MarketView for October 25

Summary

Share prices fell and Treasury prices rose on weak consumer confidence data, but on Wall Street, the day's data was eclipsed by the cancellation of a meeting of European finance ministers that added to doubts about the region's efforts to tackle its debt crisis.

Although European Union and euro zone leaders still planned to hold a summit on Wednesday, markets were spooked by news that a meeting by euro zone finance ministers was canceled. The news fed fears that leaders will be unable to come up with the detailed plan for ending the crisis that investors want.

The S&P 500 has rallied nearly 9 percent for the month on optimism European leaders will succeed in tackling the region's debt crisis. Investors fear the impact that an uncontrolled fiscal crisis in the euro zone could have on the global economy.

Adding to the pessimistic tone, 3M reported quarterly earnings that missed expectations, while at the same time reducing its 2011 forecast. The company indicated that the crisis in Europe was weakening consumer demand and taking a toll on profit, which in turn sent its shares down 6.3 percent to $77.04.

In after-market activity, Amazon.com was down 15 percent to $193.10 after the world's largest Internet retailer reported weaker-than-expected results as it spent heavily on a new tablet computer and other long-term projects.

Other companies reporting on Tuesday included engine manufacturer Cummins, which fell 5.1 percent to $93.81 after reducing its outlook. United Parcel Service shed 2.1 percent to $69.35 after the company's chief executive said he sees the slow-growing economy continuing.

Netflix  saw its share price give up 34.9 percent of its value a day after the movie rental company said it lost more customers than it anticipated in the third quarter and warned of still more departures. The stock sank to $77.37.

Economic data indicated that consumer confidence unexpectedly dropped to its lowest level in 2 1/2 years in October, while house prices were unchanged at low levels in August, suggesting the consumer is still struggling.

Volume was light, with about 7.78 billion shares changing hands on the major equity exchanges, slightly below the daily average of 8.01 billion shares. 

Consumer confidence Falls

Consumer confidence fell unexpectedly to its lowest level in two-and-a-half years in October, while housing prices were unchanged at low levels in August, attesting to the fact that the consumer is still struggling.

Taken along with recent regional manufacturing data that hinted at stabilization in the sector in October, Tuesday's data underscored the view that the economy will most likely avoid another recession although growth will be slow.

Confirmation of a growing but sluggish economy is expected from the gross domestic product data for the third quarter due out on Thursday, but the surprising drop in consumer confidence suggests the recent bounce back from a weak first half year may be weakened.

The Conference Board said its index of consumer attitudes in October fell to its lowest level since March 2009 as consumers fretted about job and income prospects. However consumer confidence does not always correlate well with consumer spending or retail sales, economists noted.

The Conference Board's index of consumer attitudes fell to 39.8 from a upwardly revised 46.4 the month before. Analysts had expected a reading of 46.0. The expectations gauge was also at its lowest level since March 2009, just before the economy officially crawled out of recession.

Consumer attitudes have soured since the spring, hit by fears of a renewed recession, political gridlock, high unemployment and volatility in the stock market. With consumer spending accounting for about 70 percent of the economy, economists say the recovery will be hard pressed to make significant headway until confidence improves.

Home Prices Flat

The S&P/Case Shiller composite index of house prices in 20 metropolitan areas was flat compared with the month before on a seasonally adjusted basis. On a seasonally adjusted basis, prices fell in 14 of 20 cities, with Atlanta and Las Vegas among the largest losers, according to the S&P/Case-Shiller data.

The annual rate of decline slowed, however, with prices in the 20 cities down 3.8 percent compared with a year-over-year decline of 4.1 percent the month before. That still was a larger drop than the expected 3.5 percent decline in August.

Although prices are forecast to remain depressed for some time, any further declines are expected to be modest.

The struggling housing market continues to be one of the biggest hurdles for the economic recovery as attempts to bolster the sector have had limited success. In its latest efforts, the Obama administration said on Monday it would expand a mortgage refinancing program in a step that could help up to a million borrowers.