Market Talk

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.

- “The global financial system continues to be unsound in the same way that a Ponzi scheme is unsound,” John Hussman writes. “There are not enough cash flows to ultimately service the face value of all the existing obligations over time.”

- On an essentially flat day yesterday, CBOE’s VIX volatility index fell 8.5% to 18.96, lowest levels since April. “If there’s one point I would emphasize when VIX watching, it’s to pay the most attention when it does something unusual,” says Adam Warner, as VIX is exhibiting “clear signs of complacency.”

- Growth of Chinese and Brazilian credit-card balances from 2008 to 2009 “can be a source of either encouragement or worry — or both,” FT’s Alphaville says. “A sustained run-up in debt can be ultimately destabilizing,” blog notes. “So can a burst of capital inflows. And this is all playing out rather quickly against a background of currency wars, central bank interventions, and expected quantitative easing in the US.”

- Remember when the critics came out in droves when Apple (AAPL) released its first versions of iOS without cut-and-paste functionality? “It’s hard to imagine any company launching a new mobile OS would take a similar tack,” John Paczkowski writes. “Yet that’s exactly what Microsoft has done with Windows Phone 7, which will arrive at market next month without that feature.”

- Amazon’s (AMZN) attempting to carve a niche market for Kindle, with plan to launch “Kindle Singles” — essentially works that may be longer than a magazine article but shorter than typical books. MediaMemo blogger Peter Kafka raises some obvious questions: What will pricing look like? How will wholesale pricing work? And is this directed at conventional publishers, or self-published by the authors? AMZN didn’t immediately comment to Kafka.

- Windows Phone 7 may be Microsoft’s (MSFT) best chance at making a serious dent in the smartphone market, Ryan Kim writes at GigaOm. “They’ve done a good job creating something that looks and feels distinct,” he says. “We still need to put the phones through their paces but the basic building blocks are there.”

- Small business optimism barely nudged higher in September, but it still remains at recessionary levels. Poor sales remain the biggest hurdle for small businesses during this sluggish recovery. “Usually small business owners complain about taxes and regulations (that usually means business is good),” Calculated Risk says. “But now their self reported biggest problem is lack of demand.”

- Not only are small businesses not interested in getting more financing, but they increasingly think financing conditions will worsen from current levels, writes FT’s Alphaville, based on NFIB’s small business survey for September. “Maybe investors are front-running the Fed, but small businesses seem unconvinced that further easing will actually loosen credit.”

- Wall Street pay is on pace to break a record high for a second straight year, WSJ reports.

- So far so good. Intel earnings beat expectations. And, as MarketBeat notes, the deets beyond the headline numbers also look pretty solid.

- The 10-year yield has fallen 40 bps during the past month, James Hamilton notes at Econbrowser. “If you wanted to attribute all of this to expectations of QE2, and if you were assuming that $400 billion in long-term bond purchases could lower the rate about 13 basis points, you might think the market has already discounted some $1.2 trillion in additional large-scale asset purchases,” he says. “All of which raises the interesting possibility that if the Fed were to announce in November another trillion in purchases, nothing would happen, because the market has already discounted it.”

- “The fact that an IMF meeting ended with the participants unable to feign a narrowing of differences on the currency front is further evidence that positions are hardening,” Yves Smith writes at naked capitalism.

- Bank stocks no longer driving this rally. “That old adage of ‘as financials go, so goes the market’ — I don’t think that’s tru this time,” said John Lynch, chief equity strategist at Wells Fargo Funds management Group.

- Next-gen 4G mobile phone systems promise faster speeds and better audio. Various US carriers have already promised to roll the new technology out within the next couple of years, but Apple (AAPL) will wait until the technology is more mature before adding it to the iPhone, according to TechCrunch. Instead, the blog speculates that AAPL will release phones next year that are compatible with many more carrier networks using different technologies.

- The Reformed Broker blogger Josh Brown channels his inner Alanis Morrisette as he discusses Dow 11000. “When I consider the state of the market rally, I can only think to myself, ‘Isn’t it ironic, don’t ya think?’”

- Piper Jaffray’s Gene Munster tells Silicon Alley Insider that tablets built with Google’s (GOOG) Android software will provide some “very stiff competition” to Apple’s (AAPL) iPad. While Apple will probably ship about 20M-25M iPads next year, Munster says “ultimately we think that Apple won’t have the majority of the (tablet) market share. It’ll probably be with Android-based tablets.”

- “The biggest problem with TARP is that the other portions of the response were so poorly crafted,” the Economist’s Free Exchange blog says. “And the legacy of that underperformance — a weak American recovery alongside continued wealth on Wall Street — is what continues to give political TARP-bashing its potency.”

- Southwest (LUV) announces it’s ending its eight-year tenure as the “official airline” of the NBA after the two sides couldn’t agree on an extension. Farewell then to Slam Dunk One, a specially painted plane that marked the partnership which is now destined for a new color scheme. “With our tough financial climate and limited resources, we had to make the tough decision to say goodbye to one of our dear friends and partners, and both sides agree — we’ll miss each other!” gushes Southwest’s blog.

- Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false,” he says. “The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives.”

- Jets-Vikings: the hyperbole bowl, WSJ’s Jason Gay writes.

If little-known Equinix offers any indication for how stocks will behave this earnings season, it’s going to be one long reporting period.

The data-center operator issued a tepid outlook, trimming its 3Q and full-year revenue targets while saying it lost more North American customers than expected. Equinix didn’t drastically cut its outlook, but lowered it just enough to spook investors. Shares plunged 33% and dragged down many of its peers in the data-center sector.

It was ugly, but did the stock losing a third of its value justify the company’s results? Blogger Josh Brown weighs in:

Going into their earnings report last night, the stock was trading at 90 times trailing earnings and 41 times next year’s. The tightrope act you’re faced with at that kind of multiple is such that the company cannot even afford to hiccup.

Brown has been relentless in covering a pattern that keeps repeating prior to earnings season. We’re now on the seventh straight reporting period where stocks have rallied ahead of earnings. But stocks have then sold off as the reporting period unfolded.

If the market chooses to follow Equinix’s lead, the same could be in store for this earnings season, which unofficially kicks off late tomorrow when Alcoa reports. “With 88% of stocks trading above their 50 day moving average, I would say it’s highly likely that we’ll be witnessing other public executions this fall,” Brown adds.

It’s been a wild ride up for stocks. And there are many reasons to believe the stock-market meltup will continue. But once its over, its over, and there’s no turning back. From Kid Dynamite:

Once the tides turn, investors have little to no chance to take profits or reduce their positions.

That leaves traders in a tough spot – sit on the sidelines and watch others happily gorge themselves at the profit buffet while hoping they’ll be able to escape before the elevator comes to take the stock price down? Or jump right in yourself, and hope that you’ll be smart enough to jump off before everyone else tries to flee a burning building, so to speak? It’s not easy, either way.

It’s certainly not easy. In fact, it’s nearly impossible. But chasing gains is one dangerous game, as Equinix shareholders learned the hard way today.

Blogger and investment adviser Michael Shedlock tends to be a perma-bear when it comes to the equities market. But he had a great line today that hits the nail on the head: “It is far easier to make up for lost opportunities than it is to make up for losses, especially losses that happen while chasing the latest sure thing.”

As Art Cashin always says, stay nimble folks. This is going to be one interesting earnings season.

Stocks close mixed, with the Dow rising, S&P 500 edging lower and Nasdaq Comp dropping the most out of the benchmark indexes. The Nasdaq has essentially gone straight up since the end of August, but the index seems to have stalled at the top of its trading range in recent days. Is it just taking a breather before running higher or are tough times ahead? From my “Technically Speaking” column:

Technology stocks’ wild ride higher may have a short shelf life.

The technology-heavy Nasdaq Composite has surged 16% since the end of August, and the Nasdaq 100 Index is up 14%, outperforming both the Dow Jones Industrial Average’s 9% gain and the broader Standard & Poor’s 500-stock index’s 11% rise. But a topping pattern may be developing for the Nasdaq 100, prompting some market technicians to start hedging positions in anticipation of a correction.

Continue reading…

- Oracle (ORCL) CEO Larry Ellison wasted no time slamming H-P’s (HPQ) hiring last week of former SAP chief Leo Apotheker as new CEO. “I’m speechless,” he tells WSJ late Friday. “H-P had several good internal candidates…but instead they pick a guy who was recently fired because he did such a bad job of running SAP.” Harsh, to say the least, though not particularly out of character for Ellison, Digital Daily blogger John Paczkowski says.

- Goldman gets harsh on Microsoft (MSFT) and offers three strategies it should employ to help boost shares. Firm calls for huge dividend increase, a “coherent consumer strategy” and MSFT to become the global leader in cloud computing. “Oh, that’s all?” Paul Kedrosky quips. “Pulling this off would be like Microsoft learning Geller-ian magic tricks, the equivalent of being able to bend spoons with its brain.”

- Another economic downturn is “not only a possibility but a likelihood,” John Hussman says. “A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the US stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”

- Executive departures at Yahoo has put more scrutiny on CEO Carol Bartz, who she still has to convince Wall Street she has what it takes to turnaround the struggling Internet giant. But YHOO’s 3Q report, scheduled for Oct. 19, will provide clues into how she’s really doing, Kara Swisher notes. And as executive departures “garner a lot of attention,” Yahoo’s results are “the most important of all to watch,” she says.

- With the September jobs report due at the end of the week, Calculated Risk says keep an eye on the participation rate. Right now, it sits at a “very low” 64.7%. “A future decline would be considered bad employment news (even if the unemployment rate declined slightly),” blog says. “An increase in the participation rate, combined with a weak labor market, could lead to a jump in the unemployment rate. This is something to watch closely.”

- Another unsavory wrinkle in the US foreclosure epidemic as some big banks (BofA, JPMorgan, Ally’s GMAC) suspend foreclosure activity across close to half the nation amid reports of seriously flawed paperwork. Seems “the real estate/financing industry has brought the same machine-like technical prowess that they used to automate the process of underwriting mortgages to a similar automated foreclosure process,” Big Picture blogger Barry Ritholtz notes. “Is it any surprise that the results of this are similarly disastrous?”

- The bulls, like John Paulson, looked pretty smart in September.

- “But even if we agree that the Fed could depress long-term yields with these kinds of measures, it is a separate question as to whether it should,” James Hamilton says. “I remain of the opinion that while the Fed is understandably reluctant to embrace QE2, it may have little other choice.”

- Twitter promotes chief operating officer, Dick Costolo, to CEO amid company’s scramble to build its advertising business. He succeeds Evan Williams.

- New York Observer wants Dealbreaker, but Bess Levin wants her big pay day. Good for her, she deserves it. Now, Barry Ritholtz hopes to get in on the action.

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

- Deal-making has been coming back, with another spate of deals and potential deals announced yesterday, but with one notable difference, John Curran writes at Time’s Curious Capitalist blog. “The big difference is, this merger-fest probably won’t result in higher stock prices.”

- “The Fed may need to do something to shock markets into believing that it is serious about reversing the decline in (inflation) expectations,” Ryan Avent notes at The Economist’s Free Exchange blog. “Without a firm commitment to an eye-popping number, markets may simply believe that the Fed will pull the plug on the purchases before the job is done — a belief that will undermine the impact of the purchases.”

- “What’s the bear case on QE2?” ponders Minyanville’s Todd Harrison. “Think Rocky Balboa at the end of the first movie; there ain’t gonna be no rematch, and there ain’t gonna be no QE3,” Harrison notes. “That’s the risk for policymakers. It’s the next to last bullet (and you know where the last one is pointed).”

- Hewlett-Packard (HPQ) maintains “emulating Apple is not part of our strategy,” but it wouldn’t hurt H-P to focus on excellence in user experience, Digital Daily blogger John Paczkowski says. “Because if it nails that and then ‘doubles down’ on webOS as promised, we could see some very interesting things coming out of H-P in the months ahead.”

- Apple shares dropped as much as 5.6% Tuesday before closing down 1.5%. Rumors swirled in the morning that Apple COO Tim Cook could become the new Hewlett-Packard chief. But that rumor was quickly dismissed.

- CNet’s Software Interrupted blog points out that Google (GOOG) has acquired 23 companies so far this year, compared with none for Microsoft (MSFT). That means MSFT, already fighting what many consider a losing battle in search, is also losing out in top start-up technologies like mobile and social networking, as well as foregoing some of the best talent available.

- To the delight of nerds across the country, it turns out that Apple’s (AAPL) new Apple TV can be hacked just like an iPhone, iPad and iPod Touch, a popular group of hackers announced last night on their blog. The group, known as the “Dev-Team,” have for the past few years been finding ways to run unauthorized software on AAPL’s popular mobile devices.

- The churn among Yahoo’s (YHOO) executive ranks continues, as Jimmy Pitaro, VP of Media, is expected to leave the company soon, reports All Things D blogger Kara Swisher. “Adding Pitaro to the pile will only increase pressure on [CEO Carol] Bartz…to show investors that Yahoo has a clear plan amidst the executive turmoil.”

- AOL goes on a spending spree, scooping up TechCrunch, one of the most influential blogs in Silicon Valley, as well as Web video-syndication company 5min Media.

- Two wins later, Jason Gay says its time for NY Jets QB Mark Sanchez to give up his blanky.

Dow Jones’ Roger Cheng reports:

BlackBerry maker Research In Motion (RIMM) might be a bit late to the game, but it finally unveils its highly-anticipated tablet computer and operating system in an effort to attract more consumers.

WSJ has the details, including this great paragraph describing where RIM currently stands among consumers:

The announcements come as RIM revamps its iconic BlackBerry smartphones—originally made for businesses to handle email—for a market driven increasingly by consumers looking for fast handsets and cool software. Users and developers complain BlackBerry’s operating system is slow, clunky and lacks fun apps; the handsets are facing tough competition from Apple’s iPhone as well a handsets that run on Google Inc.’s Android operating system, particularly in the critical U.S.

On paper, Research in Motion’s Playbook tablet has a lot going for it, including a dual-core processor, full Flash, two high-definition cameras, and USB ports.

But in the end, it’s still all about the applications. RIMM faces the same dilemma Palm did with its new smartphones: an unproven product that may not attract app developers like Apple (AAPL) or Android.

RIMM is spending the latter half of its presentation focusing on “Super Apps” and making life easier for developers. IDC’s Al Hilwa notes that it will still take some time to build up the number of apps available to the product, which runs on different software than Blackberrys.

The Playbook, unlike the Blackberry, will not feature a cellular connection. So who will sell the tablet? RIMM has traditionally relied on its wireless carrier partners to push Blackberrys, either to business customers or consumers. But without a 3G connection, there really isn’t any motivation for the carriers to sell the Playbook.

Will RIMM try its hand at the direct retail business? More likely, it will rely on a retail partner like Best Buy (BBY).

Research in Motion shares were recently up 1.2% to $48.95 in after-hours trading.

- Lots of chatter that Obama will appoint a CEO to replace Larry Summers, an idea that irks Paul Krugman. “For one thing, the NEC director is supposed to serve as a coordinator and honest broker among views — not, or at least not primarily, as a decision maker,” Krugman writes. “That’s not what CEOs are paid for — their job is to be decisive, not summarize other peoples’ arguments.”

- Blockbuster filing for Chapter 11 bankruptcy highlights how the mighty have fallen compared to the raging success of Netflix, Josh Brown says. “There is a cautionary business tale in here that is both timeless and essential for all investors to understand…It’s a story that’s been told a million times — the complacent giant felled by a nimbler, hungrier upstart with new ideas.”

- Initial jobless claims continue to portray a labor market stuck in neutral. “Make no mistake: The longer the job market remains stuck in a rut, the stronger the case for arguing that we’re suffering a potent bout of structural unemployment,” James Picerno notes.

- Cable giants publicly say the “cord-cutting” trend — consumers giving up cable for Internet video — is just a myth. But Verizon (VZ) CEO Ivan Seidenberg begs to differ, saying the cable bundle will follow wireline telephone as an example of old technology that eventually becomes obsolete. “Young people are pretty smart,” Seidenberg says. “They’re not going to pay for something they don’t need to.”

- The timing of Facebook CEO Mark Zuckerberg’s $100 million donation to Newark, NJ, public schools is getting the usual scrubbing in the blogosphere. Donation coincides with premiere of “The Social Network,” a movie that doesn’t exactly paint the prettiest picture of Zuckerberg. All Things D blogger Kara Swisher says: “Zuckerberg himself decided to move forward now, sources said, apparently concluding that even if a prominent movie was portraying him as the villain, he did not have to act like one in real life.”

- Existing home sales bounced off a record low and rose a better-than-expected 7.6% in August. But Calculated Risk points out inventory increased 1.5% in August from a year earlier. “The bottom line: Sales were very weak in August — almost exactly at the levels I expected – and will continue to be weak for some time. Inventory is very high, and that will put downward pressure on house prices.”

- Apple’s (AAPL) iPhone tops JD Power’s smartphone satisfaction study for a fourth straight year. But the results weren’t so sweet for Nokia (NOK), ranking below Palm, which isn’t even a public company anymore. “Another humiliating blow for Nokia which continues to struggle for relevance in the smartphone market,” Digital Daily blogger John Paczkowski says. “Incoming CEO Stephen Elop has his work cut out for him.”

- Stock-exchange operators and regulators are moving closer toward replacing new circuit breakers for individual stocks with curbs that would limit trading outside of a set range, WSJ reports.

- In the “Wall Street” sequel, Michael Douglas is splendidly slimy as Gordon Gekko but the rest of the film doesn’t measure up, says Joe Morgenstern.

- F-bomb your way to the top. “Swearing may help you do your @#!%ing job. Yeah, you read that correctly, WSJ’s Deal Journal blog says.