MarketView for November 20

Summary

The major equity indexes fell for a third straight day on Friday due to weaker-than-expected results from Dell and D.R. Horton, which were considered to be solid evidence that the economic recovery will likely be anemic. The news of a 54 percent slide in Dell's quarterly profit was pretty much the last straw for the technology sector, which previously had been a market darling when it was thought that a strong recovery in technology would spur corporate and consumer spending. Meanwhile, Dell slid 10 percent to $14.29 a day after it reported a sharp drop in third-quarter profit and sales that missed estimates. Dell was the Nasdaq's top drag. D.R. Horton fell 15.4 percent to $10.37 after the homebuilder reported a fourth-quarter loss that was wider than expected and said market conditions were "still challenging.

Unease about the economy's prospects sent defensive stocks higher on the theory that they would be better able to withstand an uncertain economy, thereby limiting the Dow's losses. For the week, the Dow rose 0.5 percent, the S&P 500 fell 0.2 percent and the Nasdaq was down 1.0 percent. Trading was choppy with the monthly expiration of November options on Friday. With the year-end fast approaching, there was also a push by many institutions to lock in profits from the recent rally going into 2010.

A rebound by the dollar pressured prices of global commodities, including crude. Energy stocks were hurt, including Chevron, which fell 0.7 percent to $76.77. December crude settled down 74 cents, or 0.96 percent, at $76.72 per barrel, the last day of the contract.

Unemployment Starting to Improve Says Labor Department

According to a report by the Labor Department on Friday, the pace of job losses slowed during October, and the unemployment rate slipped in hard-hit Michigan. Michigan's jobless rate fell to 15.1 percent in October from 15.3 percent in September, although it remains the highest in the nation. The rate in Nevada, the second-highest, dipped to 13 percent from 13.3 percent. Rhode Island was close behind at 12.9 percent, followed by California at 12.5 percent. Alaska and Wyoming had the largest increases in their unemployment rates over the month, as changes in the energy sector hit the oil and natural gas rich states.

North Dakota continued to have the lowest unemployment rate in the nation at 4.2 percent, up from 4.1 percent the previous month. Nebraska had the second lowest at 4.9 percent, followed by South Dakota at 5 percent. Currently, 15 states and the territory of Puerto Rico have over 10 percent unemployment. One of those states, Illinois, has a rate of 11 percent, its highest since August 1983.

The national unemployment rate for October was 10.2 percent, the highest since April 1983. Nonfarm payroll employment increased in 28 states and the District of Columbia during October and stayed the same in one state, the Labor Department said. Texas had the largest increase of 41,700 jobs, followed by Michigan, with 38,600, and California, with 25,700. Michigan had the largest monthly change -- of 1 percent.

Since July, professional and business sector jobs in the state have increased because of privatization of education-related work, according to the Michigan employment department. The state also had gains in October in education, construction and manufacturing, which has increased for four straight months.

According to the Labor Department, Michigan’s unemployment rate and number of jobs have been stabilizing since the summer, when the federal government's car-buying program known as "Cash for Clunkers" propped up demand for cars made in the state.

On the positive side, South Carolina gained 1,100 jobs in October, according to the State Employment Security Commission. The gain was small when compared to the 60,500 positions it lost from the previous October and the 95,000 jobs it lost since December 2007, when the recession began, according to the commission's statistics.

Crude Falls One Percent

Crude oil prices fell nearly 1 percent to below $77 per barrel on Friday as a stronger dollar weighed on prices and falling equities raised concern about the economy and the outlook for energy demand. Domestic sweet crude for December delivery, which expired Friday, settled down 74 cents per barrel at $76.72. In London, Brent crude for January delivery settled down 44 cents per barrel at $77.20.

The dollar rose for a second straight session on Friday as investors cut exposure to risky assets and high-yield currencies ahead of a holiday-shortened week. A stronger dollar makes dollar-denominated commodities like oil more expensive for holders of other currencies and tends to pressure crude prices.

Valero Energy said on Friday it will permanently shut its refinery in Delaware City, Delaware, because of weak economic conditions, the latest sign that refiners are struggling against weak fuel demand and thinning margins.

A lack of demand for oil products has led to very high inventory levels being stored at sea as well as on land. Volumes in floating storage are estimated to be around 90 million barrels, more than total global daily oil consumption.

It appears that the purchase of products for floating storage, often a financial strategy where the buyer is able to sell the products for a profit at a later date, has created the illusion of improved demand.

Retail World Turns on Black Friday

When the holiday shopping season kicks off on the day after Thanksgiving, retailers can expect to see millions of less frightened but bargain hungry customers cross their thresholds. It is expected that there will be a strong turnout on Black Friday, which falls on November 27 this year, as deep discounts lure shoppers after more than a year of subdued spending. However, that does not mean it will be a bumper holiday season in the weeks leading up to Christmas since consumers are, and will likely remain, cautious.

Retailers and websites dedicated to Black Friday deals have leaked sales plans earlier than usual, in the hopes of sparking demand for flat panel televisions, toys and other goods after the worst holiday season in decades in 2008. While the economy remains weak and unemployment has risen, shoppers have had more than a year to adjust their spending and digest the bad news. In 2008, holiday shopping started just weeks after the global financial crisis erupted.

Nonetheless, more than 172 million shoppers visited stores and websites from Thanksgiving Day through Sunday last year, up from 147 million in 2007, according to the National Retail Federation. The average amount of money spent by shoppers over that weekend rose 7.2 percent to $372.57 per person.

Those numbers, however, did not prevent a sales slide of 2.8 percent for the entire shopping season last year, the first decline since the NRF began tracking such data in 1995. While the NRF has not issued a Black Friday forecast, it expects 2009 holiday season sales to rise 1 percent.

The term Black Friday is said to have originated in Philadelphia during the 1960s to describe the difficulty of police and drivers to deal with exceptionally heavy traffic on that day as shoppers flooded the city's commercial center. The phrase was later co-opted by retailers to refer to the holiday shopping period as a time of year when their business moves into the black, or turns a profit.

One factor that could help spur consumer appetite is predictions for good weather, with mild temperatures and slim chance of precipitation, though the Pacific Northwest could see strong storms.

After last winter's bevy of deep discounts, many consumers will only open their wallets if they spot a bargain. Meanwhile, there are now fewer retailers vying for business. According to Bain & Co, 27 retailers went bankrupt in 2008 and 18 more have done so to date in 2009. Together, those chains used to account for about $25 billion to $30 billion in sales. Interestingly, consumers may not be buying gifts. A Consumer Reports survey found that 66 percent of shoppers heading out over the weekend will be shopping for themselves.