Market Talk

Weaker-than-expected August existing home sales clearly a key catalyst for today’s US market direction. Usually it’s not that easy to figure out.

Data didn’t present a huge setback, and decline in inventory of homes for sale is a positive. But the sizable inventory decline amid slower sales leaves us wondering what’s afoot there? Frustrated sellers taking homes off the market because they don’t like the offers? Moving from official inventory to “shadow”?

Bulls make a couple final-hour runs to trim declines, without much conviction. Materials, financials, industrials and energy the biggest losers. CAT — so often a rally leader — leads Dow Industrial dollar decliners.

Oil gets creamed again, Nymex crude down 4.5%.

DJIA slips 41.11 to 9707.44, and Nasdaq Comp falls 23.81 (1.1%) to 2107.61. S&P 500 ends 10.09 lower at 1050.78.

After the close Research In Motion disappointed with its 2Q revenue and outlook for 3Q sales, which could be a tone-setter for tomorrow morning’s open. RIMM shares off about 13% in aftermarket trading.

Other likely influences on tomorrow’s action include August durable goods report, final reading on September consumer sentiment and August new home sales.

Starting to sense more reluctance by the Street to downgrade stocks that are close to hitting target prices, and greater willingness to simply increase targets instead.

Jargon-heavy analyst language seems to get all the more jargony when they’re explaining target hikes these days.

Bernstein raises Goldman Sachs (GS) target to $220 from $190 (shares currently near $182), citing “a pull-forward of next-twelve-month ROTE forecast, and to account for recent declines in beta.”

The firm also notes GS’s capital strength, strong trading business and thinned-out competition. Not exactly new developments there.

This baby's still available, and the price keeps dropping!

Goldman Sachs turns more bullish on homebuilders, a questionable move considering many still believe there’s too much inventory on the market for a sustainable housing recovery.

Nevertheless, Goldman raises its view on homebuilder stocks to attractive from neutral, predicting 30% growth in new home sales next year.

Aggressive prediction, especially considering many expect the unemployment rate to keep rising into double digits next year. But the firm says “troughs in non-farm payroll losses are a better gauge for a return to growth in new home sales than waiting for the peak in unemployment,” and investors waiting for the peak are usually seven to eight months and 60% too late.

Counter to Goldman’s take, however, Citigroup says now’s not the time to buy builders.

“We think valuations are stretched, and we note that based on recent price action, less good news is effectively bad news for the stocks,” firm says.

Continue reading…

The storms have passed, but a cloudy forecast remains for labor market.

Initial jobless claims fell and the four-week moving average of new claims also dropped, presenting growing evidence that labor markets may finally be stabilizing.

Initial claims fell 21,000 to 530,000 in the week ended Sept. 19, while economists surveyed by Dow Jones Newswires had expected a rise of 5,000. The four-week moving average of new claims also fell 11,000 to 553,500.

But while the trend’s improving, levels still remain elevated, signaling a recovery in the labor market won’t happen overnight.

“Of course, there is always the dark cloud to the silver lining,” The Economist’s Free Exchange blog says. Half a million new jobless claims every week is still terrible. And, as Calculated Risk points out, the four-week average likely has to drop below 400,000 before total employment stops falling.

“As is typically the case with positive economic data these days, the news is good, but the hole is deep,” Free Exchange says.

Continue reading…

Bears got assertive yesterday with a sharp afternoon reversal in US stocks, during a part of the day that’s largely been the bulls’ domain.

As noted yesterday, FOMC statement just didn’t seem to carry enough weight to sustain a rally, with the committee regurgitating a lot of the rhetoric market participants have heard for at least a few months now.

It’s back to evaluating the economic data, with weekly jobless claims due at 8:30am, and August existing home sales at 10:00am. Also, Kansas City Fed September manufacturing index set for 11:00am ET.

Stocks are priced for perfection, so it would seem markets now need sublime, almost mystifyingly positive data to drive markets higher.

S&P futures up less than a point; 10-yr a shade higher, yield at 3.41%.