Dow slumps on poor profit reports, Europe and low consumer confidence. I can't believe these Euro nations don't know from day to day whether they are solvent or not-unbelievable!!!
Consumer confidence fell to its lowest level since March 2009 which was supposedly the end of the recession. Just in time for the holidays, a bad economic mood for shoppers.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008.
Here are the top financial stories of the day:
1) Stocks fall as hopes for Europe debt deal falter-From the AP
Stocks closed with steep losses Tuesday after disappointing corporate earnings and reports that a key meeting of European financial ministers had been canceled. Assets that tend to hold their value in a weak economy like U.S. government debt and gold rose.
The Dow Jones industrial average lost 207 points. It had gained 409 points over the previous three days.
Manufacturing conglomerate 3M cut its 2011 earnings forecast, and U.S. Steel warned that demand for its products could slow. Netflix Inc. plunged 35 percent after the company cut its profit forecast and said it is losing subscribers following a price increase in July. After the market closed, Amazon Inc. plunged 17 percent after its earnings came in far below Wall Street's forecasts.
The market was also pulled lower by a report that consumer confidence plunged in October to the lowest level since March 2009. The Conference Board index measures how shoppers feel about business conditions, the job market and their outlook for the next six months.
"It's hard to parse this data and find any way that you can glean something positive about it," said Tim Speiss, vice president at EisnerAmper Wealth Planning.
The Dow fell 207 points, or 1.7 percent, to close at 11,706.62. 3M fell 6.3 percent, the largest drop among the 30 stocks that make up the Dow average.
The Standard & Poor's 500 index fell 25.14, or 2 percent, to 1,229.05. The Nasdaq dropped 61.02, or 2.3 percent, to 2,638.42. The losses turned the Nasdaq negative for the year once again. A rally Monday left the index up 1.8 percent for 2011.
Small company stocks fell far more than the broader market, a sign that investors were shunning assets perceived as being risky. The Russell 2000, an index of small companies, plunged 3 percent, reversing a gain of 3.3 percent Monday.
Prices for assets seen as stable stores of value rose. The yield on 10-year Treasury notes fell to 2.14 percent from 2.23 percent late Monday. Bond yields fall when investors send their prices higher. Gold rose 2.9 percent.
The latest headlines from Europe cast doubt over whether leaders there can agree on a comprehensive solution for the region's debt crisis in time for a summit Wednesday. Europe's ongoing debt crisis has been behind much of the market's big moves lately.
European officials are working to patch together a plan that will prevent banks from taking huge losses if the Greek government defaults on its bonds. A messy default could lead to a credit freeze-up similar to the one in 2008 following the fall of Lehman Brothers.
Anticipation of a solution to Europe's debt mess and strong profit reports from Caterpillar Inc., McDonald's Inc. and other major U.S. companies helped the S&P 500 surge 14.1 percent from Oct. 3, when it slumped to its lowest point of the year, through Monday's close. Traders warn that if European leaders fail to come up with a credible solution it could sent markets sharply lower.
United States Steel Corp. dropped 9.6 percent after the nation's largest steelmaker warned that demand for some of its products could decline in the final three months of the year if the economy slows down more.
Delta Air Lines Inc. slumped 5.2 percent after the airline reported results that missed Wall Street's expectations. Delta cut its flights 1 percent in the most recent quarter and said it would cut as much as another 5 percent during the last three months of this year.
United Parcel Service fell 2.1 percent after the company said its growth in Asia was slowing. First Solar Inc. plunged 25 percent after the company said its chief executive had stepped down.
Five stocks fell for every one that rose on the New York Stock Exchange. Volume was average at 4.3 billion shares.
2) Consumer confidence tumbles, home prices stagnate-From Reuters
Consumer confidence unexpectedly dropped to its lowest level in two-and-a-half years in October, while house prices were unchanged at low levels in August, suggesting the consumer is still struggling.
Taken along with recent regional manufacturing data that hinted at stabilization in the sector in October, Tuesday's U.S. data underscored the view that the economy should avoid another recession, though growth will be slow.
Confirmation of a growing but sluggish U.S. economy is expected from U.S. gross domestic product data for the third quarter on Thursday, but the surprising drop in consumer confidence suggests the recent bounce back from a weak first half year may not be sustained.
U.S. third quarter GDP due on Thursday is expected to show the economy grew at an annualized rate of 2.5 percent, up from 1.3 percent the prior quarter, according to a Reuters poll of economists.
"For everybody that's excited that growth is going to be somewhere in excess of 2.0 percent in the third quarter, you should not think that's sustainable," said Anthony Chan, chief economist at JPMorgan Private Wealth Management in New York.
"A lot of that is going to come off as we go into the fourth quarter."
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.
CONSUMERS FEELING GLUM
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.
"Consumer spending has slowed because confidence has deteriorated, and these numbers are very, very consistent with that view," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
"You can't look at these numbers and be optimistic about growth in 2012."
Earlier this month the Thomson Reuters/University of Michigan's preliminary reading of sentiment for October also showed consumers' attitudes sagged, though not as sharply.
HOUSE PRICES STABILIZE AT LOWER LEVELS
In Tuesday's other main economic report, 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, frustrating expectations for a gain of 0.1 percent.
On a seasonally adjusted basis, prices fell in 14 of 20 cities, with Atlanta and Las Vegas among the biggest 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 bigger drop than the expected 3.5 percent decline in August.
Analysts said the weaker-than-expected home price data was disappointing but not altogether shocking as the market struggles to get out from under a glut of unsold homes and ongoing foreclosures that are holding prices down.
While prices are forecast to remain depressed for some time, any further declines are expected to be modest.
"This has been a five-year process and I think we are at least closer to the end of the hemorrhaging in housing prices than we've been in a long, long time," said Chan.
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 the 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.
"I'm glad that they're trying. This was a clever idea. But more needs to be done," Yale economist and index co-founder Robert Shiller told Reuters Insider.
A separate home price index from the Federal Housing Finance Agency showed prices declined 0.1 percent in August from July.
The index is calculated using purchase prices of houses financed with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.
In other U.S. economic data on Tuesday, the Federal Reserve Bank of Richmond showed manufacturing in the region was unchanged in October with the composite index at minus 6.
New orders improved to minus 5 from minus 17, but employment gauge worsened to minus 7 from positive 7.
U.S. stock prices dipped and U.S. Treasury bond prices rose after the weak consumer confidence data, but in financial markets, 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.
However, European leaders still planned to hold a summit on the issue on Wednesday as scheduled.
3) Inflation Peaking in U.S. as Commodity Prices Tumble-From Bloomberg
The biggest rout in commodities since the global recession may be a sign that the fastest U.S. inflation in three years is peaking.
The Standard & Poor’s GSCI Index of 24 commodities entered a bear market last month after sliding more than 20 percent from a two-year high in April, on concern that slower growth will cut demand. A slump in the gauge from a 2008 record preceded a drop in inflation, while a 2009 rebound caused the consumer price index to climb. Raw materials fell 12 percent in September as the CPI rose 3.9 percent from the same month a year earlier, the most since 2008.
“There is a sense that headline inflation is receding,”said Stephen Stanley, the chief economist at Pierpont Securities LLC, a government-bond broker in Stamford, Connecticut. “Things have been a little more tame the last few months than they were earlier in the year, when you had this relentless push higher, in energy prices especially.”
That’s good news for shoppers, manufacturers and Federal Reserve Chairman Ben S. Bernanke, whose efforts to revive the economy have been criticized for risking faster inflation. Lower commodity costs, accounting for 40 percent of the CPI, would give Bernanke even more flexibility to shore up growth. The benchmark measure for prices will slow to 2.1 percent in 2012 from 3.1 percent this year, according to the median estimate of 75 economists surveyed by Bloomberg News.
Retail Costs
While the commodity gauge doubled from its 2009 low as shortages emerged in energy, metals and grain markets, the cost of regular gasoline fell to $3.451 a gallon on Oct. 23 from $3.985 in May, American Automobile Association data show. The fuel accounts for 4.9 percent of CPI. Three years ago, a plunge to $1.616 from $4.114 helped reverse the year-over-year inflation rate of 5.6 percent in July 2008 to a contraction of 2.1 percent in the same month a year later.
The pace of food-cost gains will slow to 2.5 percent to 3.5 percent next year, compared with 3 percent to 4 percent in 2011, the U.S. Department of Agriculture estimates. The commodities account for almost 14 percent of CPI.
The United Nations World Food Price Index has fallen 5.3 percent from a record in February as wheat plunged 30 percent from this year’s peak and corn and soybeans retreated. In August, Orrville, Ohio-based J.M. Smucker Co. lowered the price of Folgers coffee, the top-selling U.S. brand, as arabica-bean futures dropped as much as 24 percent from a peak in May. Cotton is 51 percent cheaper than at end-March, easing pressure on clothing manufacturers. Apparel accounts for 3.6 percent of CPI.
Slowing Inflation
Price growth will slow to 3.35 percent this quarter from 3.77 percent in the previous three months, according to the median of 68 economists’ estimates compiled by Bloomberg. CPI will cool to 2 percent by the third quarter of next year, the estimates show.
The government’s measure includes 60 percent services such as rent and medical care and 40 percent commodities, which the Bureau of Labor Statistics defines as food, beverages, apparel and other non-durable goods, as well as durable goods including cars and appliances. The cost of those items is determined byraw materials and other expenditures, including labor.
“We’ve already seen some declines in gasoline prices and at least for some foodstuffs,” said Randy Kroszner, a former Fed governor and an economics professor at the Booth School of Business at the University of Chicago. “That suggests that the outlook for inflation is relatively subdued.”
Investors’ Outlook
Investors are expecting a slower pace than they did in April, when the S&P GSCI gauge was at a 32-month high. The difference in yields on 10-year Treasury Inflation Protected Securities and 10-year bonds is 2.0309 percentage points, the average rate investors anticipate in CPI over the life of the securities, down from an almost five-year high of 2.6556 points on April 11.
Consumers also are changing their outlook. In a survey released by the University of Michigan on Oct. 14, they expected an inflation rate of 3.2 percent over the next 12 months. In the same survey in March, respondents forecast rates would reach 4.6 percent, the highest since August 2008.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008. The median forecast of a 3.1 percent gain in the CPI this year compares with expectations for 1.5 percent in January, a Bloomberg survey of 75 economists shows.
Copper, Crude
Copper averaged $8,993 a metric ton in London in the third quarter, down for a second straight period. A typical U.S. home has 439 pounds (199 kilograms) of copper wire and plumbing, while a car has about 50 pounds. New and used vehicles account for 6.3 percent of the CPI. Shelter, a category that includes everything from rent to household insurance, makes up 32 percent.
Crude oil cost $89.54 a barrel on the New York Mercantile Exchange on average in the past quarter, 13 percent above its five-year trend. Heating oil was $2.9847 a gallon, 45 percent higher than a year earlier. Household energy makes up 4 percent of CPI. Crude oil climbed 3 percent to $94.02 a barrel today.
Cattle futures in Chicago reached a record $1.24475 a pound on Oct. 17, in part because corn-feed costs surged in the first half of 2011 and a drought led to depleted herds in Texas. Pork chops rose to a record $3.831 a pound at the end of September, and ground beef retailed at $2.868 a pound, also the highest ever, according to the Bureau of Labor Statistics. Sirloin steak is 8.5 percent more expensive than a year earlier, and bacon advanced 5.4 percent.
Expensive Cheese
Dairy is still appreciating, with cheddar cheese in supermarkets costing the most in at least a quarter century, government data show. Milk futures rose 35 percent this year in Chicago, driving ice cream to $4.805 for a half-gallon, up 11 percent from a year earlier. Dairy accounts for 0.8 percent of CPI, and meat, fish and eggs are 1.8 percent.
While the drop in commodities may be good for consumers, it may curb the boom in U.S. agriculture.
The government anticipates record farm income of $103.6 billion this year. North Dakota, the biggest wheat grower in 2010, has the nation’s lowest jobless rate, at 3.5 percent. The second-lowest, at 4.2 percent, is Nebraska, the biggest corn producer after Iowa and Illinois.
Goldman Sachs Group Inc. predicted on Oct. 4 that the slump will give way to a 20 percent gain in the next 12 months, led by energy and industrial metals. Barclays expects shortages in copper and tin next year. The International Energy Agency anticipates record demand for crude oil. Macquarie Group Ltd. forecasts deficits in corn, wheat and soybeans.
‘Here to Stay’
“Input-price inflation is here to stay, and that’s demand and supply driven,” said Pete Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets.
Companies will be reluctant to cut prices because “they think any sell-off is short term in duration,” Sorrentino said.“They run up fast, and then they’re sticky on the downside.”
SuperValu Inc., the owner of Save-A-Lot grocery stores, has“taken a deliberate approach to passing on price increases as soon as practical,” Chief Financial Officer Sherry Smith said on an Oct. 19 conference call. The Eden Prairie, Minnesota-based company expects inflation of 3 percent to 4 percent this year, compared with 4.5 percent in the second quarter.
Weakening confidence and higher-than-average unemployment make people reluctant to pay more for some products. Bentonville, Arkansas-based Wal-Mart Stores Inc., the world’s largest retailer, said Oct. 12 that it plans to lower prices as it cuts operating expenses as a percentage of sales over the next five years.
Tight Budgets
Shoppers have “concern about their income, and their family, and their budgets and how they’re going to get through,” Wal-Mart Chief Executive Officer Michael Duke said on a conference call Oct. 12.
“That economic pressure our customers still feel today here in the U.S., and I can’t tell you that I’ve seen it get better.”
The data doesn’t support Bernanke’s critics, including Republican presidential candidate Rick Perry and Allan H. Meltzer, an economics professor at Carnegie Mellon University.
After the Fed purchased $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing from December 2008 to June 2011, Perry, the governor of Texas, said in August that printing more money may be“treasonous.” Meltzer, who has written a two-volume history of the central bank, said in March that inflation was a growing threat and that the pace would quicken as soon as housing prices stop falling.
Employment Gains
According to estimates compiled by Bloomberg, economists anticipate the jobless rate falling to 8.7 percent in the fourth quarter of 2012, from 9.1 percent unemployment now, which is almost double the rate four years ago. U.S. growth will accelerate to 2 percent next year from 1.7 percent in 2011, the estimates show.
That may not mean faster inflation, which “appears to have moderated,” the Federal Open Market Committee said Sept. 21. Bernanke said in testimony to Congress on Oct. 4 that the higher prices haven’t become “ingrained” in the economy.
The central bank said in its Beige Book survey Oct. 19 that economic activity “continued to expand” last month while some areas of the country are reporting the pace of growth as“slight,” and companies see more doubt about the strength of the recovery. Prices paid by producers for raw materials were 6.9 percent higher in September than a year earlier, outpacing the gain in CPI and suggesting that some businesses may be reluctant to pass on higher costs.
Meat and Dairy
The USDA expects food inflation to retreat in all but four of 21 categories it monitors, including meat and dairy products. Futures traders anticipate gasoline dropping about 6.4 percent by the end of next year, and heating oil 4.9 percent. Motor fuel makes up 5.1 percent of CPI.
The Journal of Commerce Smoothed Price Index, which tracks the annual growth rate of 18 industrial materials from burlap to tallow, fell below zero in August, and reached minus 23.32 on Oct. 21, the lowest since June 2009. The last time it went from positive to negative was in August 2008, a month before the collapse of Lehman Brothers Holdings Inc.
“Commodities come off most when the winds of recession are blowing pretty strong,” said Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Inflation has “run up to the top because gasoline prices were so high this spring,” he said. “Now that gas peaked at around $4, there’s nowhere for headline CPI to go but down.”
Quote of the Day from Dave Ramsey.com:
Once you have mastered time, you will understand how true it is that most people overestimate what they can accomplish in a year—and underestimate what they can achieve in a decade. — Tony Robbins
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