MarketView for May 19

Summary

It was a bit of a volatile day on Monday, with the major equity indexes moving between positive and negative territory. Nonetheless, a rally in high-growth names among Internet and biotech shares gave the Nasdaq the push it needed, resulting in a gain of almost 1 percent. Equities have been pressured recently, with the S&P 500 coming off its first two-week decline since January as investors have become concerned about the economy's growth prospects.

Early in the session, a drop in the yield of the 10-year U.S. Treasury note to near 2.5 percent gave investors another reason to buy equities and helped support the stock market. By late in the day, though, longer-term bond yields rose as investors sold some Treasuries to take profits from the recent rally. The 10-year note's yield was 2.55 percent late on Monday, while its price fell 8/32.

High-growth "momentum" stocks were among the strongest of the day, with TripAdvisor up 5.2 percent at $86.41 and Netflix chalking up a gain of 4.2 percent to close at $364.50. Vertex Pharma was up 3.4 percent to close at $67.22.

Internet and biotech names have been among the most volatile in recent weeks, advancing on signs of economic improvement and slumping on concerns that their valuations are too hefty. The small-cap Russell 2000 index rose 1 percent after three straight declines that took it near correction territory, a drop of 10 percent from a recent high, on several occasions.

The day’s gain by the Dow Jones Industrial Average was limited by AT&T, which ended the day down one percent to close at $36.38 a day after the company agreed to buy DirecTV for $48.5 billion. DirecTV shares closed down 1.8 percent at $84.65.

AstraZeneca fell 12 percent to $70.64 after it rejected a "final" merger offer from Pfizer. Pfizer rose 0.6 percent, closing at $29.28.

Campbell Soup fell 2.4 percent to $44.06 and was one of the S&P 500's worst performers after the company posted weaker-than-expected quarterly sales and cut its full-year sales forecast.

After the market closed, Urban Outfitters fell 4.3 percent to $34.60 after the teen apparel retailer reported its first-quarter results.

Approximately 4.94 billion shares changed hands on the major equity exchanges, a number that was below the month-to-date average of 6.05 billion shares according to BATS exchange data.

Fed Does Not Need to Shrink Balance Sheet

The Federal Reserve does not need to shrink its $4 trillion-plus balance sheet by even "a dime" for it to normalize monetary policy when the time comes, former Fed Chair Ben Bernanke said on Monday.

"The Fed has worked very carefully to figure out how to raise rates at the appropriate time," Bernanke told a monetary policy conference. "That will eventually happen - we hope it happens because that means the economy is going back to normal."

When the Fed does tighten, he said, "you can have some bumpiness" as markets potentially react to the changes. But in all, he said, "it will be a fairly normal process."

The Fed under Bernanke bought trillions of dollars of long-term securities to help boost the U.S. economy and keep deflation from taking hold.

As the Fed exits from those extraordinary policies, Bernanke said, "There is absolutely no need or requirement for the balance sheet to go back to normal as monetary policy normalizes. The balance sheet could be kept where it is for a very long time if necessary."