Spending showdown avoided--but only in the short term
The odds of a government shutdown over a spending bill appear to be falling. It looks like the Senate will easily pass a "clean" bill by this weekend, as Senate Majority Leader Reid and the Senate's two most senior Republicans (Kentucky's Mitch McConnell and Texas' John Cornyn) appear reluctant to hold the continuing resolution process hostage to defunding Obamacare.
The annoying part is the deal may only keep the government funded through November.
Still, no government shutdown would be a positive for the market. Despite all the hand wringing, and a couple days of weakness in widely traded stocks, the overall market is still quite healthy.
Industrials, healthcare, technology, consumer discretionary, and financials are still strong, well above their 200 day moving average, although financials failed to hit new highs in September. That is the one group I have been a little concerned with. Even energy and materials are not far from their highs. Utilities and telecoms are weak, but they are a small part of the S&P 500.
After that is resolved, the debt ceiling will be next. Will the Democrats agree to a one-year delay in Obamacare in exchange for a higher ceiling? Hard to believe that would happen.
1) Chrysler has filed for an IPO, but only because Fiat, who owns 58.5 percent of the company, is in a dispute with the UAW union health trust, which owns 41.5 percent of the company. Fiat wants to buy out the UAW's share, but they can't agree on a price. The trust values the stake at about $4.27 billion--twice what Fiat values it at.
So what to do? Start the IPO process. This puts Chrysler, and particularly Fiat's CEO Sergio Marcchione, in a very difficult position. He has to persuade investors to pay top dollar for Chrysler when he is trying to buy it cheap. A conflict of interest? The market will value it where it wants to. If they value it near $10 billion, then the UAW is right, if they value it closer to $5 billion, then Fiat is right. The hope is that some deal will be struck before the IPO occurs. Maybe.
2) Mixed reports from home builders this morning. KB Home posted earnings per share of 30 cents, nine cents above estimates, but revenues were worse than expected: $549 million versus expectations of $567 million. Also, orders were down eight percent. "The fundamentals of the current housing recovery are firmly in place," said CEO Jeffrey Mezger. "We believe that the recent slower pace of the recovery caused by an uptick in mortgage interest rates is a temporary effect."
Home builder Lennar also posted better-than-expected quarterly earnings of 54 cents (9 cents above expectations) but new orders, up 14 percent, were below expectations
"We continue to see long-term financial demand in the market driven by the significant shortfall of new single-family and multi-family homes built over the last five years," said CEO Stuart Miller. "While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright."
The macro point, however, is that the Fed is going to remain accomodative, so interest rates will remain in the 4-percent range.
3) Speaking of housing: Home prices rose for a fifth straight month in July, according to S&P/Case-Shiller data. The 20-city composite jumped 12.4 percent, its biggest monthly gain since February 2006 as increased sales and tight inventory lifted prices. During the last boom, home prices rose double digits for 45 consecutive months from 2002 to 2006. Robert Shiller seemed a bit nervous about bubbles in housing when he appeared on our air this morning.
3) The auto industry remains a U.S. economic bright spot. Used-vehicle seller CarMax gained two percent at the opening bell after beating earnings and revenue expectations. The company benefited from used-car sales jumped amid slow economic growth. KMX reported second quater earnings of 62 cents per share, five cents above Wall Street estimates. Comparable used-auto sales increased 16 percent.
—By CNBC's Bob Pisani