its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6 percent in March. For the 12 months through April, wholesale prices were up only 0.6 percent, the smallest increase since July last year. Prices had increased 1.1 percent in March.

Underscoring the tame inflation environment were wholesale prices excluding volatile food and energy costs up 0.1 percent, the smallest increase since November. The so-called core PPI had risen 0.2 percent in each of the previous four months. In the 12 months through April, core PPI advanced 1.7 percent after rising by the same margin in March.

The report was the latest suggestion that disinflation was starting to creep in against the backdrop of lackluster domestic and global demand. Consumer inflation was muted in March, with a measure closely watched by the Fed slowing sharply below its 2 percent target over the 12-month period. With little sign of pipeline price pressures, consumer inflation should remain low this year. That should give the U.S. central bank room to maintain its monthly $85 billion purchases of mortgage and Treasury bonds to keep rates low and speed up job growth.

Weak domestic and global demand are hurting the nation's factories. A second report showed manufacturing activity in New York State unexpectedly contracted in May as new orders and shipments of finished goods fell. The New York Federal Reserve's "Empire State" general business conditions index fell to minus 1.43 this month from 3.05 in April. Economists had expected the index to rise to 4.

Last month, wholesale gasoline prices fell 6.0 percent after dropping 6.8 percent the prior month. That drop helped to push wholesale energy prices down 2.5 percent. Weak energy prices accounted for over 80 percent of the drop in wholesale prices last month.

Producer prices were also dampened by a 0.8 percent decline in food prices, the largest fall since May 2011. Food prices were held down by a collapse in the wholesale price of strawberries, eggs and fresh and dry vegetables. Passenger car prices slipped 0.2 percent, while light truck prices dipped 0.1 percent.