US stocks close higher as Citi’s earnings and a better-than-expected measure of home-builder confidence prompted investors to move into risky assets.
DJIA rises 81 (0.7%) to 11144, led by BofA’s 3% rise and JPMorgan’s 2.8% gain. Blue-chip index posts first gain in three days and hits its highest close since May 3. S&P 500 gains 9 (0.7%) to 1185, behind a 2.3% rise in the financial sector. The broad measure has risen in six out of the last seven sessions. Nasdaq Comp increases 12 (0.5%) to 2481.
Financials on fire after suffering big losses at the end of last week. Citi jumps 5.6%, Wells Fargo rises 5.5% and Fifth Third gains 3.4%. Dollar started the session higher, but as stocks rallied, the dollar fell and the euro rose, continuing a familiar theme.
Focus shifts to earnings. Apple and IBM both fall in after-hours trading even as results exceed expectations. That’s what happens when these stocks are priced to perfection. IBM had been up 16% since August and Apple was sitting at an all-time high of $318 a share prior to results. But Apple only sells 4.2 million iPads and 9.1 million iPods. Shares fall 6.3% in late trading. And IBM’s outsourcing signings fall more than expected in 3Q and shares drop 3.9%.
Next up, BofA, Coke and J&J all scheduled to report quarterly results.
We accept a certain degree of hyperbole from industry trade groups, but statements today from the National Association of Home Builders are about as kooky as they come.
Association chairman Bob Jones, a builder in Bloomfield Hills, Michigan, noted in today’s release of the October builder sentiment index that builders “are starting to see some flickers of interest among potential buyers,” and they hope that means more sales are on the way.
Fair enough, Bob. Starting to see “some flickers of interest” seems like a measured way of describing the situation, no problem there.
But here’s where Jones goes a little loco; he continues:
However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery.
Whoa, whoa, whoa Bobby. Easy, guy. First off, pent-up demand? There’s nearly fifteen million people unemployed (not in the buying mood), enough used homes for sale to last almost year at the current sales pace and new-home sales bumping along historically low levels. What pent-up demand? There’s no un-pent demand, never mind pent-up demand.
Forget pondering whether or not Ben Bernanke and his band of merry pranksters is going to unleash QE2 on the land; it’s a done deal at this point. The questions to ponder now is (besides, do I have any Zimbabwean neighbors who can counsel me on how to adjust to hyperinflation and where can I buy a wheelbarrow for carrying my cash) one, how much are they going to blow on this experiment and, two, will it work?
The very sharp John Hussman, who runs the Hussman Funds and is one of the beleaguered bears who gets grief for “missing” the big rally last year but less credit for avoiding the crash before that, looks at the question today in his weekly commentary. To summarize his opinion: not likely. But the interesting part to me is that he gets into this whole misnomer about the “success” of QE1. But what really made the difference, he points out, wasn’t the trillion-plus bond-buying scheme:
One of the arguments for quantitative easing is the notion that the Fed’s purchase of $1.5 trillion of Fannie Mae and Freddie Mac debt somehow “pulled the U.S. economy back from the abyss” of a Depression. But a closer examination of the past 19 months suggests that a much more specific mechanism – suspension of truthful disclosure – was actually the key element. Unfortunately, the benefits of this suspension are also impermanent, because the underlying solvency problems have been left unaddressed.
It’s been a rough ride for the US dollar over the last month and a half. All the QE2 chatter has ripped the currency to the tune of a 7% drop since mid-September. And with the Fed poised to act in a few weeks, it’s not looking pretty for the greenback. Here’s my Technically Speaking column that ran on the earlier today:
The U.S. dollar can’t catch a break.
The dollar has been on a precipitous decline since mid-September, falling through some significant support levels and prompting market technicians to take an even more cautious view on the struggling currency.
The U.S Dollar Index, which tracks the U.S. currency against a trade-weighted basket of currencies, has dropped 7.2% over the last month and a half. The decline has come amid increasing chatter that the Federal Reserve will ramp up its efforts to stimulate the economy.
Stocks and commodities have surged while the dollar has dropped as potentially more bond buying by the central bank would increase the money supply, thereby hurting the dollar’s value.
It is assumed the Fed will announce some sort of what are known as quantitative-easing measures at its next meeting on Nov. 3 to jump-start the economy. Until then, technicians don’t see the slumping dollar substantially reversing its downward trend anytime soon.
Richard Ross, head of global technical strategy at Auerbach Grayson, noted that the dollar index plunged convincingly through 80 about a month ago, which was viewed as a key support level. It also recently dropped below 77.60, which represented a 76.4% Fibonacci retracement of the currency’s advance from the November 2009 low to the June high. Under the Fibonacci theory of technical analysis, once a market surpasses 76.4% of the original move, it is then governed by the new trend, which in this case is a bear trend.
“The bearish momentum is pervasive,” Ross said. A breakdown to 74, which would represent another 4% drop from current levels, is “imminent,” he said. And a test of its all-time low near 70, hit in the summer of 2008, should also be considered a strong possibility, according to Ross.
“From a purely technical standpoint, this appears to be a classic broken chart,” he said. “The stars are lining up for continued weakness in the dollar.”
Posted by Paul Vignaon October 18, 2010 Banks, Dollar, Earnings /
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So the financials are leading stocks higher today, but don’t be fooled; the dollar is still the pivot around which everything revolves. When the dollar rose overnight, everything else fell. Now that it’s weakening during the U.S. day, stocks are rising, as is (obviously, and currently at $1.3981) the euro, gold and crude.
Posted by Paul Vignaon October 18, 2010 Banks, Earnings /
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It’s earnings season, so that means we’re back with The Upshot, the column we write for the Journal. With the banks reporting last week and this week, that’s where we start our jaunt through corporate America’s balance sheets, and today’s column focuses on the region banks.
As banks continue to heal from the financial crisis, being small isn’t necessarily a disadvantage.
While small regional banks don’t have the big trading and investment banking businesses that have bolstered earnings at financial center names such as J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp., they also aren’t beholden to the slowdowns—particularly on the trading side—now emerging. They also sidestep big slides in credit-card fee businesses.
Webster Financial Corp., of Waterbury, Conn., posted third quarter income of $22.7 million after a loss of $19.2 million a year ago. Total loan balances were down about 3.5% from last year’s third quarter, but its residential mortgage loans were up 9% from a year ago, and up about 4% from the second quarter.
One hot business for these smaller banks is taking over deposits of failed banks. While typically not enough to move the needle at the mega-banks, the additions are providing a steady source of gains, especially with 132 banks failing so far this year and no end in sight.
Third-quarter earnings season shifts into high gear, with more than one-third of the Dow Industrials reporting results this week. IBM reports after the close today, while BofA, Coke and J&J all due tomorrow.
Busy week for the Fed, too, with a bevy of officials stepping up to the microphones, and the latest Beige Book set for release Wednesday afternoon. Data calendar lightens up; today we’ll see September industrial production & capacity utilization at 9:15 a.m. ET, and home-builders October sentiment index at 10:00 a.m.
Stocks in Asia mostly lower overnight, while European markets are mixed to higher. US dollar’s stronger, euro eases, now around $1.39 even. Citi 3Q due before the open, Apple reports after the close.
S&P futures down 5.10, DJ futures down 45. Ten-year note higher, yield at 2.54%.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
David Oreck, founder of a well-known maker of vacuums and air purifiers, says he’s upset his namesake company is in bankruptcy. He says Nashville, Tenn.-based Oreck Corp. was a perfectly profitable company when he sold his stake in it to a private equity firm in 2004. He blames the firm, New York-based American Securities Capital […]
