A big jump in home sales and much better than expected earnings from Amazon.com, Broadcom, and Microsoft were not enough to push the market higher. Negative comments out of the railroad sector rekindled worries about the pace of the economic recovery. Meanwhile Britain's GDP shocked economists when it failed to turn positive in the third quarter. This pushed England's currency lower. The U.S. dollar managed a bounce from 14-month lows and that's dragging down commodities.
Asian markets were higher. The Chinese markets were pretty strong as foreign investors reacted to yesterday's rally in the U.S. The Hong Kong Hang Seng rallied 1.7% to a new 14-month high. The Hong Kong market will be closed for holiday on Monday. The Chinese Shanghai index climbed 1.8% hitting new ten-week highs. The Japanese NIKKEI only gained 0.15%. Investors are looking ahead to next week when Japan's earnings season begins.
European markets were mixed. Weakness in energy and drug stocks weighed on the market. The big story in the drug sector was Elan (ELN). Shares of ELN plunged more than 20% on news that regulators were investigating reports that the multiple sclerosis drug Tysabri might be linked to a brain infection. An even bigger story was the U.K.'s GDP report. Economists were expecting third quarter GDP to rise 0.2%. The Office for National Statistics announced that England's GDP actually dropped 0.4%. This stretches the current recession to six quarters in a row making it the longest recession on record. What's really surprising is that Britain's stock market rallied 0.6% in spite of the news. One positive bit of news came from the financial sector. English banks were approving home loans at a much faster pace in September (+76%) compared to a year ago. Meanwhile French and German markets didn't fare as well. Stocks gave up gains and reversed lower in the last three hours of the day. The CAC-40 lost 0.3% and the DAX lost 0.39%.
Back in the U.S. the National Association of Realtors said existing home sales surged posting their biggest one-month gain in more than 25 years. The annual sales pace accelerated +9.4% to 5.57 million units from a downwardly revised 5.1 million pace. Economists were expecting a rise to 5.35 million. The big jump was fueled by buyers rushing to close on a home before the new-home buyer tax credit expires at the end of October. The market is not reacting to the news as most see it as a one-time anomaly. While sales were up prices were down month over month and year over year. The median price of a home dropped 9% from $191,200 a year ago to $174,900. In August 2009 the median price was $177,300.
Of course the real story today is earnings. Strong earnings out of the tech sector could not outshine sobering comments from the railroads. Amazon.com (AMZN) reported last night and just blew away the estimates. Profits were 45 cents a share versus a 33-cent estimate. Revenues soared almost 28% to 5.45 billion compared to a $5.03 billion estimate. AMZN's management is feeling confident enough to raise their fourth-quarter sales guidance. The stock is soaring to new all-time highs with a 26% gain near $118.00 a share.
Microsoft (MSFT) is also hitting new highs but the gains are fading. The company beat Wall Street's estimates by 8 cents. Revenues came in above estimates. Management remains upbeat for the fourth quarter with the launch of Windows 7 yesterday. Unfortunately the market is selling the news with the stock retreating from this morning's high of $29.35. Investors are also selling the news from Broadcom (BRCM). BRCM beat estimates by 5 cents, with revenues coming in above expectations. Management raised their fourth quarter guidance and traders sold the news anyway. Shares of BRCM are off about 7%.
Overall about 80% of the companies that have reported their third quarter earnings have beaten analysts' estimates. Even the two railroad companies that reported this morning, BNI and UNP, beat estimates. Yet management had a sour outlook for the fourth quarter. Many investors and analysts view the transports as a thermometer on the economy and if the transports are struggling the economy is struggling. According to these railroad companies their rivals in the trucking sector are so desperate that they're slashing prices to get business. Overall rail car volumes are down and look like they'll remain weak as we approach yearend.
Currently the S&P 500 index is off about 1.1% with a failed rally this morning under the 1100 level. The NASDAQ composite spiked to 2190 on the AMZN and MSFT earnings news but the index has reversed to a 0.3% decline. The Dow Industrials are down 1.1% with another failed rally near the 10,100 level. The small cap Russell 2000 looks the worst with a 1.7% drop and a new short-term lower high this morning. The 600 level and the 50-dma might offer some support for the Russell but if it breaks these levels it could be bad news for the market!
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Chart of the U.S. dollar ETF (UUP):
We are seeing some profit taking on the OptionInvestor.com play list. Oil and oil service stocks are getting hit the worst. I will point out that BIIB, a put play, has hit our first target to take profits at $44.50 this morning.