MarketView for May 24

Summary

The S&P 500 ended the day in negative territory for a third consecutive day on Friday, with the three major stock indexes posting their first negative week since mid-April on lingering concern that the Fed may scale back its stimulus measures to support the economy. Nonetheless, the indexes closed well off their lows in light volume ahead of the three-day Memorial Day holiday weekend. The Dow Jones Industrial Average ended the day slightly higher, outperforming the broader market, buoyed by a 4 percent gain in Procter & Gamble.

A strong increase in April orders for long-lasting manufactured goods, such as refrigerators and toasters, was a solid indication that the economy may be stronger than some had thought.

Trading has been choppy in the second half of the week as market participants assess the Fed's evolving stance toward markets. The Fed's stimulus measures have been instrumental in a rally that has driven stocks to record highs this year.

Even as there is some fear that the Fed will exit too soon, the eventual tapering of the central bank's stimulus will come with an expansion of the economy and corporate earnings, which will continue to support equities.

For the week, the Dow fell 0.3 percent, while the S&P 500 and the Nasdaq each dropped 1.1 percent. The S&P 500 had traded below its 14-day moving average - 1,647.91 - during the day but closed just couple of points above the level.

Procter & Gamble saw its shares rise 4 percent to close at $81.88 after the company brought back A.G. Lafley as chief executive Thursday, replacing Bob McDonald in the midst of a major restructuring.

Tesla Motors hit a fresh 52-week high on Friday as short interest fell, suggesting another bout of short-covering in the electric car maker's shares. Tesla ended the day up 4.7 percent to close at $97.08 after rising as high as $97.95. At the same time, shares borrowed as a percentage of outstanding shares fell to 12.3 percent as of Thursday, according to data from Markit. That's well off a level of more than 20 percent that was seen just a few weeks ago. A wave of short-covering earlier in the month drove huge gains in Tesla. The stock's price has more than doubled since the beginning of April.

Abercrombie & Fitch was among the S&P 500's largest losers after the teen clothing retailer cut its profit forecast and said quarterly comparable sales fell 15 percent, which it blamed in part on inventory shortages. Its stock shed 8 percent to end the day at $50.02.

Shares of Sears Holdings fell 13.6 percent to $50.25 after the retailer reported a larger-than-expected quarterly loss on Thursday. Sears said cooler spring weather hurt its results.

Overall, market’s pullbacks have been short and shallow since November as traders have taken any weakness as an opportunity to increase long positions. Since Wednesday, the markets have been focused on the possibility that the Fed's $85 billion per month in bond purchases will be scaled back later this year, in the wake of recent congressional testimony by Fed Chairman Ben Bernanke and the minutes from the Federal Open Market Committee's latest meeting.

Durable goods orders rose 3.3 percent in April, exceeding expectations for an increase of 1.5 percent. The data suggested that a sharp slowdown in factory output could soon run its course.

Approximately 5.2 billion shares changed hands on the three major equity exchanges, a number that was lower than the year-to-date average daily closing volume of about 6.4 billion shares.