MarketView for October 29

Summary

It was another day for the record books! The Dow Jones Industrial Average and the S&P 500 indexes ended at record closing highs on Tuesday after economic data supported views that the Federal Reserve will keep its stimulus intact for several months and IBM gained after it announced a stock buyback. IBM ended the day up 2.7 percent to $182.12 after the company's board of directors approved the $15 billion for stock buyback. Tuesday's rally brings the S&P 500's gain for the year to date to 24.2 percent.

In the latest economic data, a gauge of consumer spending rose in September, but another report showed consumer confidence fell sharply in October. The data added to evidence of sluggish economic growth just as the Fed began a two-day policy meeting. Expectations are high that officials are unlikely to shift monetary policy this week as they wait for more evidence on the performance of the economy.

Limiting some of the day's gains in both the Nasdaq and the S&P 500, Apple ended the day down 2.5 percent to close at $516.68 a day after the iPad and iPhone maker delivered what the Street felt were disappointing results.

In after hours trading, shares of LinkedIn fell 3.1 percent to $239.45 after the Company offered up a conservative revenue guidance for the fourth quarter and fiscal 2013. LinkedIn shares ended the regular session at $247.14, up 1.7percent.

Shares of Electronic Arts rose 2.8 percent to $24.80 in after-hours trading after the company reported a higher quarterly earnings. In regular trading, Electronic Arts shares fell 2.8 percent to close at $24.13.

Pfizer ended the day up 1.7 percent to close at $31.25 after the pharmaceutical giant reported better-than-expected third-quarter earnings.

As has been the case in recent quarters, more companies have been exceeding earnings expectations than revenue expectations. With results in from 281 of the S&P 500 companies, 68.7 percent have exceeded earnings expectations, above the long-term average of 63 percent, while just 52.5 percent have offered up better than expected revenue estimates, below the 61 percent rate since 2002, based on Thomson Reuters data.

Cummins fell 5.2 percent to $127.90 after the Company reported lower-than-expected quarterly earnings on Tuesday and cut its full-year outlook. Another decliner was JPMorgan Chase, which fell 0.1 percent to close at $52.73. The key reason is that the preliminary $13 billion deal JPMorgan and the U.S. attorney general is coming off the rails.

Consumer Spending Numbers Mixed

Consumer spending rose in September as consumers purchased Apple's new iPhone and leisure goods. On the negative side, declining sales of automobiles pointed to sluggish economic growth during the third quarter.

Other data on Tuesday showed lackluster demand was keeping inflation muted, with wholesale prices unexpectedly falling last month. According to a report by the Commerce Department, retail sales excluding automobiles, gasoline and building materials, increased 0.5 percent last month after a 0.2 percent gain in August.

The so-called core sales correspond most closely with the consumer spending component of gross domestic product, which is expected to suffer under the impact of a 16-day government shutdown in October.

In a separate report, the Labor Department said its seasonally adjusted producer price index was down 0.1 percent last month, the first decline since April, after advancing 0.3 percent in August. In the 12 months through September, wholesale prices rose 0.3 percent, the weakest reading since October 2009. That compared to a 1.4 percent increase in August.

Falling wholesale food prices offset a rise in the cost of energy, depressing overall producer prices in September. Food prices fell 1.0 percent as the cost of processed poultry recorded its biggest decline since February 2011. Wholesale gasoline prices fell 0.1 percent.

The core PPI, eliminating food and energy, was lifted by a 0.9 percent increase in the price of light motor trucks, which was the largest gain since July 2012, while cosmetics prices recorded their largest increase since June 2010.

The tame wholesale inflation reading, coming on the heels of weak home sales and manufacturing production, as well as sluggish hiring, could see the Fed take its time to start scaling back monthly bond purchases aimed at stimulating the economy through low interest rates.

Officials from the central bank meet on Tuesday and Wednesday to assess the economy and deliberate on monetary policy. They are expected to keep the monthly $85 billion bond purchasing program in place until at least next March.

Core retail sales appear to have increased by a 0.7 percent during September. The increase probably reflects sales of Apple's new iPhone. Apple said it sold 33.8 million iPhones during the September quarter.

While Americans bought smart phones, they cut back on automobile purchases, with automobile sales falling 2.2 percent, the largest decline since October of last year. That held down overall retail sales, which fell 0.1 percent in September. It was the first decline since March and followed a 0.2 percent gain in August.

Retail sales, excluding automobiles, rose 0.4 percent. Households also bought furniture, sporting goods and some building materials and garden equipment. Receipts at service stations were flat. Clothing sales fell 0.5 percent, the biggest decline since April 2012.

While core retail sales implied some strength in consumer spending, that probably will not alter views that economic growth slowed in the third quarter. Moreover, data on home sales, manufacturing production and hiring have all suggested growth took a step back from the second quarter's 2.5 percent annual pace.

Higher Single Family Home Prices

Single-family home prices rose in August chalking up their strongest annual gain in more than seven years. The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.9 percent on a seasonally adjusted basis, exceeding Street expectations of a 0.6 percent gain. Prices rose 0.6 percent in July. On a non-adjusted basis, prices rose 1.3 percent.

Compared to a year earlier, prices were up 12.8 percent, beating economists' expectations of 12.5 percent and marking the strongest gain since February 2006, when the increase was 13.8 percent. The August price gains came despite a rise that month in 30-year mortgage rates that slowed mortgage applications and refinancing activity.

The report suggested the housing sector continued to recover despite those headwinds. Home prices have been rising nationally since early 2012 and economists have singled out housing as one of the bright spots of the U.S. recovery.

Prices in all 20 cities rose on a non-seasonally adjusted yearly basis, led by a 29.2 percent gain in Las Vegas and followed by a 25.4 percent increase in San Francisco.

Consumer Sentiment Down

Consumer confidence fell sharply in October, according the Conference Board. The private industry group indicated that its index of consumer attitudes fell to 71.2 in October from a revised 80.2 in September, previously reported as 79.7. The Street consensus had been for a reading of about 75.0 in October.

The expectations index also sank, down to 71.5 in October from a revised 84.7 in September. Consumers were also less optimistic about their current standing, with the present situation index down to 70.7 in October from a revised 73.5 in September.