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Earnings Drizzle Leaves Major Stock Averages Soggy to Start

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October 20, 2015

Stock indicators are in defensive mode Tuesday as earnings season largely disappoints a Wall Street that had braced itself for downbeat news.

The cumulative effect of Q3 earnings is in play, particularly what it can tell us about overall economic health, the impact of a strong dollar on global profits, the sting of China’s slowdown, and more.

Encouraging housing sector news may be lending mild support to stocks. Construction started on new U.S. homes rose 6.5% to an annual rate of 1.21 million in September, according to government data released Tuesday. After two months of declines, the gain in September brings starts back close to June's level, which was an eight-year high. Starts for the closely watched single-family homes rose 0.3% in September to an annual rate of 740,000, while starts in buildings with at least five units jumped 17% to a pace of 454,000. Still, the annual pace of permits for new construction, a sign of potential future demand, fell 5% in September to 1.10 million.

Of interesting note, bond prices are also trending lower, driving up yields slightly. But short-term interest rate markets are churning, too. The Fed funds futures markets, in a late move Monday, are now priced for sub-50% odds for a Federal Reserve interest rate hike in March, the first drop below that line in months.

SPX-stock-chart

FIGURE 1: TURNS CHOPPY?

The S&P 500 (SPX), charted on the new-look thinkorswim® platform, pushes above 2030 but turns choppy Tuesday amid mixed earnings news. Resistance comes into play at 2060. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Big Blues. A pretty ugly report post-bell Monday from IBM (IBM) has its shares off over 5% early Tuesday. IBM said Q3 revenue fell 14%, hurt by declines in hardware sales and a stronger dollar. The tech giant has now posted its 14th straight quarter of year-to-year revenue declines. In other earnings United Technologies (UTX) gains after its profit beats Street estimates while earnings missed; the company unveiled a $12 billion buyback; insurer and Dow component Travelers (TRV) is an early gainer on back of a clear earnings beat driven by higher premiums. 

Disney Awakens? The Disney (DIS) owned Star Wars trailer debuted last night to big buzz. Disney’s newest flick “The Force Awakens” preview has been viewed more than 7 million times on YouTube, according to MarketWatch. The teaser, which officially opened ticket sales, blew up the Fandango ordering website. Let’s see how soon this impact could get into DIS earnings, and even sooner, its shares. DIS stock is up 1.5% early Tuesday. 

YUM Spins Off China Biz. Yum Brands (YUM) gains Tuesday following news the restaurant chain plans to spin off its China business after years of largely unsuccessful efforts to get it back on track. Yum China will be a separate, publicly traded franchisee of Yum Brands, the company said Tuesday. Yum China will pay its former parent company a percentage of its sales for the exclusive brand rights to KFC, Pizza Hut and Taco Bell, which isn't yet in China, it said.

Good trading,

JJ

@TDAJJKinahan


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