| Market Summary |
Wall Street extended gains on Friday after a brutal month full of highs and lows. October was the worst month for the market in 21 years. The Dow Jones Industrial Average added 144.32 points to close at 9,325.01. A number of economic reports were released on Friday including a report that showed that consumer spending fell by 0.3 percent last month. The news did not shock investors who were expecting a decline after a report earlier this week showed a dip in consumer confidence. In other economic news, The Chicago PMI fell to 37.8 in October from 56.7 in the previous month and elevated recession concerns again. Financial sector stocks gained during the session. Wells Fargo (WFC: Charts, News, Offers), JP Morgan Chase (JPM: Charts, News, Offers), and Morgan Stanley (MS: Charts, News, Offers) all posted gains. Another round of corporate earnings reports reiterated that the economic slowdown is influencing everyone. Nissan (NSAN.Y: Charts, News, Offers) reported a decline in quarterly profit and issued a warning about the remainder of the year. Cigna (CI: Charts, News, Offers) posted a 53 percent drop in third-quarter profit and warned about profit growth next year. Shares of the insurer initially fell 30% after the announcement, but rebounded by the close of the session. U.S. light crude oil for December delivery fell $1.66 to $64.30 a barrel on the New York Mercantile Exchange. The dollar was mostly higher against other major currencies.
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| Market News |
A boost in sales worldwide helped Burger King (BKC: Charts, News, Offers) post a 2 percent increase in its fiscal first-quarter profit on Friday, but higher food costs and other expenses still took a bite out of its earnings. The nation's No. 2 hamburger chain reported increases in commodity, remodeling and acquisition start-up costs, leading the chain to miss Wall Street's profit estimates by a penny per share. Higher commodity costs have been a problem for virtually all restaurant chains, with the price of beef, chicken, cheese and cooking oil all rising. On a conference call with analysts, Chief Executive John Chidsey said the company's "commodities basket" grew 17 percent in the quarter -- a hefty rise that it partially offset by raising prices on selected items in some markets. Chidsey said the company is testing a higher-priced Whopper Jr. sandwich in some areas to see whether consumers are willing to pay more for the smaller version of its iconic burger. (Source: Yahoo! Finance) Full Story
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Chevron Corp. (CVX: Charts, News, Offers) said Friday its third-quarter profit more than doubled on the back of record crude prices this summer, though worldwide production fell during the period. The San ***, Calif.-based company, the second-largest U.S. oil company, said it made $7.89 billion, or $3.85 a share, in the three months ended Sept. 30, versus $3.72 billion, or $1.75 per share, at the same time last year. Analysts were expecting average earnings of $3.25 per share based on a survey by Thomson Reuters. Revenue shot up 43% to $78.87 billion from $55.2 billion. Shares in premarket trading slipped 19 cents to $73.99. (Source: CNN Money) Full Story
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Consumer spending in the United States dropped in September by the largest amount in four years, while incomes suffered because of Hurricane Ike. The Commerce Department reported Friday that personal spending fell by 0.3 percent last month, the biggest decline since June of 2004. That followed flat readings in both July and August, contributing to the worst quarterly performance in 28 years. Incomes showed a 0.2 percent rise in September, just half of the August increase, a slowdown that partly reflected the adverse effects of Hurricane Ike along the Gulf Coast. The storm cut into rental payments and earnings from businesses affected by the rough weather and its aftermath. (Source: MSNBC) Full Story
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| Market Analysis |
People ask me if the current mess feels like 1929. But the right comparison is 1932, when Herbert Hoover was desperately trying anything, anything at all, to get the economy going. The stock market had crashed. The economy was starting to follow it down. So what did Hoover and his fellow policy makers do? In 1930, Congress passed a massive tariff increase, in hopes of protecting American jobs. Hoover signed it. But it simply accelerated the economy's slide. The Federal Reserve contracted the money supply, taking a recession and making it into a depression. By 1932, real GDP was 25% lower than three years earlier. Hoover increased federal spending steadily, including an increase in real terms of about 40% in 1932. At the same time, fearful that deficits were harmful, Hoover raised income taxes. (Source: Wall Street Journal) Full Story
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It was only a few weeks ago that most right-thinking economists and left-leaning bloggers were jumping on Treasury Secretary Hank Paulson for his plan to jump-start the markets in asset-backed securities by having the government buy them up at auction. Much better, they argued, to use the $700 billion to "recapitalize" the banking system, just as Gordon Brown was doing in Britain. Even the Federal Reserve thought that a better idea. So Paulson changed course, called in the nine biggest banks and "forced" them as a group to accept $125 billon in new capital. The critics patted themselves on the back for having been right all along. (Source: Washington Post) Full Story
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Tech shares are on sale at giant markdowns. But as in the post-Internet bubble era, it's better to pick them up with a tweezer than a steam shovel. "Technology is an expense to the economy, and it's an uphill battle for technology stocks to perform with such a negative economic outlook," says Bill Whyman, senior managing director at International Strategy and Investment and head of ISI's tech strategy research. Following Friday's precipitous drop the Morgan Stanley (MS: Charts, News, Offers) tech index is down 45% this year, compared to the Standard & Poor's 500's 40% decline. Goldman Sachs' (GS: Charts, News, Offers) forecast for 2008 consumer spending is an anemic 0.6%, before it slips another 0.5% in 2009. And financial institutions, a key constituency for tech wares, are expected to cut spending on information technology by 4.5%, the first decline in a decade, say researchers at TowerGroup. (Source: Barron's) Full Story
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| On This Date |
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October 31, 1987: British Petroleum offers 42 million shares at $68/share, for a total of $2.8 billion, in the largest IPO to date.
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| Notable Quotable |
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"Taxes and golf are alike, you drive your heart out for the green, and then end up in the hole." - Source unknown
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| Previous Newsletters |
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| October 30, 2008 |
| October 29, 2008 |
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| October 24, 2008 |
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