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After The Close - The U.S. equity market, after two very weak showings to start the week, turned in a mixed to slightly negative performance today. Perhaps, there was some “buy on the dip” bargain hunting in play, at least initially, but we still got the sense that investors are unwilling to take big equity positions when any major news from Capitol Hill on the ongoing budget and debt-ceiling talks could have a profound impact on the direction of trading. Thus, there was a narrow spread between advancing and declining issues on both the New York Stock Exchange and the NASDAQ.

Helping push the Dow Jones Industrial Average, which add 26 points for the session, was, as noted, some selective bargain hunting and also news that Federal Reserve Vice Chairwoman Janet Yellen is President Obama’s choice to take over for Chairman Bernanke when his term ends in January. The choice of Ms. Yellen, who will need confirmation from the Senate, increases the likelihood that any near-term forthcoming tapering of the Federal Reserve’s bond-buying program will be modest in scope and could even be delayed for a few months. The minutes from the September Federal Open market Committee (FOMC) meeting—released at 2:00 P.M. (EDT)—suggested that the central bank may be prone to stay the course with regard to monetary policy at its next two-day FOMC meeting scheduled for October 29th and 30th. Historically, the continuation of accommodative monetary policies has been greeted warmly by market participants and that seemed to be the case once again today.

From a sector perspective, it was a mixed showing for the 10 major groups. There was notable selling early on in the technology sector, but that group was able to minimize the damage before the closing bell. The mild late-day recovery in technology— even though that group gave back some gains near the close of trading—helped erase a portion of the earlier losses for the NASDAQ, which finished 17 points in red. Within the technology space, the semiconductor and software issues traded lower. Investors should note that some of the economically sensitive groups, including the basic materials and consumer discretionary issues, weakened late in the session. Conversely, the more defensive issues (i.e., consumer staples, telecom, and utilities) were once again in demand, an indication that even with today’s selective buying, investors still are very concerned about the contentious budget and debt-ceiling talks taking place on Capitol Hill.

Meantime, the last 24 hours has seen the commencement of third-quarter earnings season. The initial results have been mixed, which is not all that surprising given that many pundits believe the forthcoming stretch of earnings reports will prove less than compelling. Of note, after the close of trading yesterday, aluminum producer Alcoa (AA) posted better-than-expected results, while this morning Yum Brands! (YUM) missed its earnings forecast and shares of the company fell. Looking ahead to the remainder of the week, investors will be focused on the latest quarterly results from banking giants JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) and Wells Fargo (WFM), which are due on Friday. These reports may be even more scrutinized than normal, as they could be used as a gauge to how the economy and financial markets are performing. The ongoing government shutdown has made for a dearth of economic news in recent days.

There also was some noteworthy non-earnings news from Corporate America today. Early this morning, reports surfaced that Jos. A. Bank Clothiers (JOSB) has approached Men’s Wearhouse (MW) about a combination that would create a national powerhouse in men’s apparel. Shares of both companies jumped on the report. Then around the midday hour on East Coast, reports surfaced that Ariad Pharmaceuticals’ (ARIA) clinical studies of its leukemia drug Iclusig showed that some patients treated with the drug suffered from serious arterial thrombosis or other conditions. Shares of the drugmaker tumbled on the report and brought down some of the other small- and mid-cap pharmaceutical issues as well. And with about an hour to before the final bell, shares of Darden Restaurants moved higher after a leading financial daily reported Barington Capital Group LP has taken a stake in the owner of the Olive Garden and Red Lobster dining chains and will press to break up the company.   - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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12:30 PM EDT - The U.S. stock market lost ground this morning, but is now trying to firm up selectively. Hopefully, some bargain hunters will move in to support equities today. Clearly that was not the case yesterday afternoon, as the market sold off sharply. At just past noon in New York, the Dow Jones Industrial Average is up slightly; the broader S&P 500 Index is lower by just three points; while the technology-heavy NASDAQ, which is still weak, is down 30 points. Market breadth still shows a negative bias, with declining issues outnumbering advancers by about two to one on the NYSE.

Moreover, most of the major market sectors are trading lower, with considerable losses in the technology and healthcare issues. However, there are a few pockets of strength, worth noting. Specifically, the utilities, which rose yesterday, are putting in a constructive session today. The telecommunications and financial issues are also bucking the downtrend.

Technically, this morning’s selling has put the S&P 500 Index a bit further below its 50-day moving average, located at about 1,678. There may be some support for the Index near 1,640, as this marked the bottom of the pullback in late August. So far, the selling has been orderly, and trading volumes have not spiked dramatically lately, and thus is not indicating a sense of panic. Nonetheless, the VIX, has been moving higher, and is up about 1% today to 20.56. For perspective, the VIX has been as low as about 11.05 in the past year, which was a very low reading, indicating extreme complacency on the part of investors.

The regularly scheduled economic reports were not forthcoming this morning. As the government shutdown is now in its ninth day, it is not clear how the rest of the week will shape up. Clearly, the lack of news is not helping the mood, and serves as a regular reminder that something is amiss. However, news that Janet Yellen will be nominated as the next head of the Federal Reserve may be the cause of some optimism among traders, as she may well continue the current policies.

Elsewhere, the corporate reports have been coming out, as planned. After the close yesterday, we heard from aluminum giant Alcoa (AA). Those shares are up today, following a better-than-expected release. However, YUM! Brands (YUM) stock is lower, as that company delivered disappointing results. Meanwhile, traders received some merger and acquisition news and that could help sentiment. Of note, shares of both Men’s Warehouse (MW) and Jos. A Bank (JOSB) are trading higher, on news of a possible merger between the men’s clothiers. - Adam Rosner


At the time of this article’s writing, the author had a position in Alcoa (AA).

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Stocks to Watch from The SurveyThird-quarter earnings season kicked off after the market closed yesterday, when aluminum maker Alcoa (AA) released September-period results. Investors were reasonably pleased with the report, and AA stock is up nicely ahead of the bell as a result. The news was not as upbeat elsewhere on the earnings front, however, and shares of Yum! Brands (YUM) are trading sharply lower in the premarket, after the restaurant operator released lackluster August-period financials. Investors were not impressed with quarterly results from discounter Family Dollar (FDO), warehouse club Costco (COST), or retail building supply company Fastenal (FAST) either, and all three of these stocks are indicating lower openings this morning. 

In other news, shares of Jos. A Bank (JOSB) and The Men’s Wearhouse (MW) are both up sharply in pre-market trading, with MW stock showing the most strength, after the two menswear retailers discussed the possibility of a merger. Indeed, the smaller Jos. A Bank has offered to acquire The Men’s Wearhouse for $48 a share in cash, 36% higher than yesterday’s closing price. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

Before The Bell - The underpinnings of the long bull market are starting to weaken, at least for now. Of course, we have seen setbacks before, even pullbacks of 5%-10%, throughout the four-and-a-half year-long bull market. And, this may, in the end, be just a brief hiccup once again.

Still, there is no denying that the bears have awakened. So, after some intermittent selling over the past two weeks, as uneasiness over the bitter standoff in Washington persisted, the bears have now more definitively taken the upper hand. Specifically, the Dow Jones Industrial Average, which had shed 136 points on Monday, came back yesterday with a 160-point decline. However, it is the NASDAQ, which heretofore had waged a relatively successful defense against the profit takers, which is starting to feel the wrath of the sellers. Thus, one day after losing 37 points, or just about a percentage point, that tech-heavy composite plunged 76 points, or a full two percentage points--a major setback.
  
Once again, it was the contentious dealings in the Capitol that have set the bulls back on their heels. At this time, the government shutdown is in its ninth day, with no end in sight, while the deadline for reaching an agreement on raising the debt ceiling, in order to avoid a possible default, is drawing ever nearer. Our sense all along has been that some sort of accord, even an interim deal, will be fashioned in time to avoid such a catastrophe. But the rhetoric is unnerving and Wall Street, which had appeared little concerned until this week, is clearly getting more skittish.

As before, the economically sensitive groups continue to get sold. Now, however, the pullback is becoming more encompassing, with a number of heretofore resilient groups, including yesterday's big casualty, the social networking companies, feeling the wrath of the sellers.

All of this is coming on the eve of third-quarter earnings reporting season, which kicked off after the close of trading yesterday when erstwhile Dow component Alcoa (AA) issued somewhat better-than-expected results for the period. That issue, which had traded near its 52-week low for some time, rose nicely in price in extended trading following the release. The stock is tracking still higher thus far in the pre-market this morning. The next fortnight, meanwhile, will see many of the nation's largest financial and industrial names issue their quarterly metrics, as well. Expectations are modest, with the consensus forming around a growth rate of 3%, or so, for the period. While that figure would not be a worrisome result, in the absolute, it would represent more than a halving of the consensus view of three months ago. Also, more than four times as many companies have issued negative guidance as positive indications. And that is worrisome, although not out of character for the year thus far.

Still, the importance of earnings notwithstanding, the focus is on Washington. And here, as noted, a sense of foreboding is on the rise, as the debt-ceiling deadline draws nearer and no agreement is seemingly in sight. Also, disarming is the fact that few economic reports are coming out, as so many releases are from the government--including the all-important data on the employment situation, which was due out last Friday.     

Meantime, after the close, word came out that President Obama will be nominating current Vice Chair of the Federal Reserve Janet Yellen, an acknowledged dove on monetary matters, to succeed out-going Fed Chairman Ben S. Bernanke. How contentious that confirmation fight will be has yet to be told. In any event, the market appeared to like the pending nomination, which is likely to be announced officially today, as the futures shot up last evening, and they remain modestly higher in the pre-market this morning.

What would her accession mean for Fed policy? It could well cause the Fed to slow down on any tapering maneuver, putting off that lessening in accommodation possibly until 2014. Only time will tell. – Harvey S. Katz   

At the time of this article's writing, the author did not have positions in any of the companies mentioned.