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Earnings (Good) Vs. The Economy (Weak) For Traders

Some positive earnings news is putting a floor under stocks but economic news and credit worries could be the ceiling. Durable goods data this morning showed signs of weakness, but new home sales rose a 4.8% to 770,000, a positive pickup after a decline in August. Forecasts were for 775,000 units.

The oil market is watching news the U.S. is imposing new sanctions against Iranian banks, companies, officials and agencies affiliated with Iran's weapons programs and support for foreign armed forces, like the TalibanOil was more than $1 higher, above $88 per barrel. CNBC's Sharon Epperson, reporting from NYMEX, said traders are watching Iran but are more focused on Turkey this morning and its intentions for Kurdish rebels in Northern Iraq.

In economic news, those durables, or new orders for manufactured goods fell 1.7%, a surprise to economists who forecast a 1.5% increase. But some traders shrugged off the number because it adds to their view that the Fed will cut rates when it meets next week.

"I think it actually gives us a little bit of hope," said Scott Martin of Astor Asset Management. "It goes back to the emphasis on economic data and economic data not being that great, and we still have a couple more pieces out before the Fed number--new home sales numbers being one of them later today. I think that gives the Fed the lead block to send another rate cut down the pike because we can't have the economic data get hot all of a sudden because then the Fed would find it hart to justify a cut."

Earnings Central
Motorola this morning reported third quarter earnings and gave an improved forecast for fourth quarter. Net income fell 94% to $60 million but the company's outlook helped give its stock a 4% preopening jump. EMC reported better than expected earnings, with net of $492.9 million. Aetna earnings rose to $496.7 million, beating analysts' projections.

But Pulte Homes meanwhile, reported a wide loss of $787 million, which includes a big impairment charge.

More gloomy news from the banking sector is also out this morning. The Wall Street Journal says Bank of America is forcing out top executives at its investment banking unit and undertaking a strategic review of the operation. The bank plans to cut 3,000 jobs.

Around the World
European stock markets are higher this morning but stalled a bit after U.S. durable goods data. But Asian markets closed mixed with China in a big 4.8% decline. The Chinese government reported overnight that its economy grew 11.5% in the third quarter, convincing investors the government would further increase interest rates. Tokyo stocks were half a percent lower but South Korea rose 2%.

Speaking of Korea, CNBC's Becky Quick is there today with Warren Buffett on the second leg of their whirlwind Asian trip.

"R" word
There's lots of talk about recession and economic slowing this morning. Merrill Lynch's surprising oversized writedown today has investors watching banks for more pain and writedowns from the credit mess.

But we also heard all the President's economic advisors tell CNBC's Dylan Ratigan on "The Call" yesterday that they do not expect a recession. A not so positive indicator from McGraw-Hill Construction, meanwhile. It is forecasting that spending on commercial and manufacturing buildings will drop 7% next year.

Stock Market Smack Down
Morgan Stanley Asia Chairman Stephen Roach spoke with Maria Bartiromo on "Closing Bell" yesterday and his words are worth replaying, though he has been known to be less than cheerful. Here are his thoughts about the U.S. consumer, and as head of Asia, we know he'd be particularly keen on what's up with the U.S. consumer because it is a driver of those export markets.

"The American consumer is toast, Maria" he said. Yep, he said toast. "Consumers have been really spending heavily out of their asset markets, supported by property and easy access to refinancing. The property market is in recession and the refinancing business is being hit by subprime. Consumers are not getting any support from income growth going forward. I just don't see the consumption dynamic holding up and that's really going to clobber the U.S. economy," he said.

What's it all mean for investors? "The bond market is pricing the Fed for easing in a weak economy, and the stock market is pricing the economy for resilience, ongoing earnings growth. One of these two markets had got it wrong and I'm betting with the bond market right now," he said.

Cutting Merrill
More analysts jumped on board this morning to cut Merrill Lynch's rating after its already down. UBS today downgraded it to neutral from buy as did Goldman Sachs. In the ever sunny tech world, Piper Jaffray raised its price target on Apple today to $250.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.