MarketView for September 14

Summary

The major equity indexes rose for a fourth straight session on Friday to close out the week at nearly five-year highs after the Federal Reserve took bold action to spur the economy, a move that could keep equities buoyed in the coming months. Apple ended the day on Friday at an all-time high, while Exxon Mobil reached a four-year high point. Equities are in a run-up that has pushed the S&P 500 index to four consecutive months of new highs. The extended advance has come mainly from actions by Europe's and the United States' central banks to keep interest rates low and stimulate their struggling economies.

The Fed said Thursday that it would keep up its aggressive bond-buying until unemployment falls. Chairman Ben Bernanke said he wanted to see a convincing improvement in the economy that could deliver sustainable job creation.

Bernanke's comments are "going to create an artificial floor on the market, meaning that we could see higher prices over time," said Paul Nolte, managing director at Dearborn Partners in Chicago. "Any correction that we get will be no more than a few percentage points."

The Dow and the S&P 500 both closed at their highest levels since December 2007, while the Nasdaq ended at the highest since November 2000.

For the week, the Dow chalked up a 2.2 percent gain, the S&P 1.9 percent and the Nasdaq was up 1.5 percent. The S&P is now just 6 percent below its all-time closing high of 1,565.15 despite a relatively weak economy and economic risks around the world.

Energy and material stocks led the gains as the Fed's move boosted commodity prices. Freeport-McMoRan Copper & Gold rose 2.03 percent to $42.64, while Alcoa was up 2.18 percent to $9.84.

Economic data released on Friday helped justify the Fed's decision to launch a third round of bond purchases to try to lower borrowing costs and spur growth.

A sharp rise in the cost of gasoline pushed consumer prices up in August at the fastest pace in more than three years and squeezed spending on other items, threatening to further slow the already sluggish economy. Other data showed production at factories, mines and utilities dropped by 1.2 percent, the biggest decline since March 2009.

There is a change coming to the Dow Jones Industrial Average. UnitedHealth Group will replace Kraft Foods in the average after the close of trading on September 21. UnitedHealth shares rose 0.67 percent to $54.25 and Kraft slipped 0.5 percent to $39.93.

Home Depot was up 2 percent to $59.46 after the company announced it will close all seven of its big box stores and cut 850 jobs in China.

Staples rose 2.09 percent to $12.21 after Fortune magazine reported that several private equity firms, including Bain Capital, are considering a buyout offer for the retailer.

Approximately 8.45 billion shares changed hands on the three major equity exchanges, a number that was well above last year's daily average of 7.84 billion shares.

CPI Rise Due to Gas Prices

A sharp increase in the price of gasoline helped to push up consumer prices during the month of August at the fastest pace in more than three years and squeezed spending on other items, threatening to further slow the already sluggish economy. At the same time, production at the nation's factories, mines and utilities dropped by 1.2 percent, the biggest decline since March 2009.

The sour mix of numbers was tempered by an unexpected increase in consumer sentiment in early September and signs underlying inflation pressures remained contained. The Consumer Price Index increased 0.6 percent last month, the first increase in five months and the largest gain since June 2009, the Labor Department reported on Friday.

Gasoline prices, which also recorded their largest increase since June 2009, accounted for about 80 percent of the rise. With gasoline costs increasing, service station chalked up healthy receipts. A second report from the Commerce Department showed sales at gasoline stations rose 5.5 percent last month, helping to push overall retail sales up 0.9 percent. It was the largest gain in retail sales since February.

Sales of automobiles and building and garden equipment were also strong, but sales elsewhere were weak. A gauge that tracks the consumer spending component of the government's GDP measure actually fell 0.1 percent. That and the strong CPI number left most economists anticipating modest GDP growth in the third quarter after output increased at an annual pace of 1.7 percent in the April-June period, well below the 2.5 percent rate that is needed to keep unemployment steady.

While the CPI rose sharply, the so-called core index, which strips out volatile and food and energy costs, edged up just 0.1 percent for a second straight month. In the 12 months through, August overall consumer prices increased 1.7 percent, staying below the Fed's 2 percent target, but advancing from July's 1.4 percent rise.

Food costs rose only marginally in August, but they are expected to rise significantly later this year as the impact of a severe drought, which has caused a spike in corn and soybean prices, works its way through to the supermarket.

Although gasoline pulled spending away from some categories in August, sales of automobiles rose by the most in six months. Autos have increased factory activity, but manufacturers may need to scale back soon as data on business inventories showed stocks of unsold vehicles piling up in July. A plunge in auto production contributed to the drop in industrial output in August, although Hurricane Isaac, which disrupted oil refineries in the Gulf Coast was also a factor.

iPhone Fever

Apple moved higher on Friday, touching a record high on what is being called called "iPhone 5 fever" as the company said some customers must wait two to three weeks for the new, slimmer, faster smartphone that accounts for half its revenue.

Apple.com was projecting shipments for the iPhone 5 would take two weeks to fulfill, with analysts saying the date slipped within an hour of the start of presales. The company's website showed buyers in United Kingdom, France and Germany would have to wait as much as three weeks to receive orders when the iPhone 5 starts shipping next Friday, the first day of deliveries.

AT&T, Verizon, and Sprint Nextel, the three domestic carriers who will sell the iPhone 5 indicated that there will be delays ranging from a week to a month by Friday afternoon to obtain an iPhone5.

Apple did not give any further details on the demand. Verizon said the company has seen "significant volumes" since it started accept pre-orders. AT&T and Sprint did not return messages for comment. The new model would also be available in Apple's stores next Friday for walk-in purchase. Retailers like Wal-Mart and Best Buy are also taking preorders.

Apple ended the day up 1.2 percent to close at $691.28. The shares had touched an all-time high of $696.98.

Apple began taking orders for the iPhone 5 at midnight Pacific Time (0700 GMT) on Friday, with shipments set to begin on Sept 21. The smartphone is being rolled out in phases and will be sold in 100 countries by the end of the year.

The iPhone 5 sports a 4-inch "retina" display, supports the high-speed 4G LTE wireless network, and is 20 percent lighter than the previous iPhone 4S.

It is not unusual for Apple products to sell out the first day. Orders for the previous iPhone 4S, the last product the company introduced before the death of co-founder Steve Jobs, surpassed 1 million in the first 24 hours, beating Apple's previous one-day record of 600,000 sales for the iPhone 4.

On average, Wall Street analysts forecast Apple may sell well over 42 million units this year. However, some analysts said the early sell-out may also point to a potential supply crunch.

Sharp, one of Apple's key suppliers for screens, is struggling with high costs and scrambling to raise funds to pay debt. Sharp, a Japanese company that is negotiating a deal to sell a big stake in itself to Taiwan's Hon Hai, also Apple's largest contract manufacturer, has apparently fallen behind schedule on production of screens.