By David Becker
(eToro Blog) Stock markets in the U.S. were lower as technology shares were dragged down by worse than expected earnings from Apple were released on Tuesday. Europe continued to be the primary focus for the majority of market participants, as sentiment remains split that Europe’s policymakers will be able to construct a solid plan that deals with the current sovereign debt issues. Better and expected housing numbers helped real-estate stocks, but inflation remained elevated which could keep the FOMC in check.
Apple earnings rose to $7.05 a share in its fiscal 4th quarter from $4.64 per share a year earlier. Analysts had expected the company to earn $7.39 per share on revenue of $29.69 billion, however. Net income rose to $6.62 billion from $4.31 billion while revenue jumped 39% to $28.3 billion from $20.3 billion. Investors had hoped and expected that Apple would continue to knock the cover off the ball. The company did report that current iPhone 4S sales in the first couple of weeks since the launch were better than expected, and they were hoping to be able to supply enough phones to meet demand during the upcoming holiday season. Earnings in the 3rd quarter were detrimentally affected by a lack of demand for the iPhone, as potential customers were waiting on the new launch of the new 4S.
September’s Consumer Price Index rose 0.3% compared to the August read, which was the third consecutive monthly increase according to the U.S. Labor Department. Core inflation rose 0.1% in September as well, as food and energy prices continue to rise; food costs rose by a monthly 0.4% and energy prices were up by 2.0% from August. Consumer prices were generally in line with expectations, however wholesale price inflation surprised market participants with a .8% increase.
In other economic news, housing starts, which have been stubbornly weak, increased 15.0% from a month earlier at an annual rate of 658,000, according to the U.S. Commerce Department. Expectations were only for a small rise. Compared with the same period a year earlier, overall new-home construction was up 10.2%. Building permits, a gauge of future construction, fell 5.0% from a month earlier to an annual rate of 594,000.
Late in the trading session, the Federal Reserve released its index gauge on business conditions, familiarly known as the Beige Book. The report showed mild increases in business conditions during the month of September and expectations for continued modest increases.
Financial stocks continued to remain robust. Volatility has also remained firm. Morgan Stanley, in their earnings call, told investors that they would begin to increase merger activity once the VIX moved into the mid 20's. The uncertainty, reflected by the implied volatility index, is hampering business activity as the VIX remains above 30%, despite solid earnings from most S&P 500 companies.
Technically, the U.S. equity markets are stuck at the top end of the current range. The S&P 500 Index has traded between 1100 and 1230 for the past three months and will need a catalyst to break to the upside. During the past four trading days, the large cap index has remained in a 40 point range, and investors are waiting for a finalized plan for European debt issues. Support is seen near the 50-day moving average near 1175 while resistance is seen near 1230.
The Nasdaq 100 was hammered as Apple's decline dragged down the technology index. The Nasdaq remains above support levels near the 200-day moving average near 2290. A break would likely test the 50-day moving average near 2210. Resistance is seen near 2450.
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