MarketView for September 25

Summary

The S&P 500 equity index suffered its worst day since June on Tuesday, pulled lower by Caterpillar after Caterpillar cut its profit outlook. While the corporate news was the latest from a high-profile company that warned about receding profit growth, the result was the S&P 500 chalking up its largest percentage daily loss since June 25 and the largest for the Nasdaq since July 20.

Nonetheless, the S&P 500 is up 2.5 percent so far in September, historically a difficult month for the market, and recently hit the highest level in nearly five-years. For the quarter, the S&P is up 5.8 percent so far, with gains largely tied to the latest moves by the European Central Bank and the U.S. Federal Reserve to stimulate their economies.

At the same time, technology shares came under pressure after a second day of weakness for Apple, the world's most valuable public company. Apple’s shares fell 2.5 percent to $673.54 as Apple sold out of its initial supply of the new iPhone, raising concerns about keeping up with demand.

Caterpillar said on Monday that sluggish global growth was responsible for reduced estimates. Other companies to recently cut expectations have included FedEx and Norfolk Southern. Shares of Caterpillar were the biggest weight on the Dow for a second day and ended down 4.2 percent at $87.01. That was the stock's biggest daily percentage drop since May.

Tuesday's decline reversed earlier gains attributed to portfolio "window dressing" as the quarter ends. Stronger-than-expected figures on consumer confidence also contributed to temporary gains.

Economic data from the Conference Board indicated that consumer confidence jumped to its highest in seven months in September.

Two separate reports showed home prices rose for another month in July, though the gains were not as strong as the previous month.

Red Hat fell 4.3 percent to $55.08 after the world's largest distributor of Linux operating software reported a lower-than-expected adjusted profit and lowered the top end of its full-year revenue outlook.

Approximately 6.75 billion shares changed hands on the three major equity exchanges, as compared with the year-to-date average daily closing volume of 6.54 billion  shares.

Home Prices Higher – Finally

Home prices rose for a sixth straight month in July in the latest sign of a sustainable housing market recovery, while a jump in consumer confidence this month offered a harbinger that Americans are ready to loosen their spending. Six years after its collapse, it appears that the housing market has finally turned a corner.

Two separate reports on Tuesday showed that home prices rose in July, though the gains were not as strong as the previous month. That follows recent data that home resale and groundbreaking on new properties rose in August, while business sentiment among homebuilders hit a more than six-year high this month.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.4 percent in July on a seasonally adjusted basis. Economists had expected a gain of 0.9 percent, which would have matched June's advance. Case Shiller is one of the most closely watched barometers of the U.S. housing market. On a non-adjusted basis, prices were up 1.6 percent.

Housing has regained its footing at the same time as the broader economic recovery has lost traction. The economy grew at a 1.7 percent annual rate in the second quarter, and economists say it is not likely to fare much better in the current quarter.

Nonetheless, housing still faces a number of hurdles, including tight lending standards for mortgages, a large number of underwater homeowners, and a large number of foreclosures still in the pipeline.

The housing market is considered a key sector of the economy. Compared with a year ago, prices in the 20 cities were up 1.2 percent, the largest gain since August 2010, according to the S&P/Case Shiller index.

Prices were lower than a year ago in only four cities, with Atlanta faring the worst, down nearly 10 percent. Hard-hit Phoenix continued to rebound, with a gain of 16.6 percent.

Separately, the U.S. Federal Housing Finance Agency home price index showed prices rose 0.2 percent in July compared with a 0.6 percent rise in June. Analysts cautioned that home prices could decelerate somewhat through the rest of the year as the traditional summertime buying boost wears off.

In the consumer confidence data, the Conference Board's expectations index climbed to 83.7 from 71.1, while the present situation index gained to 50.2 from 46.5. Consumers were more optimistic on both the current and short-term outlook for the labor market and had a more favorable view on their income prospects in the next six months. Consumers also felt better about price increases with expectations for inflation in the coming 12 months down to 5.8 percent from 6 percent.