After The Close - The U.S. equity market began the new month on a cheerful note after a disappointing October for investors. Last month, in fact, was the worst October for the Dow Jones Industrial Average since 2008 and snapped a four-month winning streak for the index of 30 bellwether companies. Today, it was a very different story, with the Dow-30 advancing by 136 points. A similar percentage gain was recorded by the broader S&P 500 Index. The tech-heavy NASDAQ, the biggest laggard among the major U.S. equity indexes last month, advanced by nearly 1.5% in the latest session. The S&P Mid-Cap 400 Index was the day’s big winner, which, when taken in context with the sharp drop in the S&P 500 Volatility Index (or VIX), showed that investors had a greater appetite for riskier holdings today. Overall, advancing issues led decliners by a sizable margin on both the New York Stock Exchange and the NASDAQ.
Driving the strong showing on Wall Street were some encouraging data on the U.S. economy. At 10:00 A.M. (EDT), the Conference Board reported that consumer confidence rose from 70.3 in September to 72.2 in October, which marked the highest level for this metric since early in 2008. It was also an encouraging sign for retailers as the all-important holiday shopping season commences three weeks from tomorrow with Black Friday. Not surprisingly, leadership was shown today by the consumer cyclical stocks. In addition, strong quarterly results from two retailers and good October-vehicle sales data for a few prominent automakers also pushed the sector higher.
At the same time we learned of the good consumer confidence figures, the Institute for Supply Management said that manufacturing activity, another major cog in the nation’s economic engine, came in at 51.7 for October, which nominally exceeded the consensus expectation. Meantime, we also received two encouraging reports on the struggling labor market. Before Wall Street opened, payroll processing giant Automatic Data Processing (ADP) reported that 158,000 private-sector jobs were created last month, exceeding the consensus expectation of 143,000 new positions. This, coupled with a drop in the number of initial jobless claims last week, gave investors some hope ahead of tomorrow’s much-anticipated report from the government on employment and unemployment. Those sectors most closely tied to the health of the economy, particularly the basic materials, conglomerates, transportation, and capital goods groups, performed well. Energy, which would typically get a big boost from the aforementioned data, was held back a bit today by a lackluster third-quarter showing from an oil giant. All of the major sectors, with the exception of the utilities, finished well into positive territory in the latest session. Technology, which struggled in October, was up nicely, despite no particular strength in the shares of Apple (AAPL) today.
Meanwhile, there was some more merger and acquisition news from Corporate America for investors to digest today. Technology company JDA Software plans to go private after agreeing to a $1.9 billion merger with privately held RedPrarie. There was also a sizable acquisition in the auto parts industry.
The strong performance of equities was not confined to just these shores. The major European bourses, led by gains of 1.4% for London’s FTSE-100 and the Paris CAC-40, finished nicely higher in the latest session on the Continent, helped, in large part, by the aforementioned encouraging U.S. economic data. The economic news was rather light in the euro zone today.
Looking ahead to the final day of the abbreviated trading week, all eyes of the investment and political communities will be clearly focused on the government’s latest report on non-farm payrolls, which is scheduled to be released an hour before the commencement of trading on these shores. Investors will also be keeping an eye on earnings reports. - William G. Ferguson
1:00 PM EDT - The U.S. stock market got off to strong start this morning, and the gains have been building. As we pass the noon hour in New York, the Dow Jones Industrial Average is higher by 140 points (1.1%); the broader S&P 500 Index is up 15 points (1.1%); and the tech-heavy NASDAQ is ahead 43 points (1.5%). Market breadth shows large-scale buying of equities, as advancing stocks are outnumbering decliners by a margin of about 3 to 1 on the NYSE. Almost all of the various market sectors are advancing, with sizable gains in the conglomerates, capital goods, technology, and financial issues. In contrast, there is some weakness in the utility sector.
Technically, the S&P 500 Index may now be breaking out of consolidation range established in earlier sessions. If it moves higher, the Index will soon be testing its 50-day moving average, located at the 1,435 area. Sentiment seems to be improving, as the VIX has dropped to about 17 during the session.
Some of the strength here in the United States may be a reaction to the international markets. In Asia, for example, was a good session, with large gains on China’s Shanghai Composite. The advance there was likely in response to a strong manufacturing report. In Europe, all the major bourses also showed large increases today.
Back on our shores, the economic news has been quite encouraging today, and probably helped move the markets still higher. The employment situation may well be on the mend. Initial jobless claims for the week ended October, 27th came in at 363,000, which was a better reading than anticipated, and down from the 372,000 claims posted in the prior week. Importantly, this report came in conjunction with another widely watched issuance. Specifically, ADP’s Employment Change Report for October showed 158,000 private sector jobs added to the economy, which was encouraging. These reports are important because they hint at a favorable Non-Farm-Payroll report for October. Notably, that important release is due out tomorrow morning.
Elsewhere, we received several other strong economic releases today. There was a good report on third-quarter productivity; an encouraging ISM figure; and a better-than-expected reading for consumer confidence. In contrast, construction spending came in a bit lighter than anticipated.
The third-quarter earnings reports have been a bit uninspiring. In the Dow, Pfizer (PFE – Free Pfizer Stock Report) put out mixed results, and that stock is lower. Also, Exxon Mobil (XOM – Free Exxon Stock Report) stock is up slightly, on a mixed report.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Stocks to Watch From The Survey - Drug giant and Dow-30 component Pfizer Inc. (PFE - Free Pfizer Stock Report) said Thursday that its third-quarter profit fell 14 percent, as sales plunged, mainly due to U.S. generic competition to cholesterol fighter Lipitor, the world's top-selling drug. Pfizer shares are edging slightly lower in the pre-market.
Exxon Mobil Corp.'s (XOM - Free Exxon Stock Report) third-quarter earnings fell 7.4% on lower production and weaker realized liquids and natural gas prices, offsetting benefits from stronger margins in its refining arm. The world's largest publicly traded oil company and a member of the Dow-30 said its exploration and production business has seen lower oil-and-gas production in recent quarters and also hasn't been immune to softer commodities prices. This stock, too, is likely to open a bit lower today.
Cereal maker Kellogg Co.'s (K) third-quarter earnings rose 2.1% as the company saw strong sales internationally and in North America, although it logged charges related to its acquisition of Pringles and a recently announced product recall.
L-3 Communications Holdings Inc.'s (LLL) third-quarter earnings fell 18% as the defense contractor's national security solutions segment saw a sharp sales decline. The company also narrowed its full-year adjusted earnings estimate to between $7.80 and $7.90 a share on sales of $13 billion to $13.1 billion. - Erik M. Manning
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market re-opened for trading yesterday following a two-day hiatus following the human tragedies and economic dislocations brought on by Hurricane Sandy's march up the East Coast of our country. And, overall, it was a fairly non-eventful resumption of activity on Wall Street. Specifically, the leading averages moved little, with the Dow Jones Industrial Average and the tech-heavy NASDAQ edging just modestly lower, but with the overall market having a somewhat positive bias to it, as a glance at the performance of many mutual funds would suggest.
In all, it was a testament to the hundreds, if not thousands, of hearty souls who braved the often terrible traffic jams or walked many miles to reach work after spending a powerless night to get the financial ball rolling. And well they did, as a fairly normal and generally stable session ensued, with nice early gains in the larger averages and some subsequent selling as the day progressed.
Now, a new day dawns, and we are due to get a series of major reports in the hours to come, including the widely anticipated report from the Institute for Supply Management on manufacturing activity across the country. Expectations are that this survey continued to show incremental growth in October on the order of 51.5. A reading above 50.0 implies an expanding industrial sector. The data for September had also been at that level. Along with that gauge of industrial activity, we also are expecting data on construction spending for September and car sales for the just-concluded month.
Indeed, the parade of economic releases has already started, as the government has just issued data on weekly unemployment claims. In the latest seven-day stretch, the level of such claims fell by 9,000 to 363,000. That was a tad better than the expectation of 369,000. At the same time, third-quarter productivity, a gauge of worker efficiency, rose by 1.9%. That was just shy of the 2.0% rate expected by the consensus.
Looking ahead a day, the markets will now be eagerly awaiting tomorrow's data on non-farm payrolls and the unemployment rate for October. That is the last reading before next Tuesday's scheduled Presidential Election. Forecasts are that the nation added about 120,000 jobs last month, a bit better than the 114,000 created in September, but little more than half the level needed to dramatically bring down the unemployment rate. As for the jobless rate, most are guessing that it held steady at 7.8% last month, after having fallen by three-tenths of a percentage point in September.
Finally, we again extend our sympathy and prayers to those who were so horribly affected by the awful ravages of Hurricane Sandy. We hope that you can find some solace and hope in the days to come. The storm took a terrible human and economic toll on our nation, and we are only now starting to calculate the losses, which are mounting both in human and economic terms as the days wear on. As to the economic impact, we had been looking for GDP growth in the fourth quarter to about match the third-quarter rate of 2.0%. Now, we sense that GDP may climb by just 1.2% to 1.5% in the current period. Some of this lost activity will be made up in the months to come; unfortunately, for those who have suffered the loss of dear ones, such losses can never be made up. - Harvey S. Katz
At the time of this report's writing, the author did not have positions in any of the companies mentioned.