Evening Market Update

Markets Bump Along the Flatline

The US equity markets finished mostly unchanged as traders wrestled with a ragbag of data including better-than-forecasted reports on consumer confidence and regional manufacturing, a slew of earnings reports that beat the Street’s expectations, a housing prices report that fell short of expectations and strength in the US dollar. Among those companies that reported positive earnings were Dow member DuPont, as well as Texas Instruments, Ford Motor Co, Amgen, and Coach, but US Steel Corp showed a loss for 3Q whereas analysts were looking for a profit. Elsewhere, Dow member IBM announced that its Board of Directors has authorized an additional $10 billion to repurchase shares. Treasuries finished lower amid the mixed sentiment.

The Dow Jones Industrial Average rose 5 points (0.1%) to 11,169, the S&P 500 Index was unchanged at 1,187, and the Nasdaq Composite advanced 6 points (0.3%) to 2,497. In modest volume, 997 million shares were traded on the NYSE and 1.9 billion shares were traded on the Nasdaq. Crude oil rose $0.03 to $82.55 per barrel, wholesale gasoline added $0.01 to $2.08 per gallon, and the Bloomberg gold spot price inched $0.10 higher to $1,339.95 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—rose 0.3% to 77.70.

Dow member DuPont (DD $47) reported 3Q EPS of $0.40, six cents above the consensus estimate of analysts surveyed by Bloomberg, with revenues growing 17% year-over-year (y/y) to $7.0 billion, compared to the $6.8 billion that the Street was looking for. The conglomerate said it saw “robust” volume increases in all segments, led by safety & protection and electronics & communications, while emerging markets also achieved solid sales growth. But the company said earnings were negatively impacted by lower pharmaceuticals income related to patent expirations. DD raised its full-year EPS outlook, reflecting strong 3Q results and expectations for sustained demand in key global markets, continued pricing momentum and benefits from ongoing productivity. Shares were lower.

Fellow Dow member International Business Machines Corp. (IBM $141) erased early losses and moved into positive territory after the company announced that its Board of Directors authorized $10 billion in additional funds for the use in the company’s stock repurchase program.

Texas Instruments Inc. (TXN $29) posted 3Q earnings of $0.71 per share, above the $0.69 forecast by analysts, with revenues jumping 30% y/y to $3.7 billion, roughly inline with the Street’s expectations. The semiconductor company said it had “strong” performance driven by growth in all its segments, with demand from industrial markets “especially strong,” while consumer demand cooled, impacting markets such as computing and televisions. TXN said its expects lower revenue quarter-over-quarter (q/q) in 4Q, reflecting a combination of seasonal patterns, continued soft demand in computing and consumer markets, and slowing growth in the industrial market. The company’s 4Q EPS and revenue outlooks were inline with what analysts were expecting. TXN was lower.

Ford Motor Co. (F $14) announced 3Q profits of $0.48 per share, ten cents above the consensus forecast of analysts, with revenues increasing $1.7 billion y/y, excluding last year’s revenues from its recently sold Volvo unit, to $29.0 billion, compared to the $28.6 billion that the Street had expected. The automaker also announced further actions to reduce debt and strengthen its balance sheet including: paying down its revolving credit line by $2 billion, fully repaying the remaining $3.6 billion of debt owed to its retiree health care trust, and conversion offers on two convertible debt securities. The company now expects its automotive cash to be about equal to its debt by year end, earlier than previously expected. Shares were modestly higher.

Amgen Inc. (AMGN $57) achieved adjusted 3Q EPS of $1.36, above the $1.27 that was anticipated, with revenues flat y/y at $3.8 billion, matching the Street’s expectations. The biotechnology firm said total product sales increased 1% y/y, with US sales nearly unchanged after being negatively impacted by the US Health Care Reform, while international sales rose 2% as changes in foreign exchange negatively impacted results. AMGN was lower.

Coach Inc. (COH $50) was sharply higher after the handbag and accessory maker posted fiscal 1Q EPS of $0.63, above the $0.55 that analysts were expecting, with revenues rising 20% y/y to $912 million, compared to the $848 million that was expected on the Street.

United States Steel Co. (X $41) was under heavy pressure after the company posted a net loss of $0.35 per share, compared to the $0.22 per share profit that analysts were expecting, with revenues decreasing 4% q/q to $4.5 billion, versus the $4.4 billion that the Street forecasted. The company said 3Q results were below 2Q as all three of its segments had lower shipments and production as activity in most of its markets slowed.

Home prices disappoint, consumer confidence improves more than forecasted 

The S&P/Case-Shiller Home Price Index was released showing an increase in home prices of 1.7% y/y in August, compared to the increase of 2.10% that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.28% lower, compared to forecasts, which called for a decline of 0.20%.

The home pricing data lags sales reports by a month and Chairman of the Index Committee at Standard & Poor’s, David Blitzer, characterized the report as “disappointing,” with broad-based price declines illustrated by seventeen of the twenty top markets in the nation seeing weakening in y/y figures, as compared to July. Blitzer said at this time, it does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers’ tax credits. But, he did note that the housing market appears to have stabilized at new lows.

Meanwhile, the Conference Board released its consumer confidence report, which rose to a level above expectations, increasing to 50.2 in October from a slight upwardly revised 48.6 in September, and compared to the expectation of a rise to 49.9. The headline number gained as respondents’ gauge of present business conditions as being “good” rose and those saying conditions are “bad” decreased. The report also revealed that expectations of better business conditions for the next six months rose and fewer jobs decreased. But, those saying jobs are “hard to get” moved higher, and those saying jobs are “plentiful” dipped slightly.

In other economic news, the Richmond Fed Manufacturing Index rose to 5 in October from -2 in September, compared to the increase to 1 expected by economists. The index rebounded from September’s first drop below the level of zero that is the demarcation point between expansion and contraction since January.

Treasuries finished lower following the housing, consumer sentiment, and manufacturing data. The yield on the two-year rose 2 bps to 0.39%, the yield on the 10-year note was 7 bps higher at 2.64%, and the 30-year bond yield gained 8 bps to 3.99%. However, the US dollar gained ground and kept sentiment at bay, gaining back some of yesterday’s broad-based losses that came from the weekend G20 meeting of world finance ministers, who appeared to reach an agreement to not pursue competitive currency devaluations.

European economic news mixed

Conflicting economic reports in Europe added to negative sentiment from some lackluster earnings reports from across the pond. UK 3Q GDP showed output in the nation rose 0.8% quarter-over-quarter (q/q) following a 1.2% rate of growth in 2Q, and compared to the 0.4% growth that was anticipated. Year-over-year (y/y), 3Q GDP was 2.8% higher, topping the 2.4% y/y increase that had been expected. Following the release, Standard & Poor’s lifted the UK’s debt rating outlook from “negative” to “stable,” as the nation’s aggressive austerity measures have put the UK’s public finances onto “a more sustainable footing.” However, a gauge of consumer confidence in Germany remained flat compared to expectations of an increase for the month of November, albeit at its highest level in two-and-a-half years. In other economic news, import prices in Europe’s largest economy rose a larger-than-expected 0.3% m/m in September, while y/y prices jumped 9.9% from 8.6% in the month prior, above forecasts for a 9.7% rise. Elsewhere, consumer confidence in France and Italy both surprisingly increased as expectations for economic and job growth improved, Sweden’s trade surplus expanded to a surplus in September from a deficit in August and well above estimates, while the nation’s producer prices jumped 0.4% m/m for September from a 0.5% decline the prior month, and above economists’ forecasts for prices at the wholesale level to remain flat. In central bank action, Sweden’s central bank increased its benchmark interest rate by 25 basis points to 1.00% as expected.

The economic calendar in the Asia/Pacific was light with the lone report coming out of Hong Kong, showing a larger-than-anticipated widening of its trade deficit as exports and imports both came in below expectations.

More housing data, as well as durable goods orders, on tap

New home sales will be released tomorrow, expected to show a 4.2% month-over-month (m/m) increase in September to an annual rate of 300,000 units, after coming in at a 288,000 unit rate in the prior two months. New home sales are considered a more timely indicator of conditions in the housing market than existing home sales, which rose a better-than-expected 10.0% m/m when released Monday. The weekly MBA Mortgage Applications Index will also be reported tomorrow.

Durable goods orders will also be reported, expected to rise 2.0% m/m in September after falling 1.3% in August, while ex-transportation, orders are forecasted to have grown 0.5% m/m, after increasing 2.0% in August. Non-defense capital goods excluding aircraft, considered a good proxy for business spending, is anticipated to grow 0.8% after surging by 4.1% the month prior. The durable goods data is volatile on a month-to-month basis as the large size of orders for items such as airplanes and military equipment can have a tendency to distort the data.

Recent economic data has been mixed, with a lack of clarity in the status of the housing market data due to the influence of the now expired tax incentive creating distortions, and strength in manufacturing taking a reprieve after the September reading on industrial production unexpectedly declined. Meanwhile, the market is more focused on the potential for the Fed to pursue another round of quantitative easing.

Elsewhere, international economic data will include French consumer spending, German CPI, Australian CPI, South Korea 3Q GDP, and Brazilian consumer confidence.