Stocks Fall on Economic Data
U.S. stocks closed lower Tuesday, but ended well off the worst levels of the session as economic concerns led to profit taking a day after the major averages hit 13-month highs.
Better-than-expected reports on home prices and consumer confidence were offset by a downward revision to third-quarter U.S. economic growth. The market will weigh reports on consumer sentiment, new home sales, personal spending, and weekly jobless claims in Thursday's session.
The minutes from the Federal Reserve's November 3-4 policy meeting, released Tuesday, showed that policymakers see current risks to growth balanced, with a slack labor market keeping inflation in check.
On Tuesday, the 30-stock Dow Jones industrial average finished lower by 17.24 points, or 0.16%, at 10,433.71. The broad Standard & Poor's 500-stock index was down 0.59 points, or 0.05%, at 1,105.65. The tech-heavy Nasdaq composite index lost 6.83 points, or 0.31%, to 2,169.18.
On the New York Stock Exchange, 16 stocks were lower in price for every 14 that advanced. Breadth on the Nasdaq was 16-11 negative. Trading was relatively thin ahead of Thursday's U.S. Thanksgiving holiday.
Shares of tech heavyweight Hewlett Packard (HPQ) finished lower by 1.63% Tuesday. After the close of trading Monday, the company posted fourth-quarter non-GAAP earnings per share (EPS) of $1.14, vs. the Street consensus forecast of $1.13; and an 8% revenue decline.
Among industry groups on the move Tuesday, the S&P Homebuilding index fell 1.74% following the September S&P Case-Shiller report.
The S&P Railroads index declined 1.52% after UBS Financial noted that the railroad industry has outperformed the S&P 500 by 10% since Berkshire Hathaway (BRKA) announced its acquisition of Burlington Northern Santa Fe (BNI) on Nov. 3. UBS sees a risk of industry underperformance between now and year end if some of this Buffett-inspired enthusiasm for the group begins to wane. In addition, UBS downgraded Union Pacific (UNP) to neutral from buy.
The S&P Health Care Equipment index gained 2.39%, getting a helping hand from Medtronic (MDT) which posted second-quarter EPS of 78 cents, vs. 48 cents EPS one year earlier, on an 8% revenue rise (constant currency basis), and raised its fiscal 2010 EPS guidance to $3.17-$3.22 from $3.10-$3.20.
Treasuries rose. The dollar index edged higher. Gold futures rallied. Crude oil futures fell.
Treasuries were higher after a $42 billion auction of five-year notes Tuesday afternoon. The U.S. dollar index edged higher. Gold futures rallied. Crude oil futures fell.
European stocks ended lower Tuesday. In London, the FTSE 100 index fell 0.59%. The CAC 40 index in Paris declined 0.75%. Germany's DAX index lost 0.55%.
Asian markets finished lower. Japan's Nikkei 225 index fell 1.01%, the Hang Seng index in Hong Kong shed 1.53%, and Shanghai's benchmark index dropped 3.45%.
Technical analyst Robert Prechter -- Elliot Wave International President - said on CNBC's "Fast Money" program Monday night that the stock market is "at a critical juncture of price and time," and all the bells are ringing on the negative side. "I think we're in for a very large decline in the S&P [500 index] in 2010. I think it's going to be at least as what we saw in 2008." He said that very bearish prediction is because so very many investors have turned bullish. "In the first quarter only 2% of traders were bullish and now we've got over 90% bullish," he said.
Meanwhile, PIMCO's Bill Gross increased his holdings of government-related debt to 63%, the highest proportion since July 2004. Gross boosted his $192.6 billion Total Return Fund's investment in Treasuries, so-called agency debt and other U.S. government-linked bonds from 48% of assets in September while reducing his position in mortgages to the smallest since May 2004, according to data on Pimco's Web site. In economic news Tuesday, the FOMC minutes noted saw risks to inflation as "roughly" balanced for the next few quarters, but some thought risks were tilted higher over the longer run. Policymakers noted the importance of clear communications to rein in any rise in inflation expectations and included the three criteria. Meanwhile, the Committee also basically saw forecasts for growth as roughly balanced. The FOMC viewed the dollar's decline as orderly, but were wary of the falling dollar's impact on inflation. There was some discussion of the negative side effects of low rates for an extended period, and some officials were concerned that it could spur excessive risk taking.
U.S. consumer confidence rebounded to 49.5 in November after tumbling to 48.7 in October (revised from 47.7). The confidence index had been skidding lower ever since jumping 7 points to 54.5 in August. The index was at 44.7 last November. The present situation component was steady at 21.0 in November versus 21.1 in October (revised from 20.7). It was 42.3 last November. It looks as though the poor job market is keeping the current outlook depressed. The expectations component rose to 68.5 from 67.0 (revised up from 65.7).
The U.S. FHFA home price index was flat in September, leaving the index unchanged from August's 198.9. On a 12-month basis, the index is down 3% versus September of 2008.
The U.S. Case/Shiller home price index rose 0.33% to 146.5 in the 20-city gauge for September, from 146.0 previously. This is a fifth straight monthly gain. On a year-over-year basis, the index is still down 9.4% from -11.3% in August. The 10-city index rose 0.4% to 158.6 from 157.97. Cleveland, Las Vegas, and Dallas paced the monthly declines in home prices, while Minneapolis, Detroit, and San Francisco all registered the three best performances on the month.
U.S. third-quarter GDP was revised lower to a 2.8% growth rate, from the first reported 3.5% rate. Real consumption growth was revised down to a 2.9% pace from 3.4%. Residential fixed investment was knocked down to 19.5% from 23.4%, while non-residential spending was revised down to -4.1% from -2.5%. Government consumption was bumped up to 3.1% from 2.3%. Inventories contributed $26.8 billion, vs. $29.4 billion in the first report. Trade subtracted $27.6 billion, vs. -$17.9 billion previously. The GDP chain price index was revised to a 0.5% pace from 0.8% initially. The PCE price index rose 2.7% vs. 2.8% previously, while the PCE core rate was up 1.3% vs. 1.4% previously.
The International Council of Shopping Centers (ICSC) and Goldman Sachs chain store sales index was unchanged in the week ended Nov. 21 after falling 0.1% the week before. ISCS said 15% of households completed half or more of their holiday gift buying for the week ahead of Thanksgiving, the highest level since 2004. On a year over year basis, sales rose 3.3% vs. year ago week after rising 2.4% a week ago.
The German Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 93.9 in November from 92 in October, the highest reading since August last year. Economists expected a gain to 92.5, according to the median of 37 forecasts in a Bloomberg survey. The index reached a 26-year low of 82.2 in March.
Bank of England Governor Mervyn King said the central bank will raise the benchmark interest rate and sell assets purchased during its emergency plan over a two to three-year period. "The difficult judgment, which is the overriding problem, is to know by how much and when to do it," he told Parliament's Treasury Committee in London. He said that selling the assets it has bought to bolster the economy and interest-rate increases should have similar effects, and he didn't say which the bank would do first.
Russia's central bank cut its key interest rates to a record low in the ninth reduction since April as it seeks to deter speculative bets on the ruble and ease credit flows to households and businesses. Bank Rossii cut the refinancing rate to 9% from 9.5% and reduced the repurchase rate charged on central bank loans to 8% from 8.5%, effective from Nov. 25. It last lowered them by half a percentage point on Oct. 30.
China's five largest banks submitted plans to regulators for raising money after unprecedented lending eroded their capital, according to four people with knowledge of the matter. Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China and Bank of Communications Ltd. told the China Banking Regulatory Commission how they can bolster capital ratios after the watchdog evaluated their finances last week, the people said.
In company news, Microsoft (INTC) has been in early discussions with News Corp. (NWS) the media conglomerate controlled by Rupert Murdoch, about a pact to pay News Corp. to remove links to its news content from Google's (GOOG) search engine and display them exclusively on Bing, from Microsoft, according to a person briefed on the matter who spoke anonymously because of the confidential negotiations. If such an arrangement came to pass, it would be a watershed moment in the history of the Internet, and set off a fierce debate over the future of content online.