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Today's Market: Earnings Reports and Dark Pools

|Includes:AMGN, The Boeing Company (BA), BAC, C, EBAY, JPM, KMP, KMR, LLY, PENN, PFCB, TSCO, USB, VMW, WFC
Wednesday's business news is highlighted by earnings reports from eBay (Nasdaq: EBAY), Boeing (NYSE: BA), Wells Fargo (NYSE: WFC), U.S. Bancorp (NYSE: USB), VMware (NYSE: VMW), Amgen (Nasdaq: AMGN), Eli Lilly (NYSE: LLY), Kinder Morgan (NYSE: KMP, KMR), Northern Trust (Nasdaq: NTRS), P.F. Chang's (Nasdaq: PFCB), Penn National Gaming (Nasdaq: PENN) and Tractor Supply (Nasdaq: TSCO). Oil inventory data also seems sure to stir the market when released at 10:30 ET, and the Fed's Beige Book is due for release in the afternoon. You might also catch the SEC forum on "dark pools" if you can. We cover all these topics here.

Economic Data

Mortgage Activity

The Mortgage Bankers Association (MBA) made its regular reporting of weekly mortgage activity today. After adjusting for Columbus Day, the week ending October 16 proved a difficult one. As the average contracted rate on 30-year fixed rate mortgages inched higher to 5.07% from 5.02% (15-year mortgages to 4.51%, from 4.44%), mortgage activity dropped sharply. The Market Composite Index of mortgage activity volume declined 13.7% on a seasonally adjusted basis. The drop was driven by a steeper 16.8% week-to-week fall in the Refinance Index, and confirmed by the 7.6% fall in Purchase Activity. The decline marks the second straight, and as first time home buyer tax credits expire, without new legislation, housing seems likely to stumble near-term. However, we expect a renewal or extension of the incentive.

Oil Inventory Report

With the nearest WTI Crude futures trading up to approximately $78 now, the weekly oil inventory data gains in its influence of trading. The sensitivity of futures pricing to news of all sorts increases as trader interest intensifies. Trader interest intensifies as price volatility increases, and the viscous cycle is reborn.

Last week's Petroleum Status Report noted an increase in oil stocks of 0.4 million barrels. A sharp draw in fuel stocks combined with a weakening dollar last week to push oil higher. Total motor gasoline inventories fell by 5.2 million barrels in the week ending October 9. Distillate fuel inventories fell by 1.1 million barrels. However, Indian Summer is taking the Northeastern US by surprise this week, which should offset any further draws in heating oil and settle crude oil as well. The Northeast is the most important market in the States for heating oil, and so weather in New England plays a key role in price trend. The dollar is finding support in the words of market gurus, but we expect there's less weight in those words these days than in years past.

Beige Book

The Fed's Beige Book of regional economic indicators is due for afternoon release at 2 PM. This notation of regional conditions might offer insight into future Fed plans. Also on tap, several Fed speakers are due to take podiums around the country. Look for Fed Governor Tarullo to speak in Washington at 1 PM ET. Richmond's Jeffrey Lacker answers questions at 3:45 ET and Boston's Eric Rosengren will kick off the Fed's Cape Cod Economic Conference. The topic of discussion: Re-evaluating regulatory and monetary policy... Timely...

SEC Reviews Dark Pools

The Securities and Exchange Commission will not be surveying swimming pools around the country for chemical balance, as the terminology implies. Rather, they will be reviewing investment vehicles/methods/systems known as "dark pools," and discussing whether they need special checks and balances. This SEC "open meeting" will hear all sides of the argument, including Wall Street's renewed interest in being left alone.

"But how dark are dark pools?"

Dark Pools allow for anonymity of trading, keeping stocks in check as important players take significant interests in sometimes illiquid stocks incognito. But how dark are dark pools? If some traders have information that the rest of the market is not privy to, then we have a problem. Institutions now use dark pools to trade up to 15% of daily equity volume. It makes sense for institutions that do not want to drive the price of the stock they have interest in owning, thereby forcing a higher cost and sometimes negating opportunity. Still, things have to be kosher boys, and we're not sure you can be trusted anymore. Give us a few more months of gains though and we'll see what we can do...

Earnings Reports

Boeing is off slightly to start the day, as the plane maker posted a $1.6 billion loss on development charges related to its 787 and 747 models. The market was already well-aware of the troubles with the new jumbo jet, so the impact was minimized in today's trade. Still, Boeing (NYSE: BA) was forced to slash its full year forecast to $1.35 to $1.55, from a previous target of $4.70 to $5.00. Analysts were already looking for $1.53 on average, thus the modest decline. Still, with all the delays, one has to wonder if the "big plane projects" project might be better off scrapped. Maybe you just can't fly a plane that big safely. I know I would never board one after all this trouble at Boeing and Airbus.

Wells Fargo (NYSE: WFC) shares are up slightly to start the day, as its solid loan business offers traders safe-haven. Wells' results offered higher loan losses like its peers at Bank of America (NYSE: BAC), J.P. Morgan (NYSE: JPM) and Citigroup (NYSE: C), but it made so much money in interest income from its acquired Wachovia mortgage assets that it about covered charges for an increased level of losses. Without a significant volatile trading business to account for, Wells' income stream seems more predictable, and certainty is valuable these days.

Note though, that there are times when risk is in demand, and coming out of economic trough, that's usually the case. So, while Wells' may be the safest hold over the long-term, it may just as soon underperform its player peers in the near-term. We've already seen low quality stocks lead the way out of the hole though, and so stocks like Wells might be drawing some capital from the sidelines now.

Disclosure: No Positions