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Market Update 070314
http://biz.yahoo.com/mu/update.html

4:20 pm : Stocks built on Wednesday's gains, as investors weighed more reassurance that subprime mortgage misfortunes aren't spreading into the credit markets and some M&A activity against mixed economic data.

With Bear Stearns (BSC 148.50 +3.21) known to have the most exposure to subprime mortgage debt compared to its large-cap brokerage brethren, management following up a solid Q1 report by saying its subprime exposure isn't huge (only 3%), and that dislocations provide opportunities, helped investors eventually look past the latest rumblings from former Fed Chairman Greenspan.

Speaking to the Futures Industry Association in Florida, Greenspan said that subprime mortgages are "not a small issue" and that, if prices go down, the problems may spread, as he expects to see spillover to other sectors. That prompted a knee-jerk reversal in stocks around 1:30 ET.

Market participants, though, eventually took a bullish cue from notable leadership throughout the recently beaten-down Financials sector and closed the major averages higher for a second straight day. The sector got an added lift after Intercontinental Exchange (ICE 128.10 -3.83) announced a $9.9 bln rival bid for CBOT Holdings (BOT 194.95 +28.86), which is slated to merge with the Chicago Mercantile Exchange (CME 532.87 -31.10).

Merger news also provided a floor of support for the Consumer Staples, Materials and Utilities sectors. As evidenced by Drug Retail turning in one of the day's best performances, CVS Corp (CVS 33.34 +1.03) shareholders approved the $26 bln takeover of Caremark Rx (CMX 62.75 +1.67) while Walgreen Co. (WAG 45.75 +1.12) surged 2.4% amid rumors of a potential takeover.

With regard to Materials, the day's best performing S&P 500 sector, Dow Chemical (DOW 45.78 +2.40), reportedly in talks to form a strategic joint venture with India's Reliance Industries, also raised speculation of a potential buy-out or break-up. TXU Corp. (TXU 64.39 +1.58) was a Utilities sector standout following reports that Blackstone Group and the Carlyle Group have approached power companies to partner on a TXU bid.

Separately, investors had a batch of economic data to digest today as well. With the market hanging on every economic release to provide clues about Fed policy, today's data exaggerating inflation concerns, while also providing evidence of more manufacturing weakness, initially acted as an overhang.

However, today's bearish data -- a hotter than expected rise in Feb. core PPI and two disappointing regional manufacturing surveys (NY Empire State Index and Philly Fed) -- didn't totally undermine the momentum from yesterday as the market decided to await tomorrow's more closely-watched CPI report to provide more clarity as to what policy makers may say and do when they reconvene next week. DJ30 +26.28 NASDAQ +6.96 SP500 +5.11 NASDAQ Dec/Adv/Vol 1126/1887/1.71 bln NYSE Dec/Adv/Vol 948/2330/1.46 bln

3:30 pm : Unlike yesterday, when large-cap names were among the biggest winners, tech bellwethers like MSFT, CSCO, GOOG, and APPL which averaged gains of 1.7% Wednesday are all trading lower going into the close of trading today.

Such action has been further evidenced by the Russell 2000 small-cap index and S&P 400 MidCap Index turning in the best performances. Both are up more than 0.7% versus gains of only 0.2%, 0.4% and 0.2% for the Dow, S&P 500 and Nasdaq, respectively. DJ30 +28.36 NASDAQ +5.64 SP500 +5.07 NASDAQ Dec/Adv/Vol 1231/1758/1.39 bln NYSE Dec/Adv/Vol 1012/2239/1.18 bln

3:00 pm : The indices have ticked a bit higher within the last 30 minutes but hardly enough to make a significant change in the standings. Perhaps that's because most of the recent buying efforts have been centered around the Utilities sector, which is at session highs (+1.4%) but ranks among the least influential of the 10 economic sectors. TXU Corp. (TXU 64.39 +1.58) has been the sector standout following reports that Blackstone Group and the Carlyle Group have approached power companies to partner on a TXU bid.

Leveraged buyout speculation has also provided a lift to the defensive-minded Consumer Staples sector (+0.7%), as Walgreen (WAG 45.34 +0.74) spikes higher (+1.7%) within the last few minutes as rumors resurface about a potential takeover. DJ30 +29.96 NASDAQ +5.16 SP500 +5.86 NASDAQ Dec/Adv/Vol 1286/1694/1.27 bln NYSE Dec/Adv/Vol 1074/2150/1.07 bln

2:30 pm : Oil prices are hitting fresh session lows heading into the close on the NYMEX. After trading relatively unchanged throughout most of the session, after OPEC at its meeting in Vienna agreed to keep production targets steady, crude for April delivery is now down 1.0% at $57.60/bbl.

Even with higher energy prices contributing to the large jump in today's total PPI that has acted as an overhang on stocks all day, a subsequent reversal in Energy is removing what little leadership buyers have been able to muster during today's lackluster session. DJ30 +8.06 NASDAQ +1.68 SP500 +3.55 NASDAQ Dec/Adv/Vol 1288/1686/1.20 bln NYSE Dec/Adv/Vol 1005/2220/998 mln

2:00 pm : After a knee-jerk downturn in equities following recent remarks from former Fed Chairman Alan Greenspan, the market is almost as quickly recovering what was lost. At the bottom of the hour, Greenspan said subprime mortgages are "not a small issue" and that, if prices go down, the problems may spread as he expects to see spillover to other sectors.

Be that as it may, the market has shown good resilience in the face of such bearish commentary as the indices have found notable support right around the flat line. DJ30 +19.76 NASDAQ +2.49 SP500 +4.88 NASDAQ Dec/Adv/Vol 1346/1595/1.09 bln NYSE Dec/Adv/Vol 1069/2150/896 mln

1:30 pm : Stocks for the most part remain mired in relatively narrow ranges, but the indices have recently slipped to their lowest levels of the afternoon ahead of upcoming testimony from former Fed Chairman Alan Greenspan.

The absence of leadership from the heavily weighted Technology and Health Care sectors remains an obstacle for bulls who are particularly focused on picking up beaten-down banks and brokers while trying to make their claim that stocks remain undervalued at current levels.DJ30 +23.60 NASDAQ +3.25 SP500 +5.12 NASDAQ Dec/Adv/Vol 1139/1769/966 mln NYSE Dec/Adv/Vol 880/2309/802 mln

1:00 pm : Little has changed since the last update as traders make their way through what may turn out to be a longer New York lunch hour than usual. It is worth noting that with the NCAA Tournament tipping off just over 30 minutes ago, there are already signs of volume tapering off.

However, such limited participation can also just easily exacerbate potential volatility recently attributed to tomorrow's quadruple witching options expiration.

DJ30 +31.33 NASDAQ +5.17 SP500 +6.21 NASDAQ Dec/Adv/Vol 1152/1755/890 mln NYSE Dec/Adv/Vol 880/2286/730 mln

12:30 pm : Despite an unexpected decline on the Philadelphia Fed's manufacturing index, stocks are kicking off the afternoon session retracing previous highs as the manufacturers' outlook remained generally optimistic. The index edged lower to 0.2, just barely showing expansion, but also noted that overall activity in the region's manufacturing sector has been steady so far this month with indicators for new orders, shipments, and employment showing slight improvements from February.

As evidenced by the Industrials sector hitting session highs following the report, it's apparent investors are also embracing an expected pickup in growth during Q2 and improved conditions over the next six months. DJ30 +32.32 NASDAQ +5.38 SP500 +6.17 NASDAQ Dec/Adv/Vol 1168/1691/790 mln NYSE Dec/Adv/Vol 1043/2103/660 mln

12:00 pm : The major averages remain positive midday but gains are now modest at best as investors weigh more reassurance that subprime mortgage missteps have not spilled over to the credit markets against mixed economic data.

Before the bell, total PPI jumped 1.3% (consensus 0.5%) in February. The more closely-watched core rate rose 0.4% following two consecutive 0.2% gains, prompting a knee-jerk reaction in equities that continues to act as an overhang. Even though today's PPI report is not that critical, especially ahead of tomorrow's more influential CPI data, a market still more focused on everything negative has viewed the disappointing PPI data as an underlying inflation risk that will continue to prevent policy makers from cutting interest rates anytime soon.

There was also a disappointing release on manufacturing. The March NY Empire State index dropped to 1.9 from a very strong 24.4 in February, turning the focus to the upcoming Philly Fed survey (12:00 ET) to provide a clearer read on manufacturing conditions.

Aside from the market's sensitivity to economic data, investors have also been closely eyeing reports from leading brokerage firms this week to provide clarity on the troubling subprime mortgage market. Fortunately for the bulls, Bear Stearns (BSC 148.75 +3.46) following up a better than expected Q1 report by echoing comments made by Lehman Brothers (LEH 73.50 +1.78) yesterday about its limited subprime exposure and potential opportunities has helped the Financials sector build on Wednesday's rebound.

Financials' leadership, coupled with a nearly 2% surge in Materials, is so far helping to offset modest pullbacks in Health Care and Technology. Diversified Chemicals (+3.5%) is still today's best performing S&P industry group following news that Dow Chemical (DOW 45.73 +2.35) is reportedly in talks to form a strategic joint venture with India's Reliance Industries. DJ30 +8.01 NASDAQ +1.39 SP500 +3.36 NASDAQ Dec/Adv/Vol 1130/1703/680 mln NYSE Dec/Adv/Vol 916/2217/560 mln

11:30 am : Not much has changed within the last 30 minutes as the indices settle into a relatively narrow trading range. Eight out of 10 sectors are still posting gains, led by a 2.1% surge in the Materials sector but fueled primarily by widespread bargain hunting in a Financials sector that many left for dead just days ago amid more magnified worries about subprime misfortunes spilling over in the broader economy.

It is also worth noting that another sizable decline on the VIX (CBOE Volatility Index), due in part to Friday's quarterly options expiration prompting some more short covering activity, further underscores the change in sentiment since Tuesday's sell-off. DJ30 +35.97 NASDAQ +6.76 SP500 +6.39 NASDAQ Dec/Adv/Vol 1042/1741/540 mln NYSE Dec/Adv/Vol 783/2270/470 mln

11:00 am : The market is trading at improved levels as buyers continue to gather some momentum. The Financials sector (+1.3%) still chipping away at the 3.2% sell-off it endured Tuesday remains the foundation behind today's modest follow-through efforts.

Technology, Health Care and Industrials recently turning positive are also providing some notable leadership, especially since the three sectors combined account for nearly 40% of the total weighting on the S&P 500. DJ30 +36.46 NASDAQ +6.88 SP500 +6.04 NASDAQ Dec/Adv/Vol 992/1731/412 mln NYSE Dec/Adv/Vol 744/2233/350 mln

10:30 am : Equities have garnered an additional wave of buying interest since the last update, but so far only enough to inch the Dow into positive territory. The Financials sector (+0.9%) is extending its reach to the upside now leaves Dow components Citigroup (C 49.65 +0.57) and JP Morgan (JPM 47.89 +0.59) among the blue-chip index's best performers.

Bear Stearns (BSC 148.80 +3.51) is climbing to session highs after echoing comments made by competitor Lehman Brothers (LEH 72.99 +1.27) yesterday that its subprime exposure isn't huge and will provide opportunities. The influential sector is getting an additional lift as investors applaud Intercontinental Exchange's (ICE 129.21 -2.72) proposed $9.9 bln rival bid for CBOT Holdings (BOT 188.88 +22.79), which is slated to merge with the Chicago Mercantile Exchange (CME 549.80 -14.17). DJ30 +22.51 NASDAQ +5.67 SP500 +4.10 NASDAQ Dec/Adv/Vol 945/1718/303 mln NYSE Dec/Adv/Vol 837/2068/252 mln

10:00 am : The major averages continue to trade in split fashion as industry leadership remains mixed. Of the five sectors trading higher, Financials (+0.5%) is exhibiting some decent follow-through momentum as Thrifts & Mortgage (+1.3%) continue to recover from overblown concerns tied to the subprime mortgage debacle.

Materials, though, is turning in the best performance (+1.5%) as Diversified Chemicals (+3.1%) gets a big lift on news that Dow Chemical (DOW 45.48 +2.10) is reportedly in talks to form a strategic joint venture with India's Reliance Industries. Telecom is today's biggest disappointment as Wireless Services ranks as the morning's worst performing S&P industry group (-0.9%).DJ30 -5.62 NASDAQ +4.71 SP500 +0.55 NASDAQ Dec/Adv/Vol 878/1567/134 mln NYSE Dec/Adv/Vol 804/1855/72 mln

09:40 am : With the market hanging on every economic release to provide clues about Fed policy, today's data exaggerating inflation concerns while also providing evidence of more manufacturing weakness has left investors again questioning the sustainability of market gains predicated in part on the Fed easing at some point this year.

Fortunately for the bulls, today's bearish data -- a hotter than expected rise in Feb. core PPI and a disappointing read on the March NY Empire State index -- haven't totally undermined the momentum from yesterday as the indices have opened relatively flat. The market's focus now turns to this afternoon's Philly Fed report (12:00 ET) and tomorrow's CPI data to provide more clarity as to what policy makers may say and do when they reconvene next week to decide monetary policy. DJ30 -13.70 NASDAQ +3.55 SP500 +0.23 NASDAQ Vol 84 mln NYSE Vol 40 mln

09:15 am : S&P futures vs fair value: -2.2. Nasdaq futures vs fair value: -3.8. Futures indications continue to deteriorate heading into the opening bell, reflective of the market's sensitivity to economic data. Even though the NY Empire State Index ranks among the smaller regional manufacturing surveys, the report plunging to its lowest level since May 2005 has renewed concerns of a recession while a PPI report which tends to bounce around significantly on a month-to-month basis provides the bears with fodder to support their overblown concerns about inflation.

09:00 am : S&P futures vs fair value: -0.3. Nasdaq futures vs fair value: flat. Still shaping up to be a sluggish start for stocks as this morning's mixed economic data have taken the wind out of the market's sails. Even though earlier indications weren't pointing to a significantly higher open, a market still more focused on everything negative has viewed the larger than expected rise in core PPI as an underlying inflation risk that will continue to prevent policy makers from cutting interest rates anytime soon. The Fed meets next week (March 20-21) and, even though today's PPI report is not that critical, especially ahead of tomorrow's more influential CPI data, the Fed is widely expected to keep rates unchanged at 5.25% for a sixth straight meeting.

08:33 am : S&P futures vs fair value: -0.2. Nasdaq futures vs fair value: -0.5. Futures trade spikes lower following economic data, now suggesting a slightly lower start for the cash market. Total PPI unexpectedly jumped 1.3% (consensus 0.5%) in February. The more closely-watched core rate rose 0.4% (consensus 0.2%), prompting a knee-jerk reaction in equities but bonds have basically shrugged off the report so far in anticipation of tomorrow's more influential CPI report to provide a clearer read on inflation. The March NY Empire State Index plunged to 1.9 (consensus 17.0); but today’s Philly Fed survey will hold more influence. Initial claims fell 11K to 318K (consensus 325K).