MarketView for September 28

Summary

Wall Street chalked up its best third quarter since 2010 after a wave of central bank actions sparked a dramatic reversal in equity markets, but signs of weakness in the economy drove stocks lower on Friday. The S&P 500 index is up 5.9 percent over the past three months as central banks added liquidity to the financial markets to try and stimulate their flagging economies. Within the United States, that move by the Fed has sent the S&P 500 index up about 17 percent this year, resulting in the best performance for that index in five years.

Yet there was disappointing. economic data as business activity in the Midwest contracted for the first time since 2009. The news came on the heels of other weak regional manufacturing reports and a sharp drop in durable goods orders last month.

For the third quarter, the Dow rose 4.3 percent and the Nasdaq climbed 6.2 percent. For the month of September alone, the Dow gained 2.6 percent and the S&P 500 rose 2.4 percent, while the Nasdaq advanced 1.6 percent. In contrast, the trend for the week was down, with the Dow off 1.1 percent, while the S&P 500 shed 1.3 percent and the Nasdaq dropped 2 percent.

In Friday's session, stocks came off their lows after Spanish bank stress tests were released, and were mostly within expectations. The independent audit showed banks will need 59.3 billion euros ($76.3 billion) in extra capital to ride out a serious downturn.

However, Spain remains mired in difficulties. Moody's review of the country's credit rating, due later in the day, could add to its challenges. On Thursday, ratings agency Egan-Jones cut Spain's sovereign rating further into junk status, citing the country's faltering banks and struggling regional governments.

The euro fell against the dollar on Friday, declining for a second straight week, as uncertainty persisted about Spain's prospects for receiving a bailout to prop up its ailing banks. Recent protests in Spain and Greece against austerity plans have also heightened investors' concerns as the turmoil could impede political maneuvering.

On the earnings front, Research in Motion ended the day with a gain of 5 percent to close at $7.50, a day after a smaller-than-expected quarterly loss.

Pledges by the European Central Bank, the Federal Reserve and the Bank of Japan to buy government bonds helped cement a summer rally in stocks and commodities.

Nonetheless, the markets have lost some of their luster after the announcements from the central banks in the first half of September. After pulling back 1.7 percent over the last two weeks, the S&P 500 is now up 14.6 percent so far this year. The S&P 500's drop of 1.3 percent this week is its worst weekly decline since the start of June.

The coming months hold a series of difficult challenges for markets, including third-quarter earnings season, which is expected to show the first drop in earnings since 2009, and the presidential election in November.

Reflecting Friday's defensive tone, nine of the 10 S&P sectors fell. Only the S&P utilities index was positive, up just 0.5 percent.

The decline in the S&P technology sector index was limited, as Accenture ended the day up 7.1 percent to $70.03. Accenture's gain followed its forecast of full-year earnings higher than analysts' estimates as the company bolsters its outsourcing business.

Nike warned of slowing orders in China, becoming the latest company to sound a note of caution about how economic weakness in the world's second-largest economy was affecting its business. Nike's stock closed down 1.1 percent at $94.91.

Trading was light on the quarter's last day, when money managers reposition their portfolios. About 6.15 billion shares changed hands on the three major equity exchanges, as compared with an average daily volume of 6.38 billion shares.