US equity markets fluctuated between gains and losses at the start of trading this afternoon, as an improvement in housing starts and jobless claims data lured investors back to the market. On the other hand, disappointing results from Oracle and FedEX encouraged others to take profits.

The number of US housing units on which construction has started (housing starts) climbed 1.5% to an annual rate of 598,000 in August, the Commerce Department has revealed today. This was a nine-month high and in line with Bloomberg’s expectations.

The rise in housing starts came on the back of a 25% surge in multi-family units, which came in at a rate of 119,000. This countered a 3% decline in the construction of single-family houses - builders’ probably fear that demand for this segment will weaken once the US government’s tax credit incentive for single-family dwellings expires. In the meantime, building permits, a sign of future construction, rose 2.7% to an annual rate of 579,000 in August.

Shares of D.R. Horton were up by nearly 1% to $13.76, Pulte Homes climbed 2.4% to $13.42 and Lennar Corp edged 0.6% higher to $17.49.

A separate report released from the Labour Department suggests the pace of deterioration in the American labour market has slowed; the number of US citizens claiming first-time unemployment benefits (initial jobless claims) unexpectedly dropped by 12,000 to 545,000.

This was better than Bloomberg’s expectations for a rise to 557,000. The report shows the total number of Americans collecting jobless benefits for more than a week (continuing jobless claims) rising by 129,000 to 6.23 million, however.

Also encouraging was the regional Philly Fed manufacturing index, which jumped to a reading of 14.1 this month from 4.2 in August. This was substantially higher than expectations for a rise to 8 and suggests that manufacturing activity in Philadelphia has continued to expand.

By 3:30pm (London time) the Dow Jones Industrial Average was up by a meagre 5.59 points (+0.06%) to 9797.30 while the broader S&P 500 was 0.17 points (-0.02%) to 1068.59. The Nasdaq was a notch higher, up 0.27 points (+0.02%) to 1724.

‘We’re looking at a global recovery and the latest economic numbers confirm that,’ said Philip Orlando of Federated Investors. ‘But everyone would like to see some top-line improvement. Investors are reacting to a top line miss from two bellwethers.’ [1]

Disappointing results from Oracle, the world’s second-biggest software producer, and FedEx, the second-biggest US package-shipping company, weighed on sentiment this afternoon.

Shares of Oracle slumped nearly 3% to $21.50 this afternoon after unveiling first-quarter sales that trailed consensus expectations. Sales of database and middleware programmes fell 22% over the period to $711 million, missing expectations of $826 million. The company said sales were hurt by slowing demand for its databases.

Separately, FedEX shares declined 1.4% to $77.10 after unveiling a 20% drop in quarterly revenues of $8.01 billion. This trailed Bloomberg’s average estimate of $8.23 billion. The company reiterated its forecast for the current quarter, saying it expects earnings to come in between 65 and 95 cents a share.

Elsewhere, shares in MEMC Electronic Materials continued to advance today, up 0.5% to $18.84 on vague rumours that the company might be a takeover target.

AMR’s shares surged 20.3% to $8.84 this afternoon after said it managed to raise $2.9 billion in cash and aircraft financing. It also said it will focus more on its most profitable networks.

The world’s largest steelmaker ArcelorMittal declined 2.1% to $27.9 after having its share rating cut from ‘buy’ to ‘hold’ at Societe Generale. In contrast, Nucor Corp, the second-largest US-based steel producer, added 4.5% to $50 after being upgraded to from ‘hold’ to ‘buy’ at Citigroup. The broker said it believes the company may return to profit in the fourth quarter. [2]

Aircraft parts maker Spirit AeroSystems Holdings also benefited from an upgrade today; its shares rallied more than 7% to $18.09 after Goldman Sachs Group included the company to its ‘conviction buy list’. [3]

[1] Source: Bloomberg News (17 September 2009)
[2] Source: Bloomberg News (17 September 2009)
[3] Source: Bloomberg News (17 September 2009)

By Anthony Grech, Research Analyst, IG Index.

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