Investors shaken, and not stirred by good data

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Traders work on the floor of the New York Stock Exchange at the end of the trading day in New York City.

Recapping the day's news and newsmakers through the lens of CNBC.

Good macro data, bad market

Notes:

Jobless claims hit a six-year low last month, and the latest inflation reading was benign. But that just wasn't enough to offset some disappointing earnings and economic reports, and stocks plunged Thursday. It just seems like a cloud of uncertainty has investors looking for excuses to sell.

Initial claims for state unemployment benefits dropped last week to the lowest level since October 2007, down 15,000 to a seasonally adjusted 320,000. Analysts had expected 335,000. In an especially good sign, the four-week moving average fell 4,000 to 332,000, the lowest level since November 2007.

Meanwhile, the consumer price index edged up just 0.2 percent in July, versus 0.5 percent in June. That brings inflation to 2 percent for the past 12 months, smack on the Federal Reserve's target.

Among investors' concerns were a disappointing report from Wal-Mart and a warning from Cisco Systems, which said it would cut 4,000 jobs because of weak demand.

Tuning in on investor's jitters, CNBC's Jim Cramer worries about tightwad consumers.

Quotes:

"Macro is great, but when you have to go deal with companies, it's bad. ... There's a giant reset going on. It's just playing out right in front of us."—CNBC's Jim Cramer

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Happy home builders

Notes:

If the economy is so iffy, why are home builders so happy?

A survey by the National Association of Home Builders shows its members haven't been this enthusiastic for eight years.

The biggest factor is the tight supply of homes for sale. Though home prices have risen briskly over the past year or so, many sellers are reluctant to sell for less then they could have received when prices peaked a number of years ago. Millions of homeowners cannot sell because they are underwater, owing more then their homes are worth.

And many who would like to sell cannot, because they cannot qualify to buy another home under today's strict lending standards. The snail's pace of building in recent years has also left inventories small.

Quote:

"Builders are seeing more motivated buyers walk through their doors than they have in quite some time. Firming home prices and thinning inventories of homes for sale are contributing to an increased sense of urgency among those who are in the market."—NAHB Chairman Rick Judson

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Don't give up on stocks!

Notes:

Even today, there are some optimists.

John Lynch, CIO at Wells Fargo Private Bank, believes the S&P 500 can rise 10 or 12 percent over the next 15 months, due to today's modest price-to-earnings ratio of around 16.5 percent.

Some decent earnings coupled with enough optimism to boost that ratio a tad, and presto, the index is up 10 percent. It's easier for the P/E to rise when interest rates are low, because competing assets like bonds are less attractive. That's the theory.

John Tanious, global market strategist at JPMorgan, also thinks stock have room to rise, as P/Es are cheap relative to the average over the past 15 years.

Quotes:

"What we've seen in the last few days is that there is some trepidation. I would encourage all investors to really focus on valuation or P/E's relative to earnings and interest rates."— John Lynch, CIO at Wells Fargo Private Bank

"It should be pretty clear to everybody that we're kind of hovering in line with our 10-year [P/E] average. You have to look at a 15-year average to make the argument that stocks are cheap from a P/E ratio standpoint."—John Tanious, global market strategist at JP Morgan

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Capitol Building

The elephant in the room

Notes:

Let's not forget the government's debt problems. A spending standoff in Washington could roil the markets.

Sept. 30 is a key date, the day the government's spending authority ends. Neither the House nor Senate has come up with a new budget, let alone started the tortuous process of reconciling differences. As usual, Democrats want to raise more revenue, Republicans would rather cut spending.

One question is whether hard liners will soften their positions now that the deficit is smaller. From the start of the fiscal year last October, the deficit is $607 billion, compared with $974 billion in the year-earlier period.

Tax increases and spending cuts get part of the credit, but there was some good luck, too, such as huge dividends paid the government by mortgage giants Fannie Mae and Freddie Mac.

Quotes:

"This ratcheting up of the threat level every time we go through this is a terrible way to do business. But it looks like were headed there again. The new regular order is chaos."—Robert Bixby, executive director of The Concord Coalition.

"We haven't really shrunk government so far. What we've done is furlough people and found ways to defer and delay payments and investment and found hidden money in accounts. That's not a sustainable strategy."— Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget.

—By Jeff Brown, Special to CNBC.com.