MarketView for November 10

Summary 

On Tuesday, Wall Street was hit by worries in a number of areas, including rising interest rates, which hurt banks, and falling gold and silver prices. Wall Street decided to forget about those concerns on Wednesday as investors proceeded go after some of the week's worst sell-offs in renewed optimism that the rally in stocks remains intact. Banks, which lost 3 percent over the past two sessions, rebounded. Energy stocks also did well with Chevron, the second-largest domestic oil and gas company, closing up 1.9 percent at $85.17 as oil rose to a new two-year high above $88 per barrel.

The CBOE Volatility index .VIX , Wall Street's so-called fear gauge, fell 3.2 percent to 18.47. The VIX usually moves inversely with the S&P 500, tracking options prices that investors are willing to pay as protection on movement of the underlying stocks.

Share prices did decline early in the day as Ireland's borrowing costs hit another euro lifetime high, partly due to political uncertainty over its austerity plans. Concerns over the European debt issue sent the dollar higher, which also kept buying interest in stocks subdued. Since September began, the S&P 500 has climbed 16 percent in a rally mostly triggered by expectations -- confirmed last week -- that the Federal Reserve would buy more assets.

After the bell, Cisco reported a 19 percent jump in quarterly revenue as a revived economy encouraged more spending on networks to route Internet traffic. However, Cisco's shares lost about 14 percent to $21.15 in extended trade following the results after CEO John Chambers said he was disappointed in the company's own revenue guidance for fiscal 2011. At the same time, some on the Street had hoped for stronger proof of a recovery in the technology sector.

Microsoft's was also down 1.6 percent to $26.50 in after-hours trading following Cisco's guidance. The drop in Cisco's stock also pressured index futures, sending the Nasdaq futures down 14.75 points in after-hours trading.

During the regular session, Boeing saw its share price fall 3.2 percent to $67.07. The company halted test flights of its long-delayed 787 Dreamliner, a day after smoke in the main cabin of one of the planes forced an emergency landing in Texas.

Shares of Research in rose 6.3 percent to $58.44 after the Canadian company, a late entrant in the booming tablet market, said it will take on Apple's iPad with competitive pricing of its rival Playbook device.

Polo Ralph Lauren reported better-than-expected quarterly earnings and raised its sales outlook, sending its stock up 7.3 percent to $108.28.

For the last three sessions, the S&P 500 has run into resistance near 1,228, the closely followed 61.8 percent retracement of the slide between the 2007 high and the 12-1/2-year low set in March 2009. A failed attempt to pierce the 1,228 level, back in April, preceded the benchmark's slide to its 2010 low hit in early July.

Economic Data Shows Improvement

The level of economic growth is improving as jobless benefit claims hit a four-month low last week and the international trade gap narrowed in September. The reports followed last Friday's payrolls data showing private sector job growth was the best for any month since April and suggested that the economy is exiting the summer doldrums.

The number of workers filing new claims for state unemployment aid fell to 435,000 for the week ended November 6 from a revised 459,000 in the prior week, the Labor Department said.

The larger-than-expected decline took a four-week moving average of claims to its lowest level since just before Lehman Brothers filed for bankruptcy in September 2008. At the same time, the number of people still receiving regular state benefits after an initial week of aid fell to 4.3 million in the week ended October 30, the lowest level since November 2008.

In a separate report, the Commerce Department reported that our trade deficit narrowed more than expected in September to $44.O billion, despite near record imports from China. A narrower trade deficit is positive for economic growth since it suggests more demand for domestically produced goods.

Economists said the international trade report suggested the U.S. economy grew a bit more swiftly in the third quarter than the 2.0 percent annual pace reported late last month. Many also believe that the trade deficit, which cut into growth last quarter, could be a positive in the final three months of the year. Exports rose slightly in September, a third consecutive monthly gain, while imports fell 1.0 percent.

A weaker dollar helps export by making American products cheaper in world markets, at the same time increasing the cost of foreign goods in the United States. However, continued high imports from China cast a shadow over the data. Imports from China totaled $35.0 billion, just barely below a record set in August, while Exports to the country declined fractionally to $7.2 billion.

The resulting $27.8 billion trade deficit with China, by far the largest the United States had with any trade partner, could revive chances for the Senate to vote on legislation punishing some Chinese imports for Beijing's currency practices. The House of Representatives approved the bill in September in the belief that China deliberately undervalues its currency to give Chinese companies an unfair trade advantage.

While many observers believe the bill will fall by the wayside following the November 2 congressional elections, some think its fate depends on whether President Barack Obama can make progress on the issue at a Group of 20 meeting that gets underway in Seoul on Thursday.

The U.S. trade gap with China has increased to $201.2 billion in the first nine months of 2010, compared to $165.9 billion in the same period in 2009. Washington is pushing Beijing to let its currency rise more quickly in value and take other steps to spur domestic demand. On Wednesday, China ordered its banks to put more money aside as required reserves, a move that could slow Chinese growth.