MarketView for October 11

Summary

The major equity indexes ended the day mostly unchanged on Thursday after gains brought by a sign of improvement in the labor market were erased in part by a drop in Apple shares after a legal setback in a court ruling. Specifically, Apple fell 2 percent to $628.10 after a U.S. appeals court overturned a preliminary injunction on the sale of Samsung's Galaxy Nexus smartphone, dealing a blow to the iPhone maker in a battle against Google's Android mobile software.

At the same time, there has been an increasingly bearish attitude permeating throughout the Street of late, with the result that the S&P 500 index is down 2 percent in the last five sessions in anticipation of a weak earnings season. As a result, the news that the number of Americans filing new claims for jobless benefits fell to its lowest level in more than 4-1/2 years gave the market only marginal support.

Meanwhile the S&P 500 is just over 8 percent below its record closing high, set five years ago, and the corporate results season that started this week is expected to show the first drop in year-on-year quarterly earnings since 2009.

AT&T and Verizon also weighed heavily on the markets after news that Japan's Softbank may buy a majority stake in their competitor, Sprint Nextel. Sprint shares rallied more than 13 percent but AT&T and Verizon lost more than 1 percent each on expectations of harsher market competition.

Sprint ended the day up 14.3 percent to close at $5.76 on news of the possible acquisition by Japan's Softbank, while AT&T lost 1.8 percent to end the day at $36.26 and Verizon fell 1.3 percent to $45.20. Clearwire, in which Sprint holds a majority interest, rose 70.8 percent to close at $2.22.

Energy stocks .led the day among the main 10 S&P 500 sectors with a 0.6 percent advance. Coal miner Peabody Energy rose 8.9 percent to $26.18 and its peer Consol Energy added 8 percent to end the day at $35.48 on bets higher natural gas prices would encourage coal use by utility companies.

Oshkosh chalked up a gain of 11.4 percent to end the day at $29.90 on news that investor Carl Icahn had offered to buy all of its shares for $32.50 each. Oshkosh advised shareholders to take no action until further notice.

Dollar Tree, off 7.7 percent to $43.28, led percentage declines among discretionary sector stocks after it said it will post third-quarter sales at the lower end of its earlier forecast.

About 6.1 billion shares changed hands on the three major equity exchanges, a number that was slightly below the daily average so far this year of about 6.52 billion shares.

Unemployment Claims Fall Sharply

According to a report released Thursday morning by the Labor Department, the number of Americans filing new claims for unemployment benefits fell sharply last week to the lowest level in more than four and a half years, according government data on Thursday that suggested improvement in the labor market. Initial claims for state unemployment benefits fell 30,000 to a seasonally adjusted 339,000. It was the lowest number of new claims since February 2008. At the same time, the prior week's figure was revised up to show 2,000 more applications than previously reported.

A Labor Department analyst said no states had been estimated for the latest report. And  the recent data on the labor market has been encouraging. Employers added a modest 114,000 jobs to their payrolls in September, but the unemployment rate dropped sharply to 7.8 percent, the lowest level since President Barack Obama took office.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid fell to 3.27 million in the week ended September 29, the latest data available.

Wages Begin to Climb

Wage increases in the energy industry have helped fuel the largest increase in the level of domestic wages in more than five years, according to an industry report released Wednesday. PayScale, which analyzes data from more than 10 million U.S. workers, reported that workers in the mining, oil and gas exploration industry have seen their pay increase by an average of 4.9 percent over the past 12 months and that has helped to push the average paycheck 3 percent higher over the same period, making it the largest increase since PayScale began monitoring compensation in early 2007.

Languishing at or below 1 percent for 12 straight quarters beginning in the spring of 2009, wages have recorded strong gains the past six months. After a brief slowdown in oil and gas exploration early in the recession, there has been a boom in the field. Drilling companies are flocking to places like North Dakota and the Northeast and prices at the pump have skyrocketed, nearly tripling since 2008. And oil and gas workers are not the only workers coming home with increased paychecks.

 In fact, all of the job categories that PayScale tracks saw pay increases during the past 12 months. Information technology workers averaged a 4.5 percent increase in pay over the past 12 months. Pay increases in the utilities industry have also been strong, up 4.4 percent since September 2011.

Social services workers saw the smallest increase over the past 12 months, with their earnings up a paltry 0.4 percent. However, social workers suffered a drop in demand for their services when the economy began to brighten and there were fewer out-of-work Americans. In the early years of the recession, the demand for counseling for substance abuse, health problems and troubled marriages was considerably stronger.

Pay raises varied considerably with location. Among the 20 largest U.S. metro areas, Houston recorded the largest annual salary increase, 3.9 percent, followed by Dallas, San Francisco and Boston. All of these cities have heavy concentrations of either oil industry employers or high tech companies. Phoenix, St. Louis and Baltimore workers fared the worst, with gains of 1.6 percent.

The pay increases contrast sharply with pay trends at the depth of the recession. In 2009, the average U.S. worker's paycheck declined by 1.3 percent for the year. A major contributor to the improvement is an increase in corporate profits. However, many companies, still cautious when it comes to the economy, are still reluctant to hire.

S&P Justifies Spain’s Ratings Cut

Spain's credit rating downgrade was necessary because of a deepening recession and the uphill battle the country faces in pushing through an unpopular reform program, Moritz Kraemar, managing director for European Sovereign Ratings at Standard & Poor's told CNBC Thursday.

"Politically and socially the reform agenda is very difficult. This recession could keep unemployment up and intensify the social discontent and friction between Madrid and the regional governments," he said.

S&P cut Spain's credit rating to just one notch above junk late or BBB0-minus on Wednesday with a negative outlook - the third cut this year- as the embattled country tries to fight off growing calls for a bailout. Spain expressed surprise at the downgrade claiming it was "unhelpful."

The cut could raise Spanish borrowing costs, which have fallen in recent weeks since the European Central Bank announced its bond-buying program.

Kraemar was critical of the response by euro zone policymakers questioning the group's commitment to solving some of the difficult questions. Some Northern European countries have opposed the recapitalization of Spanish banks via Europe's new bailout fund. Kraemer questioned the commitment of European policymakers and said the threat could jeopardize bank recapitalization in Spain.

"In principal we had thought that the main plans were in place for a turnaround including the ECB's Outright Monetary Transactions program. These need to be put into place and become effective. We have yet to see them enacted," he added.

S&P forecasts a recession of 1.5 percent for Spain in 2013, adding that the "growth prospects look fairly dim" for the country.