Closing Market Summary: Stocks End October on Lower Note
The S&P 500 ended with a modest loss of 0.4%, trimming its October gain to 4.5%. Small caps displayed notable weakness during morning trade, but the Russell 2000 ended not far behind the S&P with a loss of 0.5%.
Equity indices spent most of the session near their respective flat lines even after more than 250 companies reported their quarterly results between yesterday's close and today's opening bell. Trading volume was subdued until the last 30 minutes of action when a surge in trading activity sent equity indices to lows while pushing the final NYSE volume tally over 900 million shares. The benchmark index displayed early weakness as the broader market followed in the footsteps of the financial sector (-1.1%), which slipped out of the gate and spent the entire session in the red. Financials finished at the bottom of the leaderboard while also ending the month behind the remaining nine sectors with an October gain of 3.2%. Following the early dip, the S&P returned to its flat line, where it hovered until selling accelerated during the final hour. Only the consumer discretionary space posted a gain (+0.2%) with media names providing support after Time Warner Cable (TWC 120.15, +3.27) reported better-than-expected results. Homebuilders did not take part in the rally as the iShares Dow Jones US Home Construction ETF (ITB 22.52, -0.46) lost 2.0%.
Elsewhere, the energy sector outperformed (-0.2%), receiving support from Exxon Mobil (XOM 89.62, +0.81) after the Dow component reported results ahead of analyst expectations. Another Dow member, Chevron (CVX 119.96, -0.34), also announced above-consensus earnings, but ended lower by 0.3%.
Among other earnings of note, Facebook (FB 50.20, +1.20) posted a gain of 2.4% after enduring some after-hours drama yesterday. The social media stock jumped as high as 14.0% in reaction to its solid quarter, but relinquished the gain after company management said during the conference call that a decline in daily traffic among younger users has been observed. Treasuries ended modestly lower with the 10-yr yield up one basis point at 2.55%. In overseas news of note, eurozone unemployment (12.2% actual versus 12.0% expected) and CPI (0.7% actual versus 1.1% consensus) came in well-below estimates, which stoked expectations for additional liquidity provisions from the European Central Bank. On that note, governing council member Ewald Nowotny said the ECB will ensure a smooth transition once long-term refinancing operations come to an end. The euro was under pressure throughout the session, falling over 150 pips against the dollar to 1.3584.
Investors received just two economic data points today. Weekly initial claims decreased to 340,000 from 350,000 (consensus 335,000). This initial claims report represented the first clean reading for the labor market since August as issues with California's numbers have now been ironed out.Unfortunately, the report reflected a modest increase in layoff levels over the past couple of months. An initial claims reading of 340,000 is enough to keep the unemployment rate steady but not enough to drive steady payroll gains above 200,000. The continuing claims level increased to 2.881 million from a downwardly revised 2.859 million (from 2.874 million). The consensus pegged the continuing claims level at 2.850 million. Separately, the October Chicago PMI registered its largest one-month spike in more than 30 years, jumping to 65.9 from 55.7 (Briefing.com consensus 55.0). We are skeptical that the sharp increase is legitimately showing vast improvement in the manufacturing sector. Most of the Federal Reserve regional manufacturing surveys were either flat or softened slightly from lost demand due to the government shutdown. In contrast, the manufacturers in the Chicago region recorded their strongest activity since March 2011.
Tomorrow, the October ISM Index will be released at 10:00 ET.
o Nasdaq +29.8% YTD o Russell 2000 +29.5% YTD o S&P 500 +23.2% YTD o DJIA +18.6% YTD