PPI a Non-Event

Lots of big news and some downside stock market action on Tuesday. The PPI numbers, released just prior to the opening, showed a mixed bag. The overall number was a large negative 1.3% but the consensus was for a drop in the neighborhood of 0.7%. Then the “Core” number showed a different picture, that being a rise of 0.6% with expectations of a rise of 0.2%. The directions of the two numbers were similar to expectations but the magnitude gave rise to some interpretation. The drop in gas prices seemed to explain the big drop in the overall PPI while the “core” PPI increased due to expiring incentives for cars. Really??? In other news, industrial production was down much more than expected giving the “Fed is done” more credence but not enough to help the stock market at the opening.

As the market opened, there was a large thud as the NASDAQ started the day down about a half of a percent and continued to drop into late morning so that at its worst it was down 1.5%. Of course, then there was the magical rally that appeared since we had obviously taken care of any problems reported earlier in the day. Please.

After the market closed we heard from several important tech companies as IBM, INTC, YHOO and MOT announced their third quarter earnings and gave some guidance for the future. IBM brought a substantially better number to the party than was expected and that stock jumped in after hours. The price went up about five percent, from what we saw, and if it opens there on Wednesday will wipe out the entire loss the Dow sustained on Tuesday, all by itself.

INTC’s headlines were trying to be bullish even though the market has been expecting good earnings from them. The WSJ’s headline says “Intel shows signs of steadying after rollout of new products” with a subtitle of “Softer demand hurts net, but chip maker’s sales, profit exceed forecasts.” That article says that “INTC reported a 35% drop in third quarter profit but showed signs of mending problems that have been ailing the world’s largest chip maker.” (You can read the article in Wednesday’s WSJ but I don’t have a page number.) INTC jumped a little over 1% on the news after being down over 3% in regular trading. We find the opportunity of INTC being over 20 a remarkable feat of magic, one that won’t last too long; but, for now, the company has managed to say the right things. We’ll see how it trades in regular trading on Wednesday.

As for YHOO and MOT (Motorola), the news wasn’t quite as good but only MOT dropped on the news. MOT quickly fell about 10% on their news but managed to crawl back to finish after hours trading down about 7%, still a poor showing. YHOO was down initially on their news but managed a quick turnaround and closed nearly 3% higher in after hours trading.

Wednesday brings the September CPI and housing starts. From our view, the stock market has stopped caring about either of these numbers. The reason for not caring about the CPI has to do with the FED’s current lack of ability to raise rates any time soon. If the CPI numbers come in lower than expected, there might be a passing thought about lowering rates sooner but there is No thought of a rate hike next week. Housing starts are largely considered to be “old” news by the market. Yes, prices have dropped, exotic mortgages have taken a toll, and housing starts have slowed: The market seems that all of this information is fully discounted. We will see.

Tuesday’s action was the first break in the upward trend we have seen for a little while. The headline Dow was not down much but the NASDAQ indexes were down nearly a percent at the close. Admittedly, these are small breaks but we bears have to start somewhere. The momentum indicators remained over bought at the end of the day while the volatility index moved up a bit as it should when the market goes down. The other thing to remember is that options expire this week and this event can cause some weird trading over the course of the next few days. Tomorrow is an important day after the earnings news we heard Tuesday evening.

Dow Industrials: 11,950.02 -30.58
VIX: 11.73
QQQQ: 42.00
RYVNX: 18.53
RYAIX: 22.38
RYCWX: 38.07
TLT: 87.62
BEGBX: 13.51