MarketView for September 27

Summary

The S&P 500 snapped a five-day losing streak in a broad-based rally on Thursday, as Spain's plans for economic reform eased some worries about one of the euro zone's most troubled countries. The benchmark indicator rose 1 percent, its largest percentage gain since the Federal Reserve announced its plan for a third round of stimulus on September 13.

Spain announced a detailed timetable for economic reforms for the fiscally troubled nation and a tough 2013 budget based mostly on spending cuts. The EU's Economic and Monetary Affairs Commissioner, Olli Rehn, said Spain's detailed timetable for economic reforms goes beyond what the European Commission has asked of Spain. Rehn said it is an ambitious step forward. Gold stocks ranked among the day's largest gainers in the wake of Spain's news.

Adding to the rally was a last-minute push by investors to re-position portfolios ahead of the quarter's end, taking into account the fact that the S&P 500 is on track for a gain of 6.2 percent in the third quarter. Friday will be the quarter's last trading day.

Apple was up 2.4 percent at $681.32, while at the same time accounting for much of the impetus behind the Nasdaq upward climb. The Nasdaq is heavily weighted towards technology stocks, so it was no surprise that Intel was also up, ending the day with a gain of 1.9 percent at $23.09.

After the bell, Research In Motion chalked up a gain of 15 percent to end the day at $8.21 after reporting a smaller-than-expected quarterly loss.

On the M&A front, Tempur-Pedic announced that it had agreed to acquire rival mattress manufacturer Sealy Corp for about $242 million and assume about $750 million in debt. Tempur-Pedic ended the day up 14.4 percent to $30.64, while Sealy's stock closed with a gain of 2.3 percent to end the day at $2.19.

Discover Financial Services reported third-quarter earnings that exceeded expectations. As a result its share price ended the day up 7.3 percent, closing at $39.71.

Stocks were rising before Spain's announcement on hopes that China would take steps to spur its slowing economy. China has severely underestimated this year's global economic slowdown, and further cuts to Chinese interest rates or bank reserve requirements will likely hinge on any new deterioration in the external environment.

The day’s economic data was mixed. A report showed initial jobless claims dropped by 23,000 to 359,000, greatly exceeding the decline of 4,000 that had been expected. At the same time, the final read on second-quarter gross domestic product showed growth of just 1.3 percent, considerably weaker than the expected 1.7 percent. And August durable goods orders tumbled 13.2 percent, much more than the expected drop of 5 percent.

Volume was below average with approximately 5.74 billion shares changing hands on the three major equity exchanges, a number that was considerably less than the average daily closing volume this year of 6.53 billionshares.

Jobless Claims Fall to Two Month Low

According to a Labor Department report released on Thursday, the number of new claims for jobless benefits fell last week by 26,000 claims to a seasonally adjusted 359,000 claims, its lowest level in two months. The prior week's figure was revised upward to show 3,000 more claims than previously reported. The four-week moving average for new claims, a better measure of labor market trends, fell by 4,500 claims to a total of 374,000 slaims, breaking five straight weeks of increases.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid fell 4,000 to 3.27 million in the week ended September 15. The so-called continuing data covered the week for the household survey from which the unemployment rate is derived.

A Labor Department official said there were no special factors influencing the report and no states had been estimated. Meanwhile, the labor market has been mired in weakness as worries about higher taxes and deep government spending cuts in January, the ongoing debt problems in Europe and slowing global growth lead employers to be cautious about ramping up hiring.

Sluggish job gains and stubbornly high unemployment spurred the Federal Reserve this month into launching a third round of bond purchases to drive down already low interest rates. The Fed has vowed to purchase $40 billion worth of mortgage-backed securities each month until it sees a sustained upturn in the labor market.

Job Growth Revised Upward

The economy created about 386,000 more jobs in the 12 months through March than previously estimated, the Labor Department said on Thursday in a preliminary estimate of its annual "benchmark" revision to closely watched payrolls data.

Once a year, the department compares its non-farm payroll data, based on monthly surveys of a sample of employers, with a much more complete database of unemployment insurance tax reports. It said its latest comparison suggests the level of employment in March was 0.3 percent higher than it had previously stated.

A final benchmark revision will be released in February along with the department's report on employment in January. Government statisticians will use the final benchmark count to revise payroll data for months both prior to and after March.

A breakdown by industry sector showed 453,000 more total private sector jobs were created than initially thought, including 145,000 more jobs in the trade, transportation, and utilities category, plus 85,000 more in construction.

In contrast, the benchmark revision lowered the estimate for job creation in the government sector by 65,000, while it found that 25,000 fewer manufacturing jobs had been generated over the 12 month period than previously thought.

Durable Orders Fall 13.2 Percent in August

Orders for long-lasting goods sank 13.2 percent in August after a large decline in bookings for airplanes and autos, the Commerce Department said Thursday. Even after subtracting the volatile transportation sector, however, orders were weak. Bookings also fell for machinery, computers and primary metals in another sign the manufacturing sector has softened considerably after a more than two-year hot streak.

Orders for durable goods, or items expected to last at least three years, provide a good idea of how fast the economy is growing. Orders surge when growth accelerates and droop when the economy falters. Sales of aircraft in particular are hugely expensive and can swing dramatically from month to month, skewing the headline figures for orders. Orders for military weapons and equipment, which plummeted 28% in August, can have the same effect.

In July, Boeing signed a flurry of new deals at the big Paris Air Show and orders spiked 51 percent. As a result, orders dried up in August, plunged 102%. And orders for autos fell 11percent.

On the brighter side, an even more critical number, known as core capital goods, rose 1.1 percent in August after falling 5.2 percent in July and 2.7 percent in June.

Bookings for these goods, which strip out defense and transportation, tend to provide a clearer window into how well the broad manufacturing sector is doing. The increase might suggest that demand is stabilizing.

The weaker level of orders since the end of spring reflects a global economic slowdown. Our exports to Europe and China have softened, while the concerns that our government is going off a so-called “fiscal cliff” in 2013 and will take most of us with it.

Deep spending cuts and big tax increases are slated to take effect Jan. 1 unless a divided Washington acts to change current law. Defense contractors could be hard hit if planned reductions in military spending occur. Read more on what executives say about fiscal cliff.

Shipments of core capital goods, perhaps reflecting the anxiety of business, fell 0.9 percent in August to mark the second straight decline. Shipments of all durable goods fell 3.0 percent in August. Inventories of durable goods rose 0.6 percent last month. Orders for July were revised down to a 3.3 percent increase from an initial report of a 4.1 percent gain.