Some companies reported earnings today, but it was mostly nap time for the market after two big up days. Investors decided to wait for more reports, not wanting to bet big while worried that revenue and earnings won't justify the stunning gains in stocks in the last seven months. For one thing, the Standard & Poor's index, the basis for a lot of mutual funds, is up 56.3% since its 12-year low in March. The Dow isn't far behind and the Nasdaq Composite is up (are you sitting down?) 66% since its March low.



Even so, stocks are down during the past two weeks with recent labor and manufacturing reports coming in shy of expectations. Wednesday the Dow fell 5.67 or 0.1% to 9,725.58; the S&P 500 index rose 2.86 or 0.3% to 1,057.58 and the Nasdaq composite rose 6.76 or 0.3% to 2,110.33.


Advancers narrowly outstripped decliners on the New York Stock Exchange, where consolidated volume came in at 4.3 billion shares, lower than Tuesday's 5.1 billion.


I'm sure you've already noted some of the muddy technicals on these indexes — the difficulty breaking through resistance, the MACD failing to reflect new highs. Fundamentally, what do we have to keep this rise going? Stay tuned for earnings.

Wells Fargo upgraded Bank of America (BAC) despite its CEO shuffle and raised estimates for J.P.Morgan/Chase (JPM) and Goldman-Sachs (GS). Banks put in a decent performance today, with banking indexes such as the KBW up slightly, although technically we are not thrilled by what the MACD looks like or the possibility of an imminent close below the 20-day moving average.


Today's 10-year note auction went well; despite a large $20 billion auction size, demand was very high. The yield was also healthy at 3.21%. Almost half the bidders were non-dealers.

Investors have been watching the dollar, which has plummeted this year amid rock-bottom interest rates and massive government spending. A weak dollar helps companies with extensive global operations because it encourages overseas customers to buy U.S. goods. Over the long term, of course, it will trigger inflation and compel foreign buyers of our debt to buy elsewhere.


Today was the more-or-less official start of the latest earnings cycle with Alcoa's (AA) earnings coming after hours; Alcoa, the world's largest aluminum producer, was the first component of the Dow to report. They announced a surprise third-quarter profit, helped by higher aluminum prices and demand. Profit came in at $77 million or 8 cents a share, beating forecasts. Although well down from the year-ago period ($268 million or 33 cents), it ended three straight quarters of losses due to slender demand for aluminum used in cars, homes and airplanes. The company said there finally seems to be stabilizing due to distributors' low inventories.

Since last fall the company has recorded a net loss of more than $2 billion, so In the cost-cutting department, Alcoa has slashed its dividend by 14 cents a share, cut 13,500 jobs and sold $1.3 billion of new stock and debt.

Alcoa closed up 31 cents at $14.20 but rose another $1+ to about $15 in after-hour trading on another 7 million shares.


Spot aluminum prices have risen nicely since June; at the end of September, Alcoa's average price per metric ton rose 18% to $1,972. (Note, however: Spot aluminum prices are some 10% off their August peak.) Demand for the metal is up, mostly led by China replenishing its stockpiles; the country now accounts for a third of global aluminum consumption.

The Federal Reserve reported Wednesday that the U.S. consumer continues to just say no to excessive debt. Seasonally adjusted consumer debt fell $11.98 billion in August to $2.46 trillion, or at a 5.8% annual rate, although about half-a-billion dollars less than analysts were expecting. (The Fed's report covers credit cards, store cards, auto and other personal loans, not mortgages or other real-estate related debt.)

Credit-card debt fell $9.91 billion or 13.1% to $899.41 billion, the record 11th straight monthly drop in credit card debt and the seventh straight monthly decline in total credit, the longest streak since 1991. Non-revolving credit, such as auto loans, personal loans and student loans fell $2.10 billion or 1.6% to $1.56 trillion. Many if not most banks have reduced credit-card borrowing limits and tightened lending standards — an automatic cut in spending whether you want it or not; a report earlier this year by FICO, the major producer of credit scores, said companies slashed limits for an estimated 58 million card holders in the 12 months ended in April.

Since its peak in July 2008, consumer credit outstanding has fallen by $119 billion as households struggle with declining (or nonexistent) income, falling home prices, clobbered portfolios, shot-to-pieces 401(k)'s and that undeniable feeling that good times are over. At the end of the second quarter, the value of household net worth had plunged by $11 trillion from its peak in the third quarter of 2007.

Interestingly, the retrenchment in August occurred even as consumer spending increased 1.3% according to a report last week from the Commerce Department, suggesting consumers are buying with cash rather than credit. Despite cautious spending, retail seems to be holding up fairly well:


With unemployment at 9.8% last month, consumers will probably spend carefully as long as jobs are scarce. I'm not among those who bemoan the fate of the "fledgling recovery" while consumers keep a lid on big-ticket expenditures. Believe me, Americans won't keep their wallets closed forever. I hope I don't sound like your cranky maiden aunt, but learning how not to toss money around like water is a very valuable trait, strengthening for both individual households and whole economies. Its very high savings rate was a major factor in Japan's sharp economic rise after World-War II, for ne example. Japan collapsed more because it severely cut its work hours rather than from wild spending, although the spending didn't help matters.

And in fact, Americans are saving more. Maybe we'll get to a point where consumer spending powers less than the current 70% of the economy. For example, how about some more exports?

Other big companies reported earnings today. Monsanto's fourth quarter loss widened to $284 million or 43 cents a share, compared with last year's loss of $172 million, or 31 cents. Excluding hefty restructuring and other charges, profit was two cents, up from last year's loss of three cents, despite an $1.88 billion or 8.3% revenue slide. Naturally the company cut costs by 35% and plans to cut its current workforce by 8%. It also repeated a fairly glum short-term forecast.


Monsanto was the pioneer in genetically-modified seeds that can boost crop yields with their inherent protection against pests and herbicides. In June the company said it would separate its herbicides, including the well-known Roundup, into a new division and concentrate on biotech research. Roundup was a cash cow for a long time but now faces generic competition and lower global farm incomes. Next year could be pivotal for the company, since it will be pushing new high-tech corn and soybean seeds and expanding internationally to offset lower earnings from its crop-protection business. Good luck convincing farmers to shell out for the more costly new offerings with grain prices snoozing and in the face of resistance from environmental groups, mainly in Europe:


Costco Wholesale (COST) reported fourth-quarter net income of $374 million or 85 cents a share, down 6% from $398 million or 90 cents last year; revenue dropped to $22.4 billion from $23.1 billion, although handily beating expectations of 77 cents and $22.3 billion. For the year, income was $1.09 billion or $2.47 a share, down from $1.3 billion or $2.89; revenue was down as well. Last month's comparable-store sales were up an average 1% — down in the U.S. but up 6% internationally. Sales at stores open at least a year dropped here and internationally, but exclude the effect last year of a stronger dollar and lower gas prices, which hurt stores in Canada, the U.K. and Korea, and sales at stores open at least a year edged up 1%, with international same-store sales up 7%.

Costco has managed to pull in budget-conscious shoppers during the recession with deals on food and everyday items but has been hurt by a pullback in spending on big-ticket items like jewelry and furniture. For the year, net income slipped 15% to $1.09 billion or $2.47 a share, down from $1.28 billion or $2.89 per share; full-year revenue fell 2% to $71.42 billion.


Casual dining chain Ruby Tuesday (RT) saw its first-quarter profit soar despite lower sales, as cost saving measures (No!) kicked in and interest costs fell. Profit rose to $6.1 million or 11 cents per share, up from $285,000 or a penny a share in the quarter last year; that was with a 9% increase in the number of shares outstanding. Revenue fell 7% to $300.6 million. Analysts were expecting 9 cents a share on $296.9 million, but the company issued a downbeat forecast for the year so shares ended unchanged Wednesday. The company attributed the sales decline to operating 45 fewer restaurants this year.


Let's hope they're not gobbling too much fried dough and cotton candy over at the Mortgage Bankers' Association, because they're on a big roller coaster. Two weeks ago showed a 6.2% drop in mortgage applications; last week recorded a sharp jump, up 13.2% for purchases and up 18.2% for refinancing. The average rate for 30-year mortgages fell for a third straight week, down five basis points to 4.89%, making you want to buy a house just to take advantage of it. As in the prior week, the bulk of mortgage-application demand was refinancing, which is now making up two thirds of all applications (a case of apples and pineapples; I agree refinancing should be tracked separately). In any case, refinancing will help make household debt manageable and help somewhat to limit foreclosures.

A big buildup in the gasoline supply and another in distillate stocks more than offset a small draw in crude last week, according to the weekly report of the Energy Information Administration (EIA). Gasoline stocks rose 2.9 million barrels with distillates up 0.7 million, while crude stocks fell one million barrels. Refineries, although they increased their output of petroleum products last week, putting 14.6 million barrels of crude a day to work, are still snoozing along at a middling 85% of capacity. Gasoline demand is the good news in the report, up a strong 6.2% since this time last year and hinting, albeit lightly, at consumer strength.

Crude-oil futures edged below $70 a barrel on the buildup in gasoline inventories. On the New York Mercantile Exchange, crude for November delivery fell $1.31, or 1.8%, to $69.57 a barrel after trading as high as $71.76 earlier in the session.


During lunch I glanced casually at some shipping stocks including Diana (DSX), Eagle (EGLE) and Excel Maritime (EXM). Some big moves there prompted a look at the Baltic Dry Index, that fairly pure indicator of economic activity which measures the demand for transporting raw materials — steel, ore, coal, fertilizer, grain — which themselves are the early signs of production and consumption. A summary of prices on several routes for several sizes of carrier, the BDI is a proxy for the entire dry bulk shipping market.

Slow post-recession demand has handed two large wallops to the dry bulk sector this year, but an advance in the last week might mean a rebound, with the index on its best run since mid-July. Yesterday there was a 3% move up (see graph), and today saw was a 105-point jump to 2,546. According to carrier China Ocean Shipping, government-encouraged factory output in China could send the Index up sharply by the end of the year.

BALTIC DRY INDEX (Oct. 6, latest):


And let's see whether we can add a touch of levity to that 9.8% unemployment report:

Tomorrow look for interest rate announcements from the Bank of England and the European Central Bank, jobless claims, the EIA natural gas report, the RBC Cash Index (a measure of consumer attitudes and spending) and several debt auctions including $12 billion in 30-year bonds. Reporting earnings will be PepsiCo (PEP), Marriott International (MAR), and International Speedway (ISCA), among others.