Market Talk

US stocks close a choppy session higher as encouraging corporate earnings and hopes of additional stimulus from the Fed boost investor spirits.

DJIA closes up 39 (0.4%) at 11147, but rose as much as 106 earlier in the session. The blue-chip index posted its second straight gain and is up in three of the last four sessions. S&P 500 gains 2 (0.2%) to 1180 and Nasdaq Comp edges up 2 (0.1%) to 2460.

Stocks dropped into negative territory earlier in the session, but St Louis Fed President Bullard gave the market a late boost after he suggested the central bank could announce “small increment” of Treasury purchases next month.

McDonald’s, Travelers, Netflix, eBay all rise on better-than-expected earnings reports.

The earnings trend was mixed after hours. Amazon.com (AMZN) beat analyst expectations for third-quarter profit and revenue, but the company’s operating margin disappointed the Street. AMZN shares dropped 4% to $158.38 in after-hours trading.

But Chipotle Mexican Grill’s (CMG) 3Q EPS of $1.52 once again blows out consensus estimate of $1.31, as the burrito chain posts same-store sales growth of 11.4%, largely coming from increased traffic. Initial FY11 guidance calls for “low single digit” same-store sales growth. CMG up 5.3% in late trading at $188.75.

(Paul Ziobro and Ian Sherr contributed to this post.)

Couple things crossed my transom related to the Fed’s imminent launch of QE2, or another program of bond-buying dubbed “quantitative easing,” by the learned, and debasing the buck by the kids on the corner. The St. Louis Fed’s James Bullard was out today, and said the Fed favors purchases in “small increments.” In this case, though, “small increments” equals $100 billion, which may be small when in the back of your mind you’re thinking about $1 trillion, or $2 trillion, but in any real world sense is not a small increment.

I still think the best comment about all of this came from the head of the Polish central bank, who said, “If you want to strengthen your competitiveness by devaluing your currency, this is a sign of despair, this isn’t a policy.” I hope the Fed changes its mind and doesn’t do this thing, but at this point I think it’s done and sealed and all but delivered.

Anyhow, to the comments. The first is from Gluskin Sheff’s David Rosenberg, who was talking about the “funk” that the housing market is still in.

It is really quite remarkable that Ben Bernanke would claim that QE1 was a success, any more than the zero interest rate policy before it did. Maybe in the world of counter-factualism things would have been far worse without the radical Fed incursion, it can be said that success was achieved. Certainly mortgage rates and credit spreads have collapsed from their extreme highs in early 2009. Based on that narrow objective, QE1 may have worked but if the broader objective is to generate a sustained revival in the pace of economic activity, then it has been every bit as successful as President Obama’s fiscal plan, which was supposed to have pulled the unemployment rate down to 7% by now.

What we do know with certainty is that the record-low interest rates to date have failed to revive credit-sensitive spending because the debt deleveraging cycle, as it pertains to the household sector, continues unabated. Almost a third of the household sector have a sub-620 FICO score and as such are poor credits and the other two-thirds of the population are still scarred by the nightmare of the collapse in asset values and wave of defaults, delinquencies and foreclosures in the last three years.

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So, let’s recap. Stocks rise sharply this morning, and “the market” say it must be because of the good earnings, and the drop in jobless claims. But right now, stocks aren’t up very much at all. So, did the market reconsider? Did they suddenly decide they didn’t like earnings?

Or is it, once again, the dollar? This isn’t what we talked about on the Markets Hub today, we focused on the earnings and news out of the Philly Fed, but what you’re seeing is another reminder that the macro picture is what’s driving everything these days, and the macro picture can be boiled down to just this: the dollar.

As if on cue, after our column this morning, what was the data point that most stood out in today’s Philly Fed business survey? Prices paid, which jumped sharply after falling over the past five months.

From the Philly Fed:

Price increases for inputs were more widespread this month. The prices paid index, which had declined 33 points over the previous five months, increased 22 points. Thirty‐four percent of the firms reported higher prices for inputs, compared with 23 percent in the previous month. On balance, firms continued to report declines in prices for their own manufactured goods: More firms reported decreases in prices (16 percent) than reported increases (7 percent). And the prices received index remained negative for the fifth consecutive month.

As we wrote in today’s column, this is an issue that’s going to vex companies, which have to figure out how much of any higher costs they can pass along to customers. For retailers in particular, which always have the leviathan Wal-Mart to contest with it, it’s an especially delicate calculation.

“These developments, which were seen in the NY survey to varying degrees, bear close watching,” Miller Tabak’s chief economic strategist, Dan Greenhaus, wrote this morning. “Accounting 101 tells us that if a company’s input costs go up, and they are unable or unwilling to pass those costs on to the consumer, their margins get squeezed.  In a tough pricing environment, this does not bode well for profitability.”

In today’s Upshot, we look at how companies are responding to higher commodity and other raw materials costs. It wouldn’t really be an issue if it wasn’t for the fact that while you have higher costs on the one hand, on the other, your customers may not be willing to pay higher prices.

General Mills Inc. said it will increase prices next month on a quarter of its breakfast cereals as a result of rising grain and other commodity prices, illustrating the pressures more companies face to pass along sharply higher costs on everything from corn to copper.

The Minneapolis food supplier said some cereals will increase by a “low single-digit” percentage rate effective Nov. 15. Kraft Foods Inc. is also raising prices, according to people familiar with the matter, although its scope wasn’t clear. A Kraft spokesman declined to comment.

Across corporate America, more companies are wrestling with when and how much to raise prices as raw materials costs climb. The increases pose new hurdles to profits as consumers continue to resist increases.

General Mills is not alone in wanting to pass along the costs. United Technologies Corp., which builds helicopters, jet engines, elevators and air conditioners, expects to try and balance commodity increases with higher prices on its own products. Finance chief Gregory Hayes said Wednesday that higher prices for copper, oil and other commodities represent a between $40 million and $50 million expense “headwind” next year.

Overarching dynamic influencing US stocks lately — QE2 expectations, dollar weakness, strength in the commodities complex — remains entrenched.

US dollar index slumping back near recent nine-month lows, surrendering whatever was left of Tuesday’s run-up. Euro comfortably back above $1.40 again. Oil and gold, however, not reacting as intently to USD’s retreat — oil down a little, gold only up a little.

Earnings before the open from AT&T, CAT and McDonald’s; AmEx, Amazon after the close. Weekly jobless claims at 8:30 a.m.; St Louis Fed’s Bullard speaks around 9:00 a.m.; Conference Board’s Sept LEI, Philly Fed Oct business index set for 10:00 a.m. ET.

S&P futures up 6.10, DJ futures up 52. Ten-year lower, yield at 2.48%.