Evening Market Update

Stocks Tripped Up Ahead of Jackson Hole

US equities traded lower today, breaking a three-day winning streak, as early gains were wiped away on concerns out of Germany and the rest of the eurozone. Meanwhile, the lone release from the domestic economic front showed an increase in weekly jobless claims, but traders appear to have their sights set on tomorrow’s speech by Fed Chairman Bernanke in Jackson Hole, Wyoming. In equity news, the resignation of CEO Steve Jobs pressured shares of Apple and the rest of the technology sector, while financials got a boost from news of a $5 billion investment in Dow member Bank of America by Warren Buffet’s Berkshire Hathaway. In corporate earnings news, Applied Materials reported better-than-expected 3Q results, but disappointed the Street with a weak 4Q outlook. Treasuries moved lower, while gold prices gained back some ground after yesterday’s selloff.

The Dow Jones Industrial Average fell 171 points (1.5%) to 11,150, the S&P 500 Index lost 18 points (1.6%) to 1,159, and the Nasdaq Composite declined 48 points (1.9%) to 2,420. In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.14 to $85.30 per barrel, wholesale gasoline added $0.08 to $2.96 per gallon, while the Bloomberg gold spot price gained $10.95 to $1,770.08 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.2% to 74.20.

Dow member Bank of America Corp. (BAC $8) moved solidly higher after the company announced that it has reached an agreement to sell 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 per share to billionaire investor Warren Buffett’s Berkshire Hathaway Inc. (BRK/B $69). The preferred stock has a dividend of 6% annually, redeemable by the company at any time at a 5% premium. In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700,000,000 shares of BAC common stock at an exercise price of nearly $7.143 per share, which can be exercised in whole or in part at any time, and from time to time, during the 10-year period following the closing date of the transaction. The aggregate purchase price to be received by BAC for the deal is $5 billion in cash.

BAC’s CEO Brian Moynihan said, “I remain confident that we have the capital and liquidity we need to run our business,” and he recognizes that the large investment by Warren Buffett is “a strong endorsement.” Warren Buffett added that, “Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it.” Moreover, Buffett noted that, “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.” Shares of BRK/B were lower.

Apple Inc. (AAPL $374) finished lower, but off the worst levels of the day, after the company’s Board of Directors announced that Steve Jobs has resigned as Chief Executive Officer, and Tim Cook, AAPL’s previous Chief Operating Officer, will be the company’s new CEO. Jobs, who has been on medical leave since the beginning of the year, will remain with the company as Chairman of the Board. The company added that, “The Board has complete confidence that Tim is the right person to be our next CEO.” In a letter to AAPL’s Board, Jobs said, “I could no longer meet my duties and expectations as Apple’s CEO,” while recommending that Tim Cook be named as CEO. Jobs added that he believes “Apple’s brightest and most innovative days are ahead of it.”

Elsewhere,  Applied Materials Inc. (AMAT $11) was under pressure after the semiconductor equipment maker offered disappointing fiscal 4Q guidance and lowered its outlook for chip equipment spending for the year. AMAT said customers already started to pull back a little bit on spending and the global economic situation worsened, further impacting its customers’ spending plans, per Dow Jones Newswires. AMAT added that “softness should continue for at least a couple more quarters,” hurt by weakness in PC sales. The outlook by the company is more than offsetting its fiscal 3Q earnings report, in which it posted EPS ex-items of $0.35, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues of $2.8 billion, exceeding the Street’s forecast of $2.7 billion.

Jobless claims rise

Weekly initial jobless claims rose by 5,000 to 417,000, versus last week's figure which was upwardly revised by 4,000 to 412,000, and compared to the 405,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, increased by 4,000 to 407,500, while continuing claims dropped by 80,000 to 3,641,000, below the forecast of economists, which called for continuing claims to come in at 3,700,000. The Labor Department noted that the labor dispute at Dow member Verizon Communications Inc. (VZ $36) had boosted jobless claims for a second-straight week.

Treasuries were higher amid the weakness in stocks, as the yield on the 2-year note fell 2 bps to 0.21%, the yield on the 10-year note lost 7 bps to 2.23%, and the 30-year bond yield declined 6 bps to 3.60%.

European markets reverse course, Brazilian and Mexican unemployment fall  

The European markets were pressured by multiple rumors out of Germany, including speculation of a short-shell ban extension and fears of the country losing its triple-A credit rating. However, all three credit rating agencies issued statements saying that Germany was in no danger of losing its credit rating and maintained their stable outlook on the country. Meanwhile, eurozone debt concerns remained as Greek bond yields moved higher amid continued uncertainty regarding the approval of Greece’s second bailout by eurozone member nations, exacerbated by reports that Finland’s collateral agreement with Greece may be jeopardy. Elsewhere on the European economic front, UK consumer confidence declined by a smaller-than-forecasted amount and German consumer sentiment came in stronger than estimated, while a read on UK sales deteriorated by a larger figure than was expected.

Back in the Americas, Brazil’s unemployment rate fell to 6.0% in July, its lowest level this year and below the unchanged rate of 6.2% expected by economists. Additionally, Brazil’s consumer confidence fell to 118.7 in August, down from 124.4 in July. Elsewhere, Mexico’s seasonally-adjusted unemployment rate fell to 5.27% in July, which was lower than forecasts, while a separate report showed Mexico’s trade deficit unexpectedly increased in the second quarter.

Final revision to GDP due out tomorrow, Bernanke to speak at Jackson Hole

Tomorrow, all eyes will likely by focused on the US economy, as we will get the first revision to 2Q Gross Domestic Product (GDP), with the broadest measure of economic output expected to be adjusted from a 1.3% quarter-over-quarter (q/q) annualized rate of growth to a pace of 1.1%. Within the report, personal consumption—the largest contributor to US growth—is projected be revised from a 0.1% increase to a 0.2% gain, while the inflation components are anticipated to be left unchanged, with the GDP Price Index at a 2.3% increase and the core PCE Index, which excludes food and energy, 2.1% higher.

However, given that we are already almost two-thirds of the way through 3Q, tomorrow’s 10:00 a.m. ET speech by Federal Reserve Chairman Ben Bernanke at the Fed’s annual gathering in Jackson Hole, Wyoming, may overshadow the GDP report. Although Bernanke used the Jackson Hole meeting last year to signal further quantitative easing, or QE2, was on the way, this year, the Fed Chief may refrain from introducing QE3 despite the recent volatility in the markets and some further weakness in economic data since the Central Bank’s early August monetary policy meeting.

Additionally, the final University of Michigan Consumer Sentiment Index reading for August will be released tomorrow, with economists looking for an increase to 55.8 from a previous reading of 54.9.

Releases on the international front will include the preliminary reading of 2Q GDP from the UK, Germany’s import prices and Japan’s CPI. Additionally, Mexico’s central bank is expected to keep its overnight lending rate target unchanged when it meets tomorrow.