Wall Street Equities Trading Update

Posted on | October 20, 2009 | No Comments

Wall Street fell from a one-year high today, despite opening a notch higher, after a disappointing US housing market report encouraged investors to take profits.

Wall Street fell from a one-year high today, despite opening a notch higher, after a disappointing US housing market report encouraged investors to take profits.

Risk aversion struck equity markets after official government data released this afternoon suggested that the US housing market may be at the brink of a relapse.

The report revealed that US builders started construction on fewer homes than anticipated in September; housing starts rose by only 0.5% to an annual rate of 590,000 last month while building permits, a sign of future construction, declined 1.2% to an annual rate of 573,000 in September – the second decline in the past three months.

A Bloomberg survey expected housing starts to rise to a 610,000 annual rate and permits to rise to 595,000 in September.

The weaker housing figures suggest that house builders are still cautious over housing demand – the recession has left a glut of unsold homes and the US government’s $8,000 tax credit for first-time homebuyers comes to an end in November.

The weaker US housing data overshadowed some exceptionally good quarterly results, however.

iPod maker Apple, and Texas Instruments, the second largest US chip maker, released their quarterly earnings after the closing bell last night. Both companies saw their share price surge, 5.2% to $199.77 and 2% to $23.99 respectively, after unveiling fourth-quarter sales and profits that exceeded analysts’ estimates.

And today, industry bellwether Caterpillar unveiled third-quarter earnings and full-year forecasts which were ahead of consensus expectations.

Shares of the world’s largest maker of bulldozers jumped 3.7% to $60 a share after unveiling third-quarter profits of $404 million, equivalent to 64 cents a share. This was substantially better than Bloomberg’s average analyst estimate of 5 cents a share. Profits were, nevertheless more than 50% lower than last year’s comparative quarterly of $868 million.

‘We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s,’ Chief Executive Officer Jim Owens said in the statement accompanying the results. ‘We are seeing encouraging signs that indicate a recovery may be under way.’

Caterpillar said it expects full-year earnings to come in at $1.85 to $2.05 a share, beating Bloomberg’s average analyst prediction of $1.48 a share by at least 25%.

BlackRock, the biggest publicly traded US asset manager, also made the headlines after reporting a 46% surge in third-quarter net income of $317 million, thanks to higher fund sales and gains on the company’s investment portfolio.

The company benefited from a change in New York City tax law, however, which added 33 cents a share to net income. After excluding these gains and other one-off items, BlackRock third-quarter earnings came in at $2.10 a share, beating Bloomberg’s expectations of $1.9 a share by over 10%.

BlackRock unveiled a 4% rise in assets, which rose to $1.43 trillion during the quarter as investors deposited $11.9 billion into equity funds and $3.5 billion into bond funds.

Also today, Invesco Ltd said it will acquire Morgan Stanley’s retail investment management business for $1.5 billion in stock and cash. This announcement lifted Invesco’s share by 3.4% to $23.92. Morgan Stanley, meanwhile, edged 0.03% higher to $33.12.

By 3:30pm (London time) the Dow Jones Industrial Average had fallen 39.6 points (-0.39%) to 10052.59 while the broader S&P 500 was 4.39 points (-0.40%) in the red at 1093.52. The Nasdaq was, however, faring relatively better, up 2.74 points (+0.2%) at 1759.42.

Wall Street’s negative sentiment may have been attributable to weakness in resource shares and worse-than-expected quarterly results from the likes of beverage maker Coca-Cola and disappointing 2010 forecasts from defence giant Lockheed Martin.

Coca Cola are trading around 2.5% lower at $53.38 while United Technologies slumped 5.3% to $72.92.

Downgrades may have added to negative sentiment. Boeing lost 3.5% to $51.56 after Morgan Stanley cut its rating on the shares from ‘equal-weight’ to ‘underweight’, saying Boeing ‘may face downward pressure given likelihood for further delays on the 787, negative 2010 cash flow, poor aircraft order demand and negative EPS revisions ahead.’ [1]

In the meantime, shares of Freeport-McMoRan Copper & Gold fell nearly 0.90% to $78.32 and Newmont Mining slid 2.4% to $45.87.

[1] Source: Bloomberg News (20 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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