(eToro Blog) Wall Street bucked Monday's downdraft as financial shares helped equity markets recoup some of this week's losses. Investors’ sentiment was mixed in the technology sector as IBM announced disappointing earnings, which put pressure on the Dow Industrials. The technology giant reported that the company's 3rd quarter revenue fell short of expectations, and the total for service contracts signed, which is a measure of future business, disappointed investors sending the Dow lower by nearly 5%. After the closing bell, however, tech giants Intel, Yahoo and Apple announced earnings that beat Wall Street’s estimates.
Losses in technology stocks were offset by better than expected earnings from Goldman Sachs. The financial company reported revenue from trading stocks and bonds increased 16% from the 2nd quarter. The 3rd quarter loss, which was driven by markdowns on the value of the firm’s own investments, was $393 million, or 84 cents a share. The loss, which compared with a year-earlier profit of $1.9 billion, was the second time that Goldman Sachs failed to post a profit since it became a public company in 1999.
On the economic front, U.S. producer prices rose across the board last month, more than economists had expected. PPI, which measures inflation at the wholesale level, rose by 0.8% in September according to the Labor Department. It was the biggest monthly gain since April and it follows August’s unchanged numbers and July’s 0.2% rise. Expectations, meanwhile, were for an increase of 0.5%. Core inflation, which removes food and energy prices, rose by a more moderate 0.2%.
The housing market received some positive news ,finally. U.S. home builders' sentiment rose to the highest level in 17 months during October. with the confidence index in single-family homes increasing to 18, a rise of 4 points.
Chinese data also helped lift U.S. equities. The GDP for the 3rd quarter was up 9.1% from a year earlier after 9.5% growth in the 2nd quarter. The data came in line with expectations, reflecting a potential soft landing for the Chinese economy.
Despite Monday's equity rally, implied volatility remained elevated. The VIX continued to trade above the 30% level, after dropping below it on Friday for the first time since early August. The quick reversal above 30% negates the downside breakout.
The Nasdaq technology index was the worst performing of the major Wall Street indexes. The Nasdaq tested support levels early in the trading session before bouncing and closing in the middle of the gap created by Friday's breakout. The consolidation pattern created shows that investors remain unsure of market direction. Resistance levels remain near the 2450 level, while support is near the 200-day moving average near 2295.
The S&P 500 Index was boosted by strong financial stocks. The large cap index traded below 1200 early in the trading session, but bounced off Monday's lows and closed up nearly 1.3%. Resistance remains near the 1225 level, and a break would signal a test of the 200-day moving average near 1275. Support on the S&P 500 index is seen near the 50-day moving average near 1175. Prior to Monday's market action, the S&P 500 was in overbought territory, in which 75% of the stock in the index has individual RSI readings above 70.
The Dow also performed well, as financial shares boosted the index despite earlier pressure from IBM and Coke shares. Resistance on the Dow 30 is seen near the 11,800 level, and support is seen near the 50-day moving average near 11,215.
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