MarketView for January 27

Summary

It was another day of positive numbers on Tuesday, with the S&P 500 and the NASDAQ indexes up for a third straight day, due better than expected earnings numbers that, in turn, offset the day’s economic data.

Financials contributed the greatest boost to the broader market, as American Express gave the largest kick upward to the Dow Jones industrial average after the company posted quarterly earnings that surpassed Street expectations.

Worries about the financial sector's health have been the biggest hurdle for the market, fueling unease about stocks' performance in January, which is traditionally seen as a guide to the year's prospects.

Texas Instruments gave the technology sector a welcome reprieve after its quarterly profit fell less than expected. Wall Street is beginning to look beyond the sagging economic data and is beginning to take into account the current Administrations efforts to stabilize the economy.

After the closing bell, Moody's Investors Service said it may cut its top ratings on General Electric and its finance arm, citing increased uncertainty over the outlook for the company. That sent the price of GE’s shares down 4.6 percent to $12.46 in after-hours trading.

During the regular session, American Express rose 9.7 percent to $16.68. Shares of Citigroup were up 6.6 percent to $3.55 after its chief executive reiterated his plan to cut costs.

Year to date, the S&P 500 index is down 6.4 percent. After starting 2009 up more than 20 percent from its November 21 bear-market low, the index is now up 12.4 percent.

U.S. Steel added 6.9 percent to $31.49 after the steelmaker posted a more than eight-fold jump in quarterly profit. On the NASDAQ, Research In Motion was among the day’s largest advancers, up 6.3 percent at $53.91, while rose 1.2 percent to $90.73.

The Conference Board reported that its index of consumer confidence fell to a record low in January. Additionally, home prices dropped at a record pace in November, according to data from an S&P/Case-Shiller. As a result, Home Depot ended the day down 2.7 percent at $22.12, while Lowe's closed down 3.4 percent at $19.94.

The largest drag on the Dow came from Verizon, after the company reported fewer-than-expected wireless subscribers for the fourth quarter and warned that pension costs would hurt 2009 earnings. Verizon ended the day down 3.3 percent at $29.96.

Delta Air Lines, down 20.1 percent at $7.93, was the worst percentage decliner on the Big Board after the world's largest air carrier posted a quarterly loss.

The Federal Reserve's monetary policy-setting Federal Open Market Committee began a two-day policy meeting on Tuesday. The Street is anxiously awaiting the Committee’s comments that will be released after the meeting adjourns on Wednesday.

Crude Oil Falls Again

The price of sweet crude oil futures for March delivery fell 9 percent on Tuesday settling down $4.15 per barrel at $41.58 making it the largest percentage loss since January 7. London Brent crude settled down $3.23 per barrel at $43.73. The global economic crisis has weakened crude demand, especially in developed economies, and pushed prices off record peaks over $147 a barrel struck in July.

U.S. crude inventories rose by 800,000 barrels last week, according to data released by the American Petroleum Institute on Tuesday afternoon after the market closed, and Valero said it is cutting refinery output and capital spending this year due to shrinking demand. The API has begun releasing its weekly inventory report on Tuesday afternoons, a day ahead of the Energy Information Administration report.

Kuwait on Tuesday said it would support a further output cut if needed, echoing comments by some of the other members of the cartel. OPEC next meets on March 15 to decide on output policy.

Consumer Confidence Falls

Consumer confidence fell to a historic low during the month of January. The Conference Board, reported on Tuesday that its sentiment index fell to 37.7 from an upwardly revised 38.6 in December.

"Consumers remain quite pessimistic about the state of the economy," said Lynn Franco, director of The Conference Board Research Center. "Until we begin to see considerable improvements in the expectations index, we can't say the worst of times are behind us."

Suggesting the economic rout was far from over, the Conference Board's expectations index dropped to 43.0 in January from 44.2 the previous month.

Housing Prices Tumble

Home prices fell at a record pace in November. A surge in unemployment and an accompanying rise in job insecurity has led many consumers to defer decisions to buy homes, while costing others theirs. The result has been a huge inventory of homes for sale, further depressing prices.

Prices in 20 metropolitan areas tracked by the Home Price Index fell 2.2 percent from October. Prices in 11 metro areas fell at record rates from a year earlier, while 14 cities had drops of more than 10 percent.

The fall in house prices has also meant reduced consumer spending, which accounts for about two thirds of U.S. economic activity. However, housing's downward spiral shows little sign of reaching a bottom soon, with inventories remaining elevated.

The National Association of Realtors said on Monday sales of existing homes rose in December, driven mainly by distressed sales, which saw prices falling on an annual basis by the biggest margin in over 40 years.