MarketView for November 8

Summary

Thursday saw another down day on Wall Street, although not as drastic a decline as we saw on Wednesday.  However, we could be in line for more weakness as worries about Washington's ability to find a timely solution to the "fiscal cliff" dominate investor thinking going forward. To make matters worse, the S&P 500 closed below its 200-day moving average for the first time in five months, a psychologically important move because the moving average is a measure of the market's long-term trend, and a significant breakthrough at  that level would be seen as a sign of weakness. Just minutes before the closing bell, stocks accelerated their declines and the S&P 500 fell more than 1 percent.

McDonald's fell 2 percent to end the day at $85.13 after the Company reported its first monthly drop in global sales since March 2003. The stock's weakness hurt the Dow, which fell through its 200-day moving average on Wednesday.

Apple saw its shares fall for a second day. The shares ended the day down 3.6 percent to close at $537.75 and are now down more than 20 percent from their September 21 all-time intraday high of $705.07.

Since reaching a 52-week closing high of 1,465 on September 14, the S&P 500 is now 6 percent lower. Investors worry that if no deal is reached in Congress over some $600 billion in spending cuts and tax increases due to take effect early next year, the struggling economy could fall into recession.

While a comprehensive agreement to avoid the automatic spending cuts and tax increases of the "fiscal cliff" was possible, a more likely scenario is for political leaders to find a temporary fix to buy time until the new Congress and Obama are sworn in, which will occur in January. The prospect of haggling over the budget has deepened the uncertainty for investors, who have sold stocks on the expectation taxes will go up on capital gains and dividends.

On the data front, the Labor Department reported a better-than-expected drop in weekly first-time claims for unemployment benefits as well as a rise in U.S. exports. While that news supported stock futures early in the U.S. trading day, it was soon overshadowed by the U.S. fiscal worries.

Qualcomm was a bright spot, with the stock ending up 4.4 percent at $60.67 after the leading supplier of chips for cell phones reported quarterly revenue Wednesday that beat expectations.

Among other earnings reports, Whole Foods posted earnings that met expectations, but said Hurricane Sandy was a drag on sales this quarter. Its shares fell 5.9 percent to end the day at $90.31.

With results in from more than 440 companies, third-quarter S&P 500 earnings are now seen down 0.2 percent from a year ago, which is slightly better than the forecast at the start of the reporting period. Results have been especially weak on the revenue side, however, with just 38 percent of companies beating on sales, Thomson Reuters data showed.

After the bell, Groupon slid 16.1 percent to $3.29 after reporting results that missed expectations.

Shares of Priceline were down 1.6 percent to $618.01 after news that the online travel agency bought smaller rival Kayak Software. Shares of Kayak  rose 27.8 percent to $39.66 in extended trading.

Shares of Disney fell 2.1 percent to $49 after the bell after reporting quarterly results, while shares of Nordstrom slid 3.7 percent to $53.36 following the release of its results. Walt Disney's stock ended the regular session at $50.04, while Nordstrom closed at $55.40.

During the regular session, volume was roughly 6.9 billion shares changed hands on the three major exchanges as compared with the year-to-date average daily closing volume of 6.52 billion shares.

Economic Data Still Looks Promising

The trade deficit unexpectedly narrowed in September as exports rose sharply, suggesting global demand for U.S. goods was holding up despite a debt crisis in Europe. Other data on Thursday indicated a drop in new claims for jobless benefits last week, although a severe storm that battered the East Coast distorted the figures.

The Commerce Department reported that the trade gap shrank 5.1 percent to $41.55 billion, the smallest deficit since December 2010. Exports rose 3.1 percent, the largest increase in more than a year. The export gain more than offset a 1.5 percent increase in imports that was centered on purchases of consumer goods.

The data was the latest positive sign for the economy, which has appeared to perk up as consumers spend more freely and home construction quickens.

Chinese demand for U.S. products appeared to help exporters in September. China bought $8.8 billion in U.S. goods and services, up 0.3 percent from a month earlier, although those figures were not seasonally adjusted.

Exports to the European Union, where a debt crisis has pushed several countries into recession, were flat. The government does not seasonally adjust figures for countries and regions as it does for overall imports and exports. The larger-than-anticipated decline in the trade gap suggested domestic economic growth may have been faster in the third quarter than the 2.0 percent annual rate initially reported. The Commerce Department will release a revised GDP growth estimate on November 29.

However, the economy could fall back into recession if Congress fails to avert a package of tax hikes and spending cuts planned for the New Year. Fears of this so-called "fiscal cliff" already appear to have reduced business investment.

Like the gain in exports, the rise in imports provided a positive signal for domestic demand, even though imports subtract from economic growth. Imports of consumer goods rose by $2.7 billion. Much of the increase reflected imports of the new iPhone model by Apple. That suggested the increase in imports of consumer goods might be temporary. Meanwhile, oil imports fell in September as a drop in the quantity of oil imports swamped an increase in the average price for imported oil, which hit $98.88 per barrel.

A separate report showed the number of Americans filing new claims for unemployment benefits fell last week, although Sandy roiled the data. Initial claims for state jobless benefits dropped 8,000 to a seasonally adjusted 355,000, the Labor Department said. The four-week moving average for jobless claims, which soothes out volatility, rose 3,250 to 370,500. Economists think readings below 400,000 generally point to rising employment.

An analyst from the Labor Department said Sandy, a mammoth storm that slammed into the eastern seaboard on October 29, boosted claims in some states by leaving people out of work, but also reduced claims in at least one state because power outages kept it from collecting claim reports.

It was unclear if the storm's net effect was to boost or reduce claims, the analyst said. Either way, the impact should prove short-lived, although the analyst said the data could be affected for several more weeks.

New York Governor Andrew Cuomo said storm damage and economic losses have totaled $33 billion in New York state, and $50 billion in the region.