Equities Update: Averages Tumble as Traders Fret over Economy

4:13 PM, Oct 30, 2009 --

• DJIA down 249.85 (2.5%) to 9,712.73.
• S&P 500 down 29.92 (2.8%) to 1,036.19.
• Nasdaq down 52.44 (2.5%) to 2,045.11.

GLOBAL SENTIMENT

• Hang Seng up 2.29%
• Nikkei up 1.45%%
• FTSE down 1.81%

DOWNSIDE MOVERS

(-) CIT tumbles on report that bankruptcy filing looms.

(-) NVTL slides on disappointing outlook.

(-) ALU loss widens.

(-) CVH turns lower despite beating with Q3 EPS, raising view.

UPSIDE MOVERS

(+) LVS clings to gain after surprise profit.

(+) GNW continues extended-hours gain after Q3 beat.

(+) WPTE gets raised offer to $1.77 per share cash, stock.

(+) VVUS gains on more positive study data for obesity drug.

(+) SXE reports Q2 results that top year ago, beat Street.

(+) MSTR beats with Q3 results.

(+) EL beats with Q1, hikes FY guidance.

MARKET DIRECTION

The confidence traders exuded in Thursday's regular session evaporated on Friday as a twin bill of worrisome consumer data combined to sap bullish momentum. The Labor Department reported personal spending dropped 0.5% in September, in line with expectations but still the steepest drop in some nine months and down sharply from a 1.3% gain posted in August on the back of the government's cash for clunkers car scheme.

Separately, consumer sentiment in October dropped to 70.6 from 73.5 in September, according to the Reuters/University of Michigan Survey of consumers. The data was in line with Street estimates, but was yet another sign that the American consumer remains sidelined by high debt levels, employment worries and a weak housing market.

The volatility recorded in today's market will persist into next week as traders are inundated with a raft of economic data. On Monday, the ISM Index and pending home sales are slated for release, while on Tuesday, the market will get a look at factory orders and auto and truck sales. The ADP Employment report; ISM services data, crude inventories and the FOMC rate decision are all slated for release on Wednesday. Thursday will bring initial claims data, and on Friday, the unemployment rate number will be released.

On the earnings front, quarterly results remain plentiful. Among companies due with financials next week are: Ford Motor Co. (F), Hartford Financial (HIG), Kraft (KFT), MasterCard (MA), UBS (UBS), Cisco (CSCO), Qualcomm (QCOM), Nvidia (NVDA), Starbucks (SBUX), and VeriSign (VRSN).

Despite the general market weakness, there were some stocks that firmed higher in Friday's session.

Las Vegas Sands (LVS) gained after it reported Q3 revs of $1.14 bln, up from $1.11 bln a year ago and just below to in line with the analyst mean of $1.16 bln on Thomson Reuters. Adjusted EPS was $0.03 per share, up from $0.02 per share and ahead of expectations of a loss of $0.01 per share.

Genworth Financial (GNW) advanced after it reported Q3 earnings of $0.10 per share, before items, up from a year ago loss of $0.60 per share. Operating income was $0.24 per share, vs. $0.51 per share a year ago. Net income available to common stockholders was $0.04 per share, vs. $0.18 per share last year. The Street view was a loss of $0.02 per share.

In mergers and acquistions activity, WPT Enterprises (WPTE) rallied after Mandalay Media raised its buyout offer to $1.77 per share in cash and stock. WPTE ended the session flat, sliding from day highs at 1.45 to the flatline at 1.11.

On the downside, Alcatel-Lucent (ALU) slumped after swinging to a Q3 loss.

CIT (CIT) was hit for a deep decline after a Reuters report suggested thecompany may file for bankruptcy protection in the coming days.

Novatel (NVTL) cratered after the company reported late Thursday Q3 revs of $94.3 mln and non-GAAP earnings of $0.24 per share, both better than the analyst mean of $93 mln in revs and earnings of $0.10 per share on Thomson Reuters.

For Q4, the company guided for revs of $85 to $95 mln and non-GAAP EPS of
$0.07 to $0.15 per share. The analyst view is $96 mln in revs and earnings of
$0.10 per share.

Oil declined $2.87 to settle at $77 a barrel on the New York Mercantile Exchange.

Comments

[gabe borens...:]

Both traders and the investors had never allowed for the2008 economic implosion. As late as March of 2009 ,the market consensus indicated follow up on the cyclical decompression and another market low .One major financial news program staffed with reporters who delude themselves to be economists or worse yet strategists continually spewed economic non stop bearish nonsense.
The truth is simpler than most had allowed so far..
The key economic structural weakness had been addressed. The monetary and fiscal stimuli will contribute to a non inflationary cyclical growth for at least the next five years .The dollar weakness (intentionally allowed ) will enhance the economic expansion in the period ahead (J-curve). I believe that the dollar is actually building a base for a major rally which will enhance the relative value of the dollar denominated assets to foreign investors .In the meantime the weaker dollar provides an incentive to invest in the cheap U.S assets(foreign investors0>
The gurus who spurn the investments in the U.S markets ,encourage investments in emerging markets where the structural unemployment is at least double the U.S current unemployment rate and where(Emerging Markets) per capita income is negligible.
The U.S continues to be the global, relative value locomotive.
Major market rally lies ahead. Please note that the unemployment is a lagging indicator and is reflective of the U.S economic status quo of some 12 months ago.

Oct 30 05:22 PM

[tunaman4u2:]

Are you serious?

If I hear that unemployment is a lagging indicator one more time I'll scream like a witch on Halloween!


On Oct 30 05:22 PM gabe borenstein wrote:
Please note that the unemployment is a lagging
> indicator and is reflective of the U.S economic status quo of some
> 12 months ago.

Oct 30 05:31 PM

[ebworthen:]

LOL! Exactly.

Mr. Borenstein must be smoking hopium with Christina Romer.

People without jobs don't do the following:

-Buy houses
-Pay mortgages
-Buy new cars
-Pay off credit cards
-Buy lots of holiday presents
-Go on vactions
-Remodel the kitchen
-etc., etc., etc.

Fewer jobs = less income = less spending = lower tax revenues

Where is the recovery going to come from, more debt spending?

Please...


On Oct 30 05:31 PM tunaman4u2 wrote:

> Are you serious?
>
> If I hear that unemployment is a lagging indicator one more time
> I'll scream like a witch on Halloween!
> Please note that the unemployment is a lagging

Oct 30 06:49 PM

[marketman54:]

OK, Chicken Little just called me and YES THE SKY IS FALLING!

Have the government explain it to me in simple terms. Consumer spending is down yet the GNP is up. HOW THE FU*K DOES THIS HAPPEN! There is no possible way that the GNP is up!! They are lying through their teeth. 26 million out of work, all other Americans spending less and the GNP is up, imagine that. Yet the caveat from President Grand Puba is we are not safe!!! Hmmmm, the recession is over and happy days are here again! Sure doesn't feel like it to me or any other business owner I know.

You watch the numbers, unemployment will be up again, foreclosures will be up, auto and credit card defaults up again, GM and GE need billions more, TO BIG TO FAIL RESOLUTION BEING DRAFTED - is this for Citibank, Bank of America, Wells Fargo......Who is gonna fail in the next six months???

Everything is worse now than it was a year ago. Our taxpayer dollars are about to pop in all the markets. Jeez, what happens when this happens???????

Lets just watch the market drop 200 points a day for the next two weeks!!!! Maybe they won't lie to us anymore after that. Then we only have to wait till the financials have some clarity and a few of the big boys FAIL.

Oct 30 09:05 PM

[Joe Shareho...:]

No mention of VIX in upside movers? This fund will make you a rich dad or a poor dad. Play it safely with stops.

Oct 30 10:56 PM

[TheCarCzar:]

We must REJECT Obama, Pelosi's advice on all matters. Would you take their advice on stock picks? Then why take it on other matters?!

Oct 31 06:26 AM

[Alex Bernstein:]

Trying to survive a market correction requires taking losses and converting to tax losses. This could be done by selling declined underlining stocks and buying LEAPs instead. I have no doubt that stock market will come back to DOW 10,000 level within next two months. The capital gains I created in the past year should be tax protected. I love Uncle Sam, but only "in very special way"

Oct 31 08:52 AM

[toobad41:]

Whether you believe it or not we are leaving the "fat cat affluent society" and entering "the end of consumerism". And when will "consumerism" end? Around 2022, if not sooner. This date coincides with the end of oil and the end of the industrial revolution. The oil business drives society and civilization as we know it. The petroleum industry is a sunset industry and the sun is low in the sky. All of this will profoundly affect the markets from this day forward and we will see a greater influence next year and years to come. The world as we have known it is gone and won't return. Ahmed Zaki Yamani, former oil minister of Saudi Arabia, once said "Just as the stone age didn't end for the lack of stone, the oil age will end long before the world runs out of oil". Go ahead and fret about the day-to-day market gyrations but there is a much larger and more devastating influence lurking. It is happening now and will gather steam going forward. No amount of money will prepare you for what lies ahead. You heard it here first.

Oct 31 09:46 AM

[Anthony Alfidi:]

Consumers spending and sentiment are not exibhiting anywhere near the strength they need to demonstrate for holiday shopping to improve over last year. That means a lot of retail chains are in danger of collapsing and taking down their commercial landlords and the banks that hold those landlords' mortgages. The markets are in for a very rough ride in December and January.

Oct 31 10:20 AM

[bottoms-up:]

Yes... I too am sick of the "employment is a lagging indicator" bit that is thrown around. This may have been true until the late 1970's but as our economy became dysfunctional (too heavily weighted on the consumer spending-service sector) employment became a leading indicator. If people are not employed or in fear of losing their jobs they don't spend. When your economy is 70-75 percent based on spending, well it's not really rocket science as to what will happen in the end of that game... The feedback loop is taking hold and look out below...

The other thing, I'm sure we've heard over and over again by the hype-masters on CNBC, Bloomberg, CNN Money, etc. is that the equity markets are a "forward-looking" indicator. Well, based on that assumption on October 12, 2007 the Dow was telling us we would be living in some Utopia right now. If the markets are forward-looking, employment is a lagging indicator and this is Utopia, stop the train, I want to get off.

Oct 31 10:35 AM

[maverta:]

what is it that lies ahead?


On Oct 31 09:46 AM toobad41 wrote:

> Whether you believe it or not we are leaving the "fat cat affluent
> society" and entering "the end of consumerism". And when will "consumerism"
> end? Around 2022, if not sooner. This date coincides with the end
> of oil and the end of the industrial revolution. The oil business
> drives society and civilization as we know it. The petroleum industry
> is a sunset industry and the sun is low in the sky. All of this will
> profoundly affect the markets from this day forward and we will see
> a greater influence next year and years to come. The world as we
> have known it is gone and won

Oct 31 11:07 AM

[vman650:]

The money being spent by the President is not being spent the right way.Sure it is saving some jobs, but those jobs are producing nothing of value. We must first reduce our dependence on oil and cut spending. I see no new solar panels on buildings. I see no new windmills or nuclear plants going up anywhere. I see no new drilling rigs off the East Coast. I see no new factories which will actually make something. Saving government jobs and retail jobs accomplishes nothing of value and those jobs will be lost when the stimulus ends. Banks, taking government money and buying stocks instead of lending to main street results in more CEO bonus money does nothing of value. The money needs to go to corporations which will actually do something to add jobs. Now markets will tumble and they can try the same stupid stuff again until the dollar is worth a penny. In short, how do you solve a problem of excessive credit by borrowing even more and spending it stupidly.

Oct 31 10:49 PM

[Michael Clark:]

Ok. VIX chart enclosed. VIX broke through overhead resistance on Friday. Can it hold it? It has done so recently.

seekingalpha.com/insta...

European stock indexes look vulnerable with momentum free-falling. Housing Index (HGX) bearish. Chinese Indexes fairly positive. Japan, Korea, Taiwan negative.

ETF'S: take profits in oil, coffee, lumber. Gold selling insignificant.


On Oct 30 10:56 PM Joe Shareholder wrote:

> No mention of VIX in upside movers? This fund will make you a rich
> dad or a poor dad. Play it safely with stops.

Nov 01 11:06 AM

[FB5000:]

Markets sold off because of the extreme pessimism around the rally, the end of the fiscal year for hedgies and the like. Consumer sentiment came in at consensus, spending was as consensus. People got spooked - it happens - very appropriate for the day before Halloween. It also happens that markets do not go up in a straight line. Chicago PMI came in above consensus. More than likely ISM will show well on Monday. Some are calling for a V-shape recovery - certainly the inventory cycle is pointing that way. Payrolls will still decline but that is bottoming out

Productivity is high, inflation is low, rates are low, savings are high, earnings have rebounded, consumer spending is actually flat on a year ago. Markets are roughly where they were last year but all the underlying data is pointing up whereas last year it was pointing to the depths. Given that last year we were staring into the abyss - any reasonable person would consider that we had done fairly well.

Now consider Unemployment and consumer spending. Most people are still working. Prices are flat and rates are low. Savings are up. You don't need booming job growth to feed an increase in spending and confidence. You just need the fear to subside. As payroll reductions decline to the low -100's that will happen. Once that happens the tide starts to turn - as that happens - employment picks up - capacity starts to be used and the fed will tighten. We are still a way off from there. It is called the business cycle. (I feel like I am talking to a bunch of cavemen during a solar eclipse - yes the sun will shine again people - that is not Polyanna that is just plain commonsense)

One other tidbit - GDP per worker is now pretty much at the high. That usually foreshadows employment growth. Less than half of the stimulus is spent - you will see this for a few more quarters. It will not be a one-off and it will do what it was supposed to do - prime the pump.

This is the way things work. It has always been like this and it will repeat. The "this time it's different" crowd will also tell you that gravity is about to fail too.

All that said- we are not out of the woods here - 3 things.

1. Anti-Free trade sentiment - has to be squelched - nothing will drive us back to the stone age quicker than the putting up of tariffs. Obama does not yet get this.

2. Stupid government tricks (a) - more stimulus is not needed. We have enough. The pollies will be dying to "do something" in an election year. I hope they resist the urge.

2. Stupid government tricks (b) - more dumb legislation like Cap and Trade - this is a gift to utilities like Exelon - no wonder they support it (has anyone really stopped to think why a company like Exelon suddenly became all altruistic on this issue - gimme a break- it will hurt society and not achieve the goals - better to just tax carbon - let's not use a subsidy when a tax will work much better.

3. The rise or organized labor. For the most part organized labor is a dead weight on society. Very little is created by this group. Anything it touches - withers - witness the car industry. States like Texas that are less friendly are flourishing vs. the midwest or California.

Control or limit those three things and the economy will heal itself. Without a doubt. And come back better than before.

That's all

Nov 01 02:53 PM

[toobad41:]

What lies ahead?
Here are some things to think about...People will move back into cities, the abandonment of the suburbs, higher and higher transportation costs will dictate that, cities with mass transportation will thrive, electrical grid melt down and increasing brown-outs, third world countries will utterly collapse because of a paucity of food, communities that are far from population centers and rail service will fail, parts of the country that cannot grow produce efficiently will fail, water will dictate where people live...These are a few things to look forward to...It may not be that bad but when you think that 80% of the worlds population are in desparate straits even today IMHO it does not look very good.

Nov 01 07:59 PM