Market Talk

US stocks erase early losses and finish in positive territory despite continuing concerns about euro zone sovereign debt.

DJIA, which fell as much as 92 points, finishes up 10 (0.1%) at 11357, snapping two-day losing streak. S&P 500 rises 5 (0.4%) to 1219 and Nasdaq Comp jumps 16 (0.6%) to 2579.

Better-than-expected jobless claims and a sharp contraction in the US trade deficit did little to fuel stocks as worries across the pond persist. Bond markets in weaker European countries, such as Ireland, Portugal and Greece, were slammed as investors continued to demand higher yields. All this comes ahead of the highly-anticipated G-20 meeting, beginning tonight.

In after-hours trading, Cisco Systems dropped more than 4% despite solid FY1Q results. Dow Jones’ Roger Cheng reports investors were more interested in CEO John Chambers’ comments from the release, in which he said he is seeing capital spending moderate in some areas of the business. Wall Street had expected a more bullish tone after staying cautious with his macro comments last quarter.

It looks like the uncertainty is here to stay for a little while.

Stocks wavering between positive and negative territory despite encouraging jobless claims and trade deficit data. Campbell Soup also warns again about slowing soup sales. Newswires editors Anna Raff, Brian Baskin and George Stahl report on The Markets Hub.

The euro, and in turn US stocks, reverse earlier losses after NY Fed unveils first QE2 buying schedule. Fed will buy $105B Treasurys over the next month; $75B tied to QE2, $30B to MBS reinvestments. The euro jumped once the details of the Fed’s Treasury purchases were released. And like clockwork, stocks followed the euro. DJIA, which was earlier down as much as 92 points, turned positive shortly after the QE2 details were announced.

Dow Jones reporter Andrew Johnson recently filed this snip to the wire version of Market Talk:

EUR/USD trades up following release of Fed bond buying data, reminding investors of QE, says Steven Englander of Citi. “There are these two huge forces in the market right now, and one of them is quantitative easing,” he says. “The other is the euro zone’s sovereign debt crisis. It’s random as to which dominates the market at one time,” during extremely volatile trading this first part of the week, says Englander. But investors turned back to QE Wednesday afternoon, even if details of the plan were not surprising, he says.

It’s as simple as that. Either QE2 or euro zone debt worries are the two main market forces right now. Based on the last few months of action, it’s obvious QE2 has dominated the conversation. But the QE2 chatter gave way to euro zone worries earlier this week. Is that the beginning of a new trend, or is this afternoon’s action proving investors will be able to keep riding the QE train in the future?

Back in September and October stocks were surging no matter what the major headlines or economic data looked like. Our Newswires colleague Donna Kardos Yesalavich even penned a column headlined “For Stocks, Bad Economic News Could Be God In Face Of QE2.” Here’s an excerpt from her Oct. 7 column:

On Wall Street, bad may be the new good when it comes to economic data.

Investors believe a weak September jobs report Friday from the Labor Department wouldn’t necessarily be unwelcome. In a twist of logic, negative economic snapshots could lift stocks on hopes central banks might unleash additional stimulus more quickly.

The expectation is that the Federal Reserve, the Bank of England and perhaps the Bank of Japan might embark on a second round of quantitative easing — dubbed by investors as “QE2″ — to keep the recovery going. That means Wall Street has been viewing every negative economic report as another reason to snap up stocks.

“It’s almost a win-win situation for equities,” said Owen Fitzpatrick, head of the equity strategy group at Deutsche Bank Private Wealth Management. “That seems like the environment we’ve been trading in for all of September and to some extent October.”

The S&P 500 went on to post a whopping 17% gain from the end of August through the beginning of November. But after a few slow days in the market, we can’t help but wonder if the opposite effect of the “bad news is good news” theory is starting to take place?

After hitting fresh two-year highs, US stocks have stalled out and are on pace for their third straight day of declines. Yesterday marked the DJIA and S&P 500′s biggest declines in three weeks and stocks are slumping again today. Today’s decline comes on the heels of dropping jobless claims and a narrower trade deficit, which are positive signals for the weak economy.

Falling imports from China and exports rising to a two-year high on the back of a weaker dollar helped shrink the total US deficit more than expected. And jobless claims decreased by 24,000 to 435,000 in the week ended Nov. 6, the lowest in four months. That positive report comes after last Friday’s much better than expected monthly jobs report, which showed 151,000 jobs were added in October.

Yet the stock market is overlooking the positive data and trading lower. Granted, the market could merely be taking a breather after its precipitous rise. But it’s never too early to start wondering if investors are starting to view good news as bad news, especially in light of the Fed’s QE2 announcement last week.

If the economy starts improving much more than anticipated, the central bank may not feel the need to go through with all of its $600B stimulus plan, which would be bad for stocks. The Fed may also be growing more hesitant as the global backlash against QE2 keeps mounting.

“Just a few trading sessions after the Fed announced the launch of QE2, strategists are already arguing that this program’s days may be numbered,” Josh Lipton writes at Minyanville, “The good ship QE2 has only just set sail but already some are forecasting an early return to economic harbor.”

Is good news becoming the new bad? Time will tell.

Lots to discuss on this morning’s News Hub. I have a small markets segment where I mainly discuss GM’s $2 billion 3Q profit ahead of its IPO next week. Additionally, discussion surrounds the debate regarding a return to the gold standard. And there are several problems banks are having restarting the foreclosure process. Check it all out at The News Hub.

Stocks posting modest gains premarket following yesterday’s biggest drop in three weeks. Yesterday’s selloff not terribly surprising considering equities have essentially gone straight up for weeks. Many consider a modest pullback healthy at this stage.

Still, commodity prices continue to surge, inflation jitters are heating up and concerns about eurozone sovereign debt are making a comeback.

On the economic front, jobless drop 24,000 to 435,000, much better than anticipated the lowest reading in four months. The U.S. trade imbalance — a main concern among G-20 members — narrowed in September, as gaps with China and other major trading partners fell amid a decline in overall imports. US exports hit their highest level in a little more than two years, boosted by record-high services sexports.

USD index strengthening, recently up 0.6%. S&P 500 futures up 1.9, 10-yr note down, yield at 2.71%.