The Bears took over Wall Street today - market wrap

In spite of some amazing earnings reports last week, yesterday, and even this morning, disappointing PPI (Producer Price Index) and housing start numbers both disappointed and let the bears in.

It shouldn’t be surprising that the bears were able to get a foot hold in the market today. There are plenty of analysts and economists who have been warning that the strength of the recent rally is not based in reality. In fact, it was just recently that the big investors, like mutual funds, got into the game in any significant way. Most of them joined the rally because it isn’t good business for a mutual fund or a hedge fund to be sitting on the sidelines when so many others are making such vast sums of money during the rally.

Housing starts was the biggest disappointment because the numbers had been up last month, but the rebound in building is fading as the home buyer tax credit is due to expire just after turkey day. Builders are nervous that the recent upturn in buyers will disappear with the disappearance of the tax credit.

The Obama administration has yet to announce whether the credit will be extended, in spite of all the lobbying that is going on in and around Capitol Hill surrounding this measure. A HUD spokesperson said today that Obama will make his decision public in the next few weeks.

The “whisper” word is that the credit will likely not be extended because of the cost, and because of the potential that this stimulus is creating another very unnatural housing bubble, which should not be happening.

While many people wonder why a drop in housing starts is such bad news in view of the enormous housing inventory out there, the fact is that the building industry creates jobs, and home buyers, especially first time home buyers, spend a lot to furnish those first homes. The trickle-down effect will be felt throughout the economy if housing purchases slow.

Other factors that contributed to the slight drop in the market are being attributed to profit taking, never a bad idea when the market has been rallying so aggressively.

On the earnings front, Caterpillar (CAT) blew out earnings, which might have been expected. As one of the biggest players in the big equipment category, Caterpillar has profited from stimulus dollars that have been going into infrastructure and construction.

Pfizer (PFE) beat on both earnings and revenues though revenues were down from a year ago, and sales were down as well. The positive earnings numbers were largely due to cost cutting measures.
Other earnings reports came from Coca Cola (KO), Dupont (DD), Boeing (BA) and Home Depot (HD). All four companies had some aspect of their reports that disappointed the market and as DOW components, contributed to the down day for the DOW.

In the tech sector, Yahoo (YHOO) hit on earnings expectations and beat all estimates on revenue. Texas Instruments (TXN) beat both earnings and revenue estimates, and announced that customers are building inventory again.

Crude oil topped $80 per barrel today, but closed at $79.09. This is not good news for consumers. That $80 number has been considered a key point of resistance. Many analysts have been predicting oil at $100 by year end if the market breaks through that key point of resistance. Hopefully they are still wrong.

Tomorrow brings lots more earnings reports as well as a very key housing indicator on mortgage applications.

Apple officially previewed the new IMAC. There has been so much hoopla recently about the Iphone that the IMAC has been almost overlooked, but the new IMAC appears to be an impressive upgrade to the last release, and very well priced to compete in the market. The new IMAC will be released in November in time for peak holiday shopping.

If you enjoyed this article, you might also like to read:
News that will move the markets week of Oct 19th
Apple unveils new IMAC computer
Another housing bubble on the horizon?
Several stimulus mortgage programs due to expire this year
Home buyer tax credit to be extended for military

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DOW sheds 0.5% after housing report