Mixed Earnings and Mixed Economic News Make Way for a Mixed Week

For the week of October 17, 2011 through Friday, October 21, 2011

• Standard & Poor’s 500 Index: 1.12%
• Dow Jones Industrial Average: 1.41%
• NASDAQ Composite: -1.14%

Following last week’s rally, the markets seesawed this week, but the S&P 500 and the Dow finished slightly higher, as earnings season continues. Industrial Production readings and news from across the pond caused markets to drop early in the week. While not as fast as expected, industrial production is still seeing growth. Leaders in Europe caused market uncertainty early in the week, as they struggle to agree on how to leverage the European Financial Stability Facility, how to write down Greek debt, and how to shore up their banks. Talks will likely continue next week on some of the proposals that have been made by France and Germany. Eurozone members don’t seem to be in a hurry to take the necessary steps to contain the situation. On our side of the Atlantic, Inflation picked up a little last month—not enough to rock our recovery, but a reminder of our weak, but continuing recovery. The unemployment situation has barely changed this week and existing home sales fell again. Multi-family new home sales accelerated in September, but mostly for apartment buildings. Earnings season is underway with great news. The majority of S&P 500 companies that have reported earnings have beaten expectations. We expect this trend to continue as earnings reports continue.

Economic Data

• Industrial Production
  • Industrial Production rose 0.2% in the month of September, while manufacturing output rose 0.4%.
  • Excluding autos, manufacturing production matched August’s gain of 0.3%.
  • For the sixth consecutive month, mining output climbed 0.8%.
  • Utility output fell again this month by 1.8%.
  • The economy is growing before the holiday season, but at a slower pace than expected.
• Federal Reserve Beige Book
  • In most Federal Reserve districts, economic activity continued to expand during the period covering the end of August to middle of October.
  • Real estate and housing continued to underperform.
  • Business and consumer spending ticked up.
  • Hopefully, there will be more growth with the holidays approaching.
• New Home Construction
  • Multi-family construction rose, with housing starts rising to 658,000 annualized units.
  • This is a 15% gain from August and a 10.2% increase from last September.
  • Single family construction starts rose 1.7%.
• Existing Home Sales
  • Meeting expectations, existing home sales in September fell 3%.
  • There is currently 8.5 months of inventory available on the market with weak demand.
  • Home prices continued their decline, down 3.5% year-over-year.
  • Despite extremely low interest rates, the real estate market cannot gain much momentum.
• Inflation
  • Producer Price Index (PPI)
    • Finished goods prices rose 0.8% in September, mostly as a result of a 2.3% increase in the energy goods index.
    • Excluding food and energy, core goods prices remained relatively stable.
  • Consumer Price Index (CPI)
    • Rising higher than expected, consumer prices rose 0.4% during the month of September after remaining relatively flat in August.
    • Continuing from August, core inflation remained at 0.2%.
    • A steady increase in prices would not be good for the economic recovery.
• Jobless Claims
  • Initial claims fell 6,000 from to 409,000 from 403,000.
  • Claims from two weeks ago were revised higher from 404,000 to 409,000.
  • The employment market has not shown any significant signs of improvement, as employers remain hesitant about the pace of the economic recovery.

Corporate News/Earnings:

• International Business Machines
  • International Business Machines (NYSE : IBM) beat expectations and increased earnings per share guidance for the year.
  • However, new service contract growth appears to be slowing, as information technology spending is falling.
  • Profit came in at $3.28 per share, a 15% year-over-year increase and beating expectations of $3.22.
  • IBM raised earnings forecast for the year up $0.10 to $13.35 per share.
  • Shares fell 4.1% on the report.
• Apple Inc.
  • Apple (NASDAQ : AAPL) took a hit this quarter, as the company posted strong numbers, but did not meet expectations as a result of the delay of the latest iPhone model.
    • The iPhone 4S has sold more than 4 million units, since the release last Friday.
  • Earnings were $6.62 billion or $7.05 per share, an increase of 54% over last year’s $4.64 per share; however, expectations were for $7.28 per share.
  • Revenue was $28.3 billion, an increase of 39%. Analysts expected $29.4 billion.
  • Mac sales increased to a record 4.9 million, while PC sales are struggling.
  • For next quarter, Apple expects revenue of $37 billion or $9.30 per share, while analysts expect $36.7 billion in revenue and $9.00 per share.
  • Shares fell 5.6% after Apple missed on earnings and revenue for the quarter.
• Bank of America Corp.
  • Bank of America (NYSE: BAC) used an accounting method to post a profit in the quarter.
  • The bank and financial holding company earned $5.9 billion or $0.56 per share.
  • Shares rose 10% on the news.

Interest Rates

• The two-year Treasury remained flat at 0.27%.
• The five-year Treasury slid 4.5 basis points to 1.065%, up roughly 30 basis points from the September low.
• The 10-year Treasury fell to 2.18%, still up almost 50 basis points since the end of September.
• The 30-year Treasury yield ticked down to 3.21%, close to a 50 basis point gain since mid-September.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.