MarketView for May 6

Summary

Share prices fell sharply on Tuesday, closing at session lows, with AIG pulling financial shares lower after disappointing earnings and as a slide in Twitter took down other names in the technology and internet space.

There was also the question of the Ukraine, where supporters of Russia and of a united Ukraine are accusing each other of tearing the country apart. The former Soviet republic is sliding toward war.

Twitter fell 17.8 percent to $31.85 after the expiration of a six-month "lock-up" period that had restricted the sale of about 82 percent of its outstanding stock. The rout was in the busiest trading day for the stock so far as more than 134 million shares changed hands, above the near 118 million shares traded on its debut. The 10-day volume average was just under 16 million.

The S&P 500 is just 1.2 percent below its record close set a month ago. Despite improving economic data, including a narrowing of the trade gap reported earlier on Tuesday, the S&P 500 is facing a technical hurdle as it nears its all-time high.

AIG fell 4.1 percent to $50.54 a day after posting a 27 percent drop in quarterly income. Athenahealth closed down 13.9 percent at $109.21, a day after hedge fund manager David Einhorn said the company is part of a portfolio of overvalued stocks his Greenlight Capital was betting against.

Office Depot raised its forecast for full-year adjusted operating income and said it would close at least 400 stores in the United States over two years, sending shares up 15.8 percent to $4.83.

Adding to a string of major deals in the healthcare industry, Bayer acquired Merck's consumer care business for $14.2 billion. Merck shares fell 2.6 percent to $57.11.

Approximately 5.9 billion shares changed hands on the major equity exchanges, a number that was below the 6.2 billion share average over the past five days, according to data from BATS Global Markets.

Trade Deficit Narrows

The Commerce Department reported on Tuesday that our trade deficit narrowed in March as exports rebounded. However, the lower deficit is unlikely to prevent the government from revising down its estimate of first-quarter growth to show a contraction.

According to the Department, the trade gap fell by 3.6 percent to $40.4 billion. When adjusted for inflation, the deficit dipped to $49.4 billion from $49.8 billion in February. Unfortunately, March's shortfall was a bit larger than the $38.9 billion that the government plugged into in its advance first-quarter gross domestic product estimate published last week.

As a result the data implies about a two-tenths of a percentage point reduction to the first quarter's 0.1 percent annual growth pace. The report came on the heels of March construction spending and factory inventories data that also proved weaker than the government had assumed in its advance GDP report last Wednesday. What is all means is that we can look forward to the first quarterly GDP contraction in the past three years.

The government will publish revised GDP figures later this month. In its initial report, it estimated trade subtracted 0.83 percentage point from economic growth, with exports posting their largest quarterly decline in five years.

The increase in exports in March, however, was the latest sign to suggest the economy had momentum at the end of the quarter. Exports increased 2.1 percent to $193.9 billion in March, the highest level since November.

Exports of capital goods, industrial supplies and materials, and automobiles increased in March. Exports of services hit a record high, while those of non-petroleum goods were also the highest on record. Exports to Canada, South Korea and Germany all touched all-time highs in March.

A slow pace of restocking by businesses as they worked through an inventory glut accumulated in the second half of 2013 had restrained imports in recent months, but that impact appeared to fade in March.

Imports rose 1.1 percent to $234.3 billion in March, the highest level in two years, in part reflecting a rise in the price of petroleum. Imports excluding petroleum increased 2.8 percent, a sign of rising domestic demand.

In March, imports of food and non-petroleum products hit record highs. The politically sensitive trade gap with China narrowed a bit as exports of goods and services increased 9.6 percent, while imports advanced only 1.6 percent.

The Bond Market Awaits Fed Chair Janet Yellen’s Comments

The 30-year bond and other long-maturity Treasury securities rose on Tuesday in thin, activity ahead of potentially market-moving congressional testimony by Federal Reserve Chair Janet Yellen. Tuesday saw the 30-year's yield reaching a low of 3.371 percent and in late afternoon trading was at 3.3805 percent, reflecting a price rise for the day of 17/32.

After small losses in earlier overseas trading, prices of 10-year notes were up 5/32 in New York, yielding 2.595 percent.

Yellen is due to speak at congressional hearings on Wednesday and Thursday. Though widely expected by analysts to maintain a dovish policy stance, she will be closely watched for hints on raising interest rates, which many forecasters see starting in 2015.

Prices of Treasuries were little affected by a Treasury Department auction on Tuesday of $29 billion of 3-year bills, which was the first of three large deals set for this week. The deal's high yield was 0.928 percent. A 10-year note auction for $24 billion is scheduled for Wednesday and a $16 billion auction of 30-year bonds is due on Thursday.

Alibaba Files to Go Public

After the markets closed, the e-commerce behemoth Alibaba filed in the United States to sell stock to the public for the first time, in an embrace of the global capital markets that represents a coming of age for the booming Chinese Internet industry.

In the filing, Alibaba said it intended to raise $1 billion in an initial public offering – a figure used to calculate its registration fee. However, the company is expected ultimately to raise $15 billion to $20 billion – which would make it the largest American I.P.O. since Facebook’s $16 billion offering May 2012.