Evening Market Update

Positive Jobs Data Can’t Spark Significant Rally

Stocks finished the day mixed and mostly unchanged, after failing to capitalize on early gains achieved on an unexpected drop in US weekly initial jobless claims, as well as a solid decline in the US dollar. Traders had numerous earnings reports to digest, including better-than expected results from Dow member Exxon Mobil Corp, as well as positive results from Visa, Motorola, Las Vegas Sands, Dow Chemical and Eastman Kodak. However, sentiment took a hit when Allstate Corp and AutoNation failed to match profit expectations, and Dow component 3M beat top- and bottom-line estimates, but provided lackluster full-year guidance. Treasuries lost some ground on the jobs data, but still managed to move higher.

The Dow Jones Industrial Average fell 17 points (0.1%) to 11,110, the S&P 500 Index gained 1 point (0.1%) to 1,184, while the Nasdaq Composite advanced 4 points (0.2%) to 2,507. In modest volume, 1.0 billion shares were traded on the NYSE and 2.0 billion shares were traded on the Nasdaq. Crude oil gained $0.01 to $81.95 per barrel, while wholesale gasoline rose $0.01 to $2.11 per gallon, and the Bloomberg gold spot price advanced $18.45 to $1,343.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 1.0% to 77.27.

Dow component 3M Co. (MMM $85) announced 3Q earnings ex-items of $1.53, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues growing 11% year-over-year (y/y) to $6.9 billion, above the $6.8 billion that was expected on the Street. The conglomerate said it had double-digit sales increases in four of its six business segments, led by its electro & communications unit and its display & graphics group. Also, its Asia Pacific sales, which grew 28%, led all geographic regions, while sales in emerging markets grew by 25%—and now comprise 34% off the company’s worldwide sales. However, shares finished lower after the company lowered its full-year EPS guidance, which missed analysts’ forecasts.

Fellow Dow member Exxon Mobil Corp. (XOM $66) reported 3Q EPS of $1.44, versus the $1.39 that was anticipated by analysts, but revenues increased 15.8% y/y to $95.3 billion, compared to the $98.1 billion that the Street had forecasted. XOM noted that, “Despite continuing economic uncertainty,” it had strong quarterly results as it benefited from higher crude oil and natural gas realizations, improved refining margins, and solid chemical results. Also, the company said its oil-equivalent production was over 20% higher than 3Q last year and capital and exploration expenditures were up 35% y/y. Shares were modestly higher.

Visa Inc. (V $76) announced fiscal 4Q EPS ex-items of $0.95, compared to the $0.94 that analysts were expecting, with revenues increasing 13% y/y to $2.1 billion, mostly matching the consensus estimate of the Street. The credit card transaction firm characterized the business environment as “very challenging,” but payments volume growth was 14% higher y/y and total processed transactions rose 16% y/y to 12.1 billion. The company also issued full-year 2011 revenue guidance that matched the Street’s expectations and it reiterated its 2011 EPS outlook. Moreover, the company announced a new $1 billion stock repurchase plan. V traded lower.

Allstate Corp. (ALL $30) reported 3Q EPS ex-items of $0.83, below the $0.99 that the Street had forecasted, with premiums written by the insurance firm dipping 0.6% y/y to $6.8 billion, roughly inline with the expectation of analysts. The company said its auto premiums written declined 0.5% y/y, while homeowner premiums written increased 2.4% y/y. ALL traded solidly to the downside.

Motorola Inc. (MOT $8) achieved 3Q EPS ex-items of $0.12, one penny above the Street’s expectations. Meanwhile, total revenues rose 6% y/y to $5.8 billion, including $900 million in revenues from discontinued operations, versus the $5.6 billion that analysts had anticipated, but it was unclear if the analyst forecast included the discontinued revenues. The company said its mobile devices unit had sales growth of 20% y/y and reached profitability for the first time in over three years, with its Droid X device continuing to sell “extremely well.” Shares were higher.

Las Vegas Sands Corp. (LVS $45) was sharply higher after the hotel and casino company reported 3Q EPS ex-items of $0.34, ten cents above the estimate of analysts, with revenues jumping 67.3% y/y to a “record” $1.9 billion, above the $1.8 billion that was anticipated on the Street. The company said “strong revenue growth” and increases in operational efficiency in Macau and “outstanding results” at Marina Bay Sands in Singapore contributed to substantial margin expansion and financial performance overall.

Eastman Kodak (EK $5) traded up over 15% after the photography and media firm posted a 3Q loss that was much smaller than expected, with a loss of $0.02 per share comparing to the Street’s forecast of a $0.31 per share loss. The company said its results reflect continued momentum of the company’s digital growth businesses, improved operating efficiencies, and the successful conclusion of an intellectual property licensing agreement. Revenues declined 1% y/y to $1.8 billion, versus the $1.6 billion that analysts forecasted. EK reaffirmed its full-year revenue guidance that was above expectations.

AutoNation Inc. (AN $23) finished lower after the auto dealer reported 3Q EPS of $0.39, below the $0.42 forecast by analysts, as higher expenses pressured earnings, but revenues rose 13% y/y to $3.3 billion, above the $3.1 billion that the Street was looking for. The company said sales were driven by stronger new and used retail vehicle sales, while same-store sales—sales at locations open at least a year—of new vehicles increased 1% y/y, compared to a decline of 4% in total US industry new vehicle sales based on CNW Research data. AN said it continues to expect full-year industry new vehicle sales to be in the range of 11.5 million units.

Dow Chemical Co. (DOW $31) reported 3Q EPS ex-items of $0.54, well above the $0.41 estimate of analysts, while revenue increased 6.8% y/y to $12.87 billion. Sales improved around the globe as demand and capacity increased, particularly in basic chemicals and agriculture products. The largest U.S. chemicals company by revenue said it sees continued strong growth ahead in emerging markets such as Asia and the Middle East, while Western Europe and North America may experience slightly lower growth in the second half of the year. Shares of DOW were lower.

Weekly jobless claims fall

Weekly initial jobless claims fell by a seasonally adjusted 21,000 to 434,000, versus last week's figure which was upwardly revised by 3,000 to 455,000, where the consensus estimate of economists surveyed by Bloomberg called for claims to come in at. The four-week moving average, considered a smoother look at the trend in claims, declined by 5,500 to 453,250, and continuing claims dropped by 122,000 to 4,356,000, compared to the 4,430,000 that was anticipated by economists. However, a Labor Department spokesperson told Bloomberg that a smaller-than-typical increase in non-seasonally adjusted claims following the Columbus Day holiday led to the unexpected decrease in the seasonally adjusted data. Treasuries were mostly higher, but did pare gains following the employment data. The yield on the two-year note fell 5 bps to 0.36%, the yield on the 10-year note was 6 bps lower at 2.66%, and the 30-year bond yield was flat at 4.05%.

Meanwhile, the US dollar is under some pressure after rising broadly for the past couple sessions as traders pared back bets against the US currency while grappling with the size, scope, and efficacy of any further stimulus efforts by the US Federal Reserve, which is highly-expected at the Federal Open Market Committee’s (FOMC) monetary policy meeting next week. The question of whether the Fed will act to deploy further stimulus efforts seems to be answered by recent market action, as the dollar has weakened to a fifteen-year low versus the yen and the Dollar Index sits near a ten-month low.

BoJ keeps interest rates unchanged, UK home prices tumble

International economic news was highlighted by disappointing data from across the pond, as UK home prices fell more than twice the expectation of economists in October, France’s producer prices came in hotter-than-expected for September, and Italian wages decelerated in September. Additionally, an index of executive and consumer sentiment in the euro-zone rose to 104.1 in September, up from 103.2 in August, and higher than the 103.5 estimate of economists.

In Asia/Pacific, the BoJ kept its benchmark interest rate range unchanged between 0-0.10%, but gave some details about its asset purchase program that was previously announced earlier this month when it unexpectedly reduced its interest outlook to the above mentioned range. The BoJ said it will buy 1.5 trillion yen ($18.4 billion) in long term government bonds, 2 trillion yen in short-term government securities, 450 billion yen in exchange traded funds (ETFs) and 50 billion yen of real estate investment trusts (REITs). Also, the Japanese central bank moved up its next policy meeting from November 15-16 to November 4-5, and said it will buy corporate debt with lower credit ratings than it has previously purchased, per Bloomberg. In other economic news, Japan’s retail trade fell much more than anticipated by economists in September, and Australia’s Leading Index gained modest ground.

Back in the Americas, the Brazilian central bank said it expects inflation to converge to its 4.5% target rate, but stands ready to adjust its monetary stance if inflation doesn’t slow in a “timely manner.” The statement came in the release of the minutes from its October 19-20 policy meeting, where the bank’s board voted unanimously to keep the target interest rate at 10.75%, as economists had expected. Policy makers said the full impact of this year’s rate increases, from a record low of 8.75%, are not yet in place and will help contain inflation ahead.

First estimate of 3Q gross domestic product due up

Tomorrow brings the first reading of 3Q gross domestic product (GDP), expected to grow at a 2.0% quarter-over-quarter (q/q) annualized rate, after expanding by 1.7% in the second quarter. The largest component of GDP, personal consumption, is expected to grow 2.5% in 3Q, after advancing 2.2% in 2Q. With regard to inflation readings, the GDP Price Index is expected to rise 1.8%, and the core PCE Index, which excludes food and energy, is forecasted to increase 1.0%.

The low rate of economic growth in the US, along with high unemployment and low inflation has the Fed ready to provide stimulus, and investors are expecting the Fed to announce another round of asset purchases, or quantitative easing.

The other release on the US economic calendar tomorrow is the final University of Michigan Consumer Sentiment Index for October, expected to be upwardly revised to 68.0 from the initial reading of 67.9, while still lower than the 68.2 mark hit in September.

In Europe, releases include German retail sales, Italian PPI and CPI, and UK mortgage approvals. In Asia/Pacific, Japan is slated to announce industrial and vehicle production, housing starts, construction orders, CPI, employment, and household spending, Australia will report new home sales, and South Korea will announce industrial production.