US Equity Market Spread Betting News

Posted on | October 22, 2009 |

US equity markets continued to sink this afternoon, as concerns over China’s economy and mixed domestic economic figures countered better-than-expected quarterly earnings at McDonalds Corp and AT&T.

The S&P 500 has rallied 60% since the depths of March and is now trading at over 20 times reported operating profits – the highest valuation in five years – so it’s not surprising to see a bout of profit-taking dominating Wall Street at the start of today’s trading session.

One of the biggest fears everyone has at the moment is that China will withdraw its stimulus measures over the coming months. Although this potential development may help the world’s biggest importer of raw materials avert domestic asset bubbles, it certainly doesn’t bode well for other export-driven countries which are still struggling to recover.

Meanwhile, official data released today from China’s customs bureau revealed that the Chinese economy expanded 8.9% in the third quarter from a year ago – this was in line with expectations.

The market didn’t digest the Commerce Department’s jobless claims figures particularly well today either. The government report showed that the number of Americans claiming first-time unemployment benefits (initial jobless claims) rose by 11,000 to 531,000 in the week ending October 17. In addition, the prior week was revised to show a 6000 increase in initial jobless claims.

On a more positive note, however, the four-week average for initial jobless claims, an indicator that smoothes out weekly volatility, fell by 750 to 532,250, the lowest level since January 17. In addition, the total number of Americans continuing to claim unemployment benefits for more than a week fell by 98,000 to 5.923 million, the lowest since March 28.

The Conference Board’s leading economic indicators index, a gauge of the economic outlook for the next three to six months, was also encouraging, rising by a more-than-expected 1% in September. This beat Bloomberg’s median forecast for a 0.8% increase.

But the Federal Housing Finance Agency’s housing price index didn’t fare as well as expected, unfortunately, falling by a seasonally adjusted 0.3% in August. The index was down 10.7% from its April 2007 peak.

Also weighing on stock market sentiment were the remarks of Steven Hess, the head US analyst at credit ratings company Moody’s, who told Reuters that the United States may lose its sovereign triple-A rating if the US budget deficit isn’t cut within the next three to four years.

By 3.30pm (London time), the S&P 500 Index was 2.74 points (-0.25%) below yesterday’s close at 1078.66, while the technology-based Nasdaq Index was 7.93 points (-0.45%) in the red at 1745.63. The blue-chip Dow Jones Industrial Average managed to buck the negative trend and advance by 21.31 points (+0.21%) to 9970.67, however.

The Dow Jones rose after AT&T, one of its components, unveiled third-quarter profits (excluding one-off items) of 53 cents a share, beating Bloomberg’s average analyst estimate by 3 cents. The country’s second largest wireless company said its bottom line benefited from a bigger-than-expected rise in iPhone subscribers, which came at 3.2 million. AT&T’s shares climbed 2.1% to $26.49.

Fast food restaurant group McDonald’s, another Dow component, was also in vogue after unveiling better-than-expected third-quarter earnings of $1.15 a share. This beat Bloomberg’s average analyst estimate of $1.11 a share. The company was also confident about its future, saying it starts its fourth-quarter from a position of strength and that it expects sales in restaurants open at least a year – an important gauge of a restaurant’s performance – to remain positive in October.

Third-quarter revenues at McDonalds fell 3.5% to $6.05 billion, yet grew by 2% when eliminating currency fluctuations.

By Anthony Grech, Research Analyst, IG Index.

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