Not even some decent economic news could keep stocks from booking losses today, but with September now in the books it should be noted that stocks did notch their best September performance since 1939. All three major U.S. indexes suffered small losses with the S&P 500 and the Nasdaq each losing about 0.3% on the day.
Obviously today is Thursday and that means another jobless claims update. Initial claims fell by 16,000 to 443,000 and that more than reverses last week's uptick. The four-week moving average dropped by 6250 claims to 458,000. Continuing claims data was also fairly positive as that number dropped by 83,000 to 4.489 million. Continuing claims have dropped by 1.553 million, or almost 26%, from a year earlier. Another slightly positive sign may be that the number of folks receiving extended unemployment benefits fell last week by 293,000 to 4.879 million. Still, that number is up 22.3% in the past year.
The Bureau of Economic Analysis also chimed in with a positive revision to the second-quarter GDP estimate, revising that number upward to growth of 1.7%, barely higher than the previous reading of 1.6%. That is still well below the original estimate of 2.4% and the second-quarter number represents the third-slowest quarter of growth since the fourth quarter of 2009.
On the bright side, business investment contributed 0.13% to the growth and consumer spending chipped in 0.16%. Bottom line: A small upward revision is better than a negative revision.
While the economic news provided only minimal help to equities, oil was sure on the receiving end of some bullish trade. NYMEX-traded crude for November delivery jumped 2.7% to $79.97 a barrel, the best closing price in seven weeks. Today's rally in oil also may have been some follow through on Wednesday's news from the Department of Energy that oil inventories declined by 500,000 barrels last week. Friday's Institute for Supply Management manufacturing number could be the next catalyst to push oil above resistance at $80.
In stock-specific news, Caterpillar (CAT), the world's largest maker of construction and mining equipment, was the biggest loser in the Dow today, tumbling 1.64% after leading the blue chip index with a gain of over 20% in September. The biggest news on Caterpillar today was the company's announcement that it will raise product prices as much as 2% next year.
As I have lamented many times before when talking about Caterpillar, the company's products, new or used, are not cheap to begin with and this is one shining example of a company that would not raise prices if it was not sure it could still move product at those elevated price points. In other words, this should have been good news for the stock.
In some regions, Caterpillar will raise prices by as much as 6%, but the stock still slipped on volume that was almost 4 million shares above the daily average. There have been a few reports out recently questioning the fact that Caterpillar is within striking distance of its all-time high set at the height of the commodities boom a couple of years ago. For what it is worth, Credit Suisse recently slapped a $95 price target on Caterpillar and if you like point & figure charts, you will like the fact that Caterpillar's point & figure says the stock is going to $113.
American International Group (AIG) was back in the news today. The former Dow component jumped by more than 4% on news that the company is drawing closer to ending its relationship with the Treasury Department and that the company's plan to do so may cut the cost of the government's bailout package by 50% to less than $50 billion.
The plan to convert Treasury's preferred shares in AIG to common stock could net a profit of $16.5 billion compared to a previous estimate that called for a loss of $45 billion, Reuters reported. Based on an actual cash cost of $47.5 billion, the Treasury Department's breakeven price on AIG shares is around $28.70, according to Reuters. That is more than $10 below where the shares closed today.
Of course the rub is that if AIG reverses its recent bullish ways and starts to decline, that would weigh on Uncle Sam's profits. Making it even harder to assess the government's profit potential here is the fact that the Treasury Department will not start selling its AIG stake until 2011.
AIG executives are touting the repayment plan as a sign of the company's strength and I heard someone on CNBC make an interesting point about AIG earlier this week. Paraphrasing, the gentleman said that for years AIG was an excellent stock and the company was brought to the brink by a small group of people that represented only a small part of the company's business.
That could mean AIG will once again be a solid name. On the other hand, the company is having to part with some attractive assets to raise cash and the overhang from the government selling the stock will probably depress AIG's share price once those share sales start. Uncle Sam is just like any other trader or investor: He wants the best price and is willing to wait to get it.
Ongoing government sales of Citigroup shares have depressed that stock's price to some degree and that scenario could play out again with AIG. Remember, the government is not hasty about selling its stakes in these companies either. Citi was 27% owned by the government in November 2008 and that stake is 18% today, according to the Wall Street Journal. Taking almost two years to dump 9% is certainly a slow process when the government is involved.
There were plenty of headlines after the market closed as well. I will start with the less marquee name that is seeing some unusual after-hours action. Gymboree (GYMB), the specialty retailer that focuses on apparel for kids, is trading higher by almost 21% as of this writing after the company said it is exploring a sale. The Wall Street Journal is reporting that Gymboree is looking for a private equity buyer and that the company's bankers are weighing interest from potential bidders, though the auction process has yet to commence.
The big after-hours news has to do with Dow component and tech titan Hewlett-Packard (HPQ) and no, it does not involve another acquisition for the world's largest computer maker. HP announced that Leo Apotheker will become the company's new CEO. This is a curious choice to say the least as most analysts and investors that closely follow HP were expecting the company to select an internal candidate.
The market did not react positively to announcement as the shares are down more than 3% as of this writing. There might be something to that negative reaction. Apotheker, 57, was most recently the CEO of SAP (SAP), the German software giant. He was appointed to that post in April 2008, but lasted less than two years on the job.
Pehaps the biggest executive news out of HP is not the hiring of Apotheker, but the appointment of Ray Lane to the roll of non-executive chairman. Lane is well-known in Silicon Valley as he is partner at the venture capital firm Kleiner Perkins. Lane joining HP may be the latest episode in what is becoming an interesting little spat between HP and rival Oracle (ORCL).
Lane helped Oracle deal with a big accounting scandal a while back, but Oracle founder and CEO Larry Ellison still sent Lane packing ten years ago. Of course, Oracle is where former HP CEO Mark Hurd now calls home.
Looking at the charts, anyone that missed the September rally may be hoping for the S&P 500 to dip all the way back to 1100, but I think a down move, if it happens, will not be that dramatic and merely take the index back into the 1120-1130 range. The S&P 500 closed below 1150 today, so it needs to reclaim that level before it can go after resistance at 1170.
S&P 500 Chart
Not much has changed on the Dow as the index has been chopping around this week. Resistance remains in place at 10,870 and 10,900. The Dow could easily move higher if constituents beyond Caterpillar and DuPont (DD) would lend a hand.
The 2380 area continues to be a thorn in the side of the Nasdaq. If the index can move beyond that level, next resistance is 2425 and then the April highs, but I get the sense tech may be a bit vulnerable to a small pullback after stocks like Amazon (AMZN) and Apple (AAPL) moved up in almost straight-line fashion in September.
The Russell 2000 could not build on Wednesday's move to a three-month high, but the index did close above the all-important 675 level on Thursday, a bullish sign. Watch for 700 and 725 to act as resistance and 650 to be support.
Russell 2000 Chart
September defied its historical precedent and now it is October's turn to do the same. Beyond earnings season, which starts in a couple of weeks, and the obvious catalysts that come from economic data, politics will play a heavy hand in October's performance. If it becomes more apparent as we get deeper into October that a change in power is coming at least in the House, then stocks should move higher. Keene should be back with you next Thursday.