Market Insider: Housing Data, TARP Update, and More Obamanomics
Stocks will have to battle a rough batch of economic news to pull off a third day of gains Tuesday.
Fresh data on home prices, a second look at third quarter GDP and consumer confidence are reported in the morning. GDP, expected at a negative 0.5 percent, is released at 8:30 a.m. S&P/Case-Shiller home price index data and the FHFA Home Price Index are both issued at 10 a.m.
Also at 10 a.m., Treasury Secretary Hank Paulson delivers an update on the emergency economic stabilization act, or the TARP. It will be interesting to see what he has to say about Citigroup , which Monday was promised another $20 billion in government funds and a federal backstop on about $300 billion in assets. At the same time, FDIC Chairwoman Sheila Bair Tuesday reports on bank and thrift earnings for the third quarter and will reveal how many banks are now on that agency's watch list.
Stocks on Monday rose sharply for a second day. The Dow ended up 4.9 percent or 396 points at 8443, giving it an 11.8 percent gain in two days. The S&P 500 rose 52 or 6.47 percent to 851, pushing it 13.2 percent higher in the past two sessions.
The financial sector, heavily battered last week as investors drove down Citi shares, was up 18 percent Monday. Consumer discretionary stocks were the second best performers, up nearly 8 percent.
"We tested the lows. We had good news on Citibank. (President-elect Barack) Obama seems to leaning a little bit more to the middle of the road," said Todd Leone, head of listed trading at Cowen and Co.
Obama unveiled his economic teamMonday, including the New York Fed's Tim Geithner as Treasury Secretary, and promised a new stimulus package for early next year. He also holds a presser Tuesday at noon where he is expected to make further announcements. One of those could be the appointment of Congressional Budget Office director Peter Orszag as budget director.
Leone acknowledges he is more optimistic than many traders. "A lot of the bad news is out there. The hedge funds are going to have to get back into the market at some point." He also said he does not expect President-elect Obama to say much before taking office in January. Even though Obama commented on raising taxes on the wealthy, Leone said the President-elect was more moderate than many traders expected.
"My guess is we'll (stocks) be a little bit off tomorrow (Tuesday)," he said. Stocks that could be on the move include Starbucks which said tough consumer conditions are likely to hurt its business next year. Hewlett-Packard, as expected, reported higher quarterly profits, but its stock fell.
Earnings expected Tuesday include home builder D. R. Horton , American Eagle , Hormel Foods and Dollar Tree .
Stephen Stanley, chief economist at RBS Greenwich Capital, said he expects the third quarter GDP number to be revised slightly lower from a decline of 0.3 percent to 0.5 percent. "These GDP revisions are basically old news. People are focused on just how negative fourth quarter is going to be. We're expecting down 4.5 percent at this point," he said.
He expects consumer confidence to move down to 36, on weak fundamentals for the consumer. "The conference board number, more than others, tends to be correlated to developments in the labor market," he said.
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Home prices data should be important and could show an important trend. "Anecdotally, it sounds like things did start to turn down a bit in September. We think these numbers will tell us if we're on the leading edge of another big leg down in home prices, which I think we are," he said. Stanley said the troubled economy is now hitting housing. "Now demand is being hit because more people are unemployed and worried about their jobs. Our suspicion is that's going to be reflected in the home price numbers," he said.
Existing home sales for October were reported Monday, showing a 3.1 percent decline in sales and the median price of homes staging the biggest drop on record.
The official launch of the holiday shopping season starts this week, right after Thanksgiving. The traditional "black" Friday is one of the best days for retailers each year. "I think it's heavily, heavily, heavily promotion," Stanley said of holiday sales. "... The best you can hope for is they're just enough to keep the retailers' noses above water. The Christmas season is going to be soft no matter how you slice it."
Oil prices Monday surged 9.2 percent to $54.50 a barrel, as the dollar weakened.
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