After The Close - Following yesterday’s outsized gains in the equity markets there was some rather typical profit-taking early in the day, especially in the tech-heavy NASDAQ (more below) and the Dow Jones Industrial Average, which at one point was off by triple digits. It appeared that renewed concerns about the sovereign-debt problems in Europe and a few disappointing reports from the technology sector on these shores weighed on the markets. However, in the final hour of trading, the buyers did return selectively, pushing the Dow and the S&P 500 Index into positive territory. At the closing bell, the Dow Jones Industrial Average was up four points, while the S&P 500 Index was ahead two points. As noted, the damage was more severe in the NASDAQ, which finished the disappointing session down 26 points.
Meanwhile, the situation overseas continues to provide market participants with daily drama—today’s report was not as uplifting as yesterday’s data showing that business confidence in Germany had increased in the latest survey, in a surprise show of strength. Although the European Central Bank (ECB) said today that bank borrowing needs on the Continent are being met adequately—which one would have thought would be comforting news for those fearful of a major default by a few of the euro zone’s struggling members—renewed concerns mounted when investors realized that the banks have had to draw big funds from the ECB to keep their liquidity at sufficient levels. All of the major European bourses finished the day in the red. U.S. financial stocks, which were weak for most of the session, rallied to finish the day in positive territory.
Meanwhile, it was not a good day to be holding technology stocks, as the sector—the largest by market weight—was weaker after Oracle’s (ORCL) fiscal second-quarter results fell short of Wall Street’s expectations—shares of the business software giant fell more than 10%. We will get further clarity on the software industry after today’s market close when TIBCO Software (TIBX) is scheduled to report earnings—shares of that software provider were also notably weaker. The technology group was the only major sector to finish deep in negative territory. Of note, utilities, energy, healthcare, and consumer non-cyclical and cyclical stocks were up nicely today, with several large-cap drug maker stocks hitting new 52-week highs.
The U.S. economic news once again centered on the homebuilding sector—and like the last few days, the news was rather positive. A half hour after trading commenced, the National Association of Realtors, the major real estate trade group, reported that existing home sales for the month of November rose 4.0%, to a seasonally adjusted annual rate of 4.42 million homes. That figure was above the 4.25 million homes sold in October of this year. Another positive sign was the drop in the nation’s housing inventory. At the end of November, inventories stood at a 7.0 month supply, down sharply from the 7.7 month home supply in place in October. This positive data, coupled with yesterday’s good report on housing starts and building permits, augur well for this long-struggling industry, which still remains an important cog in the country’s economy.
The economic news will heat up over the next two days with reports due on third-quarter GDP (final reading), the leading indicators, and initial weekly unemployment claims tomorrow and the latest data on personal income and spending, durable goods orders, new home sales, and consumer spending on Friday. Investors will also be interested to hear what the European Central Bank, which meets tomorrow, has to say about the financial situation on the Continent. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:30 PM ET - The U.S. stock market is pulling back today, after logging a substantial gain yesterday. Notably, yesterday’s advance was accompanied by decent volume, which suggests some commitment on the part of the bulls. The move also put the S&P 500 back above its 50-day moving average, located around 1,230. We are currently testing this level, where we, hopefully, will find some support. Just after the noon hour in New York, the Dow Jones Industrial Average is down 102 points (-0.8%); the S&P 500 Index is off 12 points (-0.9%); and the NASDAQ is shedding 59 points (-2.3%). The NASDAQ, due to its heavy weighting of technology issues, tends to be more volatile than the other large-cap indexes. Traders’ sentiment has leveled out a bit over the past few sessions, as the Volatility Index (VIX) is now down to at about 23, which does not suggest extreme apprehension. The market’s breadth also does not suggest too bad a session, as declining stocks are ahead of advancers by only about 2-to-1 on the NYSE. Most of the market sectors are slipping, however. The technology stocks are clearly weighing on the market, with notable weakness in the software, and IT consulting names. The conglomerates are having a difficult session, too. Also, basic materials stocks are trading lower, with small losses in steel and aluminum. On a brighter note, the utilities are advancing today, after being left out of yesterday’s rally.
Traders are likely still watching the situation in Europe. The markets there opened higher, but then retreated. Germany’s DAX closed down almost 1%, with similar weakness on France’s CAC-40. Losses were better contained on Britain’s FTSE-100. Initially, traders may have been pleased that the ECB is taking measures to supply financial institutions with needed capital. However, the fact that many banks are in such need of assistance may have also caught investors’ attention.
Today has been light on economic news. Recent reports suggest that the housing market, which has been weak for some time, may be bottoming, if not picking up. According to the National Association of Realtors, existing home sales in November rose to 4.42 million units, which represented a 4% increase over last month’s figure. However, reaction to the report was mixed.
The corporate news was not too positive. Technology giant Oracle (ORCL) is seeing its stock slide, after posting disappointing quarterly results. There was also some weakness in shares of Walgreens (WAG) after the drug-store chain posted weak results. In home building, we heard from KB Homes (KBH). That stock is down, despite the company’s issuing better-than-expected figures. In footwear, Nike (NKE) stock is moving higher on a good report. Elsewhere, there has been some takeover news, as Delphi Financial (DFG) has agreed to be acquired by Tokio Marine. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The bears ran into a stone wall yesterday, one session after the Dow Jones Industrial Average, under pressure for a number of sessions, had fallen by another 100 points, to practically wipe out the year's nominal gain. In fact, so bad has the market's performance been over the past few months, that the NASDAQ and the Standard and Poor's 500 Index were both buried in the red by about a handful of percentage points each. It has been, to all intents and purposes, a lost year.
However, all of that aside, the bulls made one last attempted charge yesterday to rescue a little solace from this so-called lost year, parlaying a pair of upbeat events in Europe and a much better-than-expected report on the housing situation over here, to make a frantic, and ultimately successful, charge of their own from start to finish. In fact, when the final bell had sounded, the aforementioned 30-stock composite had soared by 337 points, or 2.9%, to back above 12,100. The Dow is now up 4.5% for the year. The NASDAQ, meanwhile, jumped 81 points, paring its loss for 2011 to 1.9%. The S&P 500 Index added 36 points, to trim its deficit for 2011 to 1.3%. The small-cap Russell 2000 Index, meanwhile, soared by 30 points, or 4.2%, cutting its loss to date this year to just under 6%.
What prompted this dramatic reversal and major rally yesterday? As noted, there were two positive events in Europe. First, Germany, the euro zone's largest economy, reported that business confidence had increased in the latest survey, in a surprise show of strength, while a debt auction in Spain had gone well, with the consequent yield on the new issue being lower than forecast. Then, over here, an hour before the stock market opened, the Department of Commerce reported that housing starts had risen by a much better-than-expected 9.3% in November, with the level of new construction jumping to an annualized rate of 685,000 homes. Building permits also increased. The level of starts had been forecast at 635,000. Not only was the gain more than expected, but the overall level was the highest total of the year, and compared favorably with a year's low, recorded in February, of 518,000 homes on an annual basis. It seems as though the beleaguered housing market is finally putting in a bottom.
Now, this morning, the National Association of Realtors, a private trade group, will report on sales of existing homes. That metric is due out some 30 minutes into the trading day. Last month, the level of such sales had come in at 4.97 million homes on an annual basis. Expectations are that this number will show a gain to 5.08 million homes in November.
As for the outlook today, the European markets were extending their gains earlier this morning on a wave of pre-holiday optimism after the European Central Bank had loaned a record amount to the Continent's banks--specifically $639 billion, or 489 billion euro. This amount surpassed the level of loans advanced in June of 2009 when the financial system was struggling over there following the collapse of Lehman Brothers in our country.
Buoyed by the good news over there, our futures had earlier been poised for strong gains at the opening of trading this morning. Indeed, some three hours ago, the S&P futures had rung up a gain of 10 points and the NASDAQ futures were better by some 20 points. However, second thoughts about Europe and some indications of early profit taking have taken the wind out of the bullish sails for the moment, sending the S&P 500 futures down by a handful of points and the NASDAQ futures down by some 10 points--a 30-point turnaround in three hours. One thing is for certain, the volatility has not abated in the least. – Harvey S. Katz
At the time of this article's posting, the author did not have positions in any of the companies mentioned.