Morning Update

Stocks Posting Downward Tally After Yesterday’s Rally

Stocks are lower in morning action, following yesterday’s steep gains on the release of the stronger-than-expected 3Q GDP report, which soothed some fears about the sustainability of the global economic recovery. Traders may be booking some profits as they look for the next catalyst to emerge to signal that the recent surge in the equity markets was warranted by underlying fundamental economic data. Treasuries are higher, extending gains following personal income and spending data that matched economists’ forecasts. Earnings news continues to dominate the equity front, with Dow component Chevron and Hertz Global topping analysts’ profit projections, while MetLife matched expectations. Overseas, Asia rallied on the aforementioned favorable US data, while Europe is nearly unchanged.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 6 points below fair value, the DJIA is 34 points below fair value, and the Nasdaq 100 Index is 6 points below fair value. Crude oil is lower by $0.77 at $79.10 per barrel, and the Bloomberg gold spot price is down $5.10 at $1,041.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% to 76.07.

Dow member Chevron (CVX $78) reported 3Q EPS ex-items of $1.72, topping the $1.47 that Wall Street analysts were expecting, with revenues falling from $76 billion last year to $45 billion, which was short of the $47.8 billion that the Street had forecasted. The oil and gas firm said the decline in revenues was primarily due to lower prices for crude oil, natural gas and refined products.

MetLife (MET $37) reported 3Q EPS excluding investment losses of $0.87, inline with the expectations of Wall Street analysts, and total revenues dipped 1% versus last year to $12.4 billion, which was above the $12.2 billion that had been expected by analysts. The insurer said despite the current economic challenges, it experienced increased sales in a number of product areas in both the US and internationally, and it also benefitted from expense savings.

Hertz Global (HTZ $10) reported adjusted 3Q EPS of $0.31, seven cents above the Street’s forecast, with revenues dropping 15.7% versus last year to $2.0 billion, which matched analyst expectations. The car rental firm said its earnings performance reflects sustained progress on expense management which offset soft, but improving, business travel demand and stabilizing equipment rental volume.

Personal outlays match expectations

Personal income (chart) was flat in September, matching the Bloomberg estimate, and August was revised from a 0.2% increase to 0.1%. Personal spending fell 0.5% in September, also inline with the Bloomberg expectation, while August’s 1.3% rise was upwardly revised to a 1.4% gain. The savings rate increased from a downwardly revised 2.8% in August to 3.3% in September.

Also, the PCE Price Index, which is released with the income and spending data, fell 0.5% year-over-year in September, matching the consensus forecast, and August’s decline was left unrevised at -0.5%. The core PCE Price Index, which excludes food and energy, rose 0.1%, below expectations of 0.2%. Year-over-year, core prices moved 1.3% higher, inline with the consensus of economists surveyed by Bloomberg. Treasuries gained some modest ground following the report and are higher.

Elsewhere, the Employment Cost Index (chart) for 3Q rose 0.4%, inline with the Bloomberg consensus.

Later this morning, the economic calendar will yield the final reading of the University of Michigan’s Consumer Sentiment Index for October, expected to improve modestly from 69.4 in September to 70.0. Also, the Chicago PMI will be reported and is forecast to improve from 46.1 in September to 49.0 in October.

Europe nearly unchanged after yesterday’s gains

Stocks in Europe are hovering around the flatline in afternoon action as traders are pausing to reflect on yesterday’s steep advance on favorable economic and earnings data in the eurozone and the US in an attempt to gauge if the economic recovery has its best days ahead of it. Earnings news is again in the headlines, with Alcatel-Lucent (ALU $4) under sharp pressure after the world’s largest provider of fixed-line phone networks posted its twelfth-consecutive quarterly loss, which was wider than analysts’ expectations. Elsewhere, France’s largest carmaker Renault (RNSDF $47) and drugmaker Sanofi-Aventis (SNY $38) both offered upbeat forecasts. Financials are higher to help lend support to European trading, led by strength in Irish banks on optimism the government will approve its “bad bank” plan. In economic data out of Europe, a report showed UK Home prices posted their first annual gain in 19 months, according to Bloomberg.

Asia advances on earnings and economic data

Stocks in Asia were mostly higher, with Japan’s Nikkei 225 Index, China’s Shanghai Composite Index, and Australia’s S&P/ASX 200 Index all gaining over 1%, while Hong Kong’s Hang Seng Index led the way with a 2.3% gain. Yesterday’s rally in the US on its stronger-than-expected 3Q GDP report teamed up with an unexpected drop in Japan’s jobless rate to boost sentiment in the Asia/Pacific region. Favorable news on the earnings front also helped support the advance, with Industrial & Commercial Bank of China (IDCBY $41) and Bank of China (BACHY $15) gaining ground after they both reported profits that topped analysts’ expectations, while shares of Olympus (OCPNY $30) surged after the Nikkei newspaper said the company is expected to beat its internal first-half operating profit forecast. Olympus did not comment on the report.

Elsewhere, Komatsu (KMTUY $79) rose solidly after the second-largest maker of construction equipment posted a first-half profit that was more than double its previous forecast, and Samsung Electronics (SSNLF $685) advanced after the world’s largest maker of memory chips reported favorable quarterly profits, but its gain was tempered by a cautious outlook on the impact of the appreciation of the South Korean won on its profits. Meanwhile, Nintendo (NTDOY $31) came under pressure after it reduced its full-year profit forecast, due to weak sales of its Wii gaming console, while after today’s closing bell in Asia, Sony Corp (SNE $31) reported its fourth-straight quarterly loss on weak cellphone sales and price reductions to its PlayStation 3 gaming console, but it narrowed its full-year loss forecast. However, South Korea’s Kospi Index and India’s BSE Sensex 30 Index both failed to participate in the broad-based advance and finished in the red.