Weekly jobless claims should swing market focus back to the U.S. economy Thursday, at least temporarily.
Stocks Wednesday got a lift from earnings reports from Intel and J.P. Morgan though those stocks did not participate in the move higher. The promise of further Fed easing also supported the stock market, as it pressured the dollar and pumped up commodities prices.
The Dow rose 75 to 11,096, its highest level since May 3, and the S&P 500 climbed 8 to 1178. Goldset another record, rising above $1,370 an ounce. Bond prices ended higher after the auction of 10-year notes went smoothly.
Economists are expecting 445,000 claims when the weekly report is released at 8:30 a.m. Also expected is PPI, producer level inflation, which traders are now watching more closely because of the Fed's concerns about inflation being too low. International trade for August is also released at 8:30 a.m.
The day's major earnings reports come after the closing bell, when GoogleandAdvanced Micro Devices report.
LPL Financial's Jeff Kleintop said the stock market should continue to add to its gains for a while, but it may sell off later in the month. "They are buying the rumor. The question is whether they sell the news when the Fed actually has to reveal its plan on Nov. 3," he said. The markets are expecting the Fed to announce a plan to restart its acquisition of Treasury securities.
The Nov. 2 mid-term election is also approaching and could be another reason to sell on the news, he said.
Earnings may be a third catalyst. "In the last six quarters, once you get to the midpoint (of earnings reporting season), you start to get that sell off," he said.
"I think November could be a little weak, but I think we get some of it back toward the end of the month and maybe into December, as many of the tax cuts get extended," said Kleintop, speculating that the lame duck Congress may opt to go against the Obama Administration and extend all of the Bush tax cuts.
Kleintop said the market has clearly been responding more to the promise of Fed action, over other factors. "When I see materials, energy and industrials are all the leading sectors, you have to think that's the reflation theme," he said.
He said he will be watching Friday's Consumer Price Index more than Thursday's producer prices. "If it's surprising, we could see a pull back in copper, gold and oil and some of the basic materials," he said.
What Else to Watch
The Treasury auctions $13 billion in 30-year bonds at 1 p.m. Thursday.*
"The (long) bond has been the weakest issue and is going to be the hardest one to sell," said John Spinello, Treasury strategist with Jefferies. "What's in its favor is the spread has gone so wide between the 10s and (30-year) bonds that you might get some duration trades."
Fed watchers will also tune in to CNBC to see Boston Fed President Eric Rosengren interviewed by CNBC's Steve Liesman on "Closing Bell." Minneapolis Fed President Narayana Kocherlakota speaks at 5 p.m in Bloomington, Minnesota.
OPEC also meets in Vienna, but traders are not expecting any action from the group.
Earnings reports are expected from Safeway and WW Grainger Thursday morning.
Attorney generals in all 50 states Wednesday joined forces in an investigation into the mortgage servicing industry, amid claims of faulty processing and shoddy paperwork in connection with residential foreclosures.
Bank of America has temporarily frozen foreclosures across the country and other banks have frozen them in various places. JPMorgan, which reported earnings Wednesday, said that it identified some issues with mortgage foreclosures and expanded its review to 115,000 loans in 41 states.
CEO Jamie Dimon said the review could hold up foreclosures for a month or so but if it goes on longer the consequences will become problematic for everyone involved. He also said the bank does not believe that it evicted home owners improperly. J.P. Morgan, which reported a 23 percent profit increase, also boosted its litigation reserves by $1.3 billion.
Traders have said the mortgage market would not feel the impact of the foreclosure freeze unless it begins to appear that it will be a longer term problem.
Prudential's Jack Taylor, however, said the actions could create some distortions in mortgages.
"If there's a system-wide stalling of a process, it will distort the market. The exact effects are multidimensional but you can count on there being an effect," said Taylor, global head of high yield debt for Prudential Real Estate Investors.
Taylor said, for instance, if an investor held interest only strips, they might actually see the value of their security rise because the frozen foreclosure means the servicer will continue advancing and making payments. "Anything that keeps current the outstanding security will increase the value of the security," he said, noting it may have the opposite effect on a principal paying bond. "It's very multidimensional and asset specific."
"The impact on the mortgage-backed securities market will take longer because it can sustain this uncertainty for a while...If you're holding a bond that has a 5- or 10-year life the uncertainty revolving around a couple weeks won't hurt you too much," he said.
Yet the uncertainty could begin to impact real estate transactions and pricing.
"I do think there are parallels in the commercial mortgage market. If not for the exact reason, there's been an effective freeze on foreclosures in the fact that lenders have pretended and extended," he said. He said the failure to clear bad loans has had an impact on price discovery and lending.
"We're starting to see some thawing on the commercial side, but it's still not moving at the pace many would like to see. The effect of the stall in the residential market is more sudden and dramatic," said Taylor.
Stocks in the News
Yahoo! should be on the move Thursday, after theWall Street Journal's report that it may be courted by AOL and private equity firms.
Apollo Group stock tumbled after the company pulled its guidance for 2011 because of regulatory uncertainty. Other for-profit education stocks, likeWashington Postwhich owns Kaplan, and Corinthian also sold off sharply after the closing bell.
A previous version of this story said the Treasury would be auctioning $21 billion in 30-year bonds Thursday.
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