Eight trading days have passed since the Dow crossed 10,000 for the first time in over a year. Yet mixed data and third-quarter earnings since then have caused equities to dance around the psychological threshold. On Friday the Dow closed at 9,972; heading into the week futures are pointing slightly upwards. Wall Street is looking for Q3 GDP to climb 3% in Thursday’s release. If that’s the case the markets could gain enough momentum to stop the dance and remain steady in five-digits. However, consumer sentiment, flat wages, and weak spending could all bring stocks down. And that’s not even mentioning the perennial concerns of the jobs market...

Aside from equities, WTI Crude is beginning the week at $79.59 per barrel, Spot Gold is a bit lower at $1053.70, and the 10-year Treasury yield is 3.49%.

Earnings continues this week. Analysts can only hope they keep up with what’s already been reported over the past two weeks.

“So far, 84% of S&P 500 companies have beaten expectations while just 14% have missed—this is as good a performance as we’ve seen in our history of data going back to the early-90s,” said Robert Kavcic of BMO Capital Markets. “Revenues are also coming in better than expected, with 65% of companies beating top line expectations.”

Key Events This Week:


Alas, no significant data...


  • Treasury Auctions:
  • 11:30 ― 3-Month Bills
  • 11:30 ― 6-Month Bills
  • 11:30 ― 5-Year TIPS (Treasury Inflation Protected Securities)



The weekly retail sales indexes from the International Council of Shopping Centers and the Johnson Redbook are looking somewhat optimistic as the holiday period approaches. These indexes are decidedly second-tier, but they do offer a first take on consumer spending. 

9:00 ― The S&P Case Shiller Home Price Index is expected to see its fifth consecutive rise in August. Overall the market remains weak and economists worry about a W-shape in prices once (if?) government support is stripped away, particularly when the tax credit for first-time home-purchases expires on Nov. 30. 

“By almost any measure, the trend in house prices has taken a sharp turn,” said analysts from Nomura Global Economics. “In Q1, the ‘seasonally adjusted’ Case-Shiller 20-city index was falling at an annualized rate of about 20% per month; in July it increased at an annualized rate of 15%. We believe that much of this improvement is the result of seasonal factors rather than a sudden shift in supply/demand fundamentals, and that seasonal adjustment techniques are not capturing this properly. We think prices will experience a downswing later this year as negative seasonal forces take hold, and August may be the first month of deceleration.” 

10:00 ― Consumer Confidence could go in either direction. Equity prices are up but hey, so is the unemployment rate. Which to choose, which to choose? The consensus sees a small improvement from 53.1 to 54.0, but the range of estimates is revealingly split from 51.0 to 55.0.

Joseph LaVorgna from Deutsche Bank looks for a slight uptick based on data suggesting that consumer spending is stabilizing. “Based on retail sales data through September, we estimate that consumer spending increased a decent 3% last quarter. Importantly, we are seeing gains outside of autos—retail sales excluding motor vehicles increased 3.6% at an annual rate, the first increase since Q2 2008.”


  • Treasury Auctions:
  • 1:00 ― 4-Week Bills
  • 1:00 ― 2-Year Notes



8:30 ― Durable Goods Orders are set to advance by 1.5% in September after falling 2.4% in August. Gains are expected in orders for transportation products, machinery and electronic goods, but not all analysts are convinced as forecasts range from -0.8% to +2.5%. The report may receive less attention than the following day’s GDP report, but in terms of looking ahead this one is more important.

“Business investment is beginning to stabilize—at least for equipment,” said forecasters from IHS Global Insight, whose prediction is well above consensus at +2.5%. “We expect business equipment spending to rise about 7% in the third quarter, with the gains concentrated in high tech and vehicles.”

10:00 ― New Home Sales will be closely watched as September may be the last look as purchases before the tax credit for first-time homebuyers expires (the expiration date is Nov. 30, but that’s when deals must be finalized.) Economists said gains should be concentrated in lower-priced homes as the tax credit is limited to low- and middle-income buyers. The Street’s forecasts is for the annual rate to rise from 429k to 440k.

“New home sales will take a small hit once the tax credit for first-time homebuyers expires,” said analysts from IHS Global Insight. “The drop in inventory is good news because it points to rising housing starts even after the tax credit for first-time homebuyers expires.”


  • Treasury Auctions:
  • 1:00 ― 5-Year Notes



8:30 ― Economists have high expectations for third-quarter GDP. Not only is output expected to be positive, thereby confirming that the recession is, technically, “over,” but the Street’s forecast is +3%, with estimates ranging as high as +4%. Not bad for an economy declining at a rate of 6.4% from January to March. 

“We think the economy expanded at a 3.7% rate,” said Ian Shepherdson from High Frequency Economics. “Consumption led the way with a clunker-boosted 3.2% gain. Fixed investments should be up 6.0%, but a $130 billion drop in inventories with add 1.0 percentage point to growth. Net foreign trade should subtract 1%, with exports up 14% but imports up 18%.” He adds: “Government spending should rise about 4%.”

Economists at IHS Global Insight are more optimistic than the Street; unfortunately, they believe the gains are based on temporary boosts. “The economy probably grew more than 4% in the third quarter, pumped up by inventories, cash for clunkers, and the tax credit for first-time homebuyers,” they wrote. “These are not the ingredients needed to support a V-shaped recovery. Indeed, IHS Global Insight expects the economy to grow just over 2% in 2010.”

8:30 ― Average initial Jobless Claims have been 525k so far in October, compared with 549k in September and 569k in August. So a clear downward trend is taking place even though last week’s figure jumped 11k to 531k. But the moderation isn’t happening quickly enough for the recovery to dispel the reputation for being a jobless one. Economists believe weekly claims must be closer to 350k per week to indicate any significant job creation.


  • Treasury Auctions:
  • 1:00 ― 7-Year Notes



8:30 ― The Personal Income & Outlays report could damped optimism from earnings and GDP data. Income is expected to be flat in September after rising 0.2% in August, and spending is forecast to be cut by 0.5% after a 1.3% boost.

“Although weak wage growth and falling employment likely depressed wage and salary compensation, income from other sources should have provided an offset,” said analysts from Nomura. “Consumer spending likely declined by 0.1% m-o-m in nominal terms and by 0.3% after adjusting for price changes. The conclusion of the popular "cash for clunkers" program and resulting plunge in vehicle sales should be the main factor behind the weakness in spending.”

Analysts from IHS Global Insight add that real consumer spending should climb 3% with help autos and other durables. “Looking ahead, we expect more-modest gains as job losses, tight credit, and depleted household net worth restrain consumer spending,” they wrote. “Income growth will remain sluggish in the fourth quarter because of job losses. Core inflation should remain below 1.5% for quite a while, as the unemployment rate is likely to remain high for years.”

9:45 ― Chicago Business Barometer, commonly referred to as the Chicago PMI, could act as a tie breaker between conflicting regional data reports this month. The Empire State survey shocked analysts by climbing 16 points in the month to +34.6, its highest level in five years, but the Philadelphia survey then tumbled more than 2 points to +11.5. Together those reports point to improvement in the nationwide ISM survey, but forecasters won’t want to put anything in pen until the Chicago numbers come out.

10:00 ― Like its cousin index from Tuesday, the University of Michigan Consumer Sentiment report could tick up with equity prices are slip with the labor market. Investors are bias towards the former outcome with the median forecast looking for a 70.0 score compared to 69.4 in September.