Reply #77: 12:27 EST uncertainty prevails

[UpInArms]

Dow 10,580.96 +23.33 (+0.22%)
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10-Yr Bond 4.273 +0.26 (+0.61%)

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12:00PM: Major indices hold onto respectable gains midday, as a sharp pullback in oil and strong sector leadership from Financial and Tech ahead of the Fed's decision this afternoon provide the impetus for a market rebound...

Following yesterday's record-breaking $4.39, or 7%, surge in the price of crude, consolidation efforts in crude oil prices (-$1.89 $65.50/bbl), on news that Hurricane Rita may now miss the refinery-rich Houston area and reports that OPEC will offer about 2 mln extra barrels of oil a day, has offered investors some relief ahead of another anticipated ¼% rate hike and uncertainty related to the wording in this afternoon's FOMC policy statement...

Providing the bulk of this morning's turnaround has been leadership throughout the influential Financial sector. Brokers' 1.4% spike, following Goldman Sachs' (GS 119.80 +1.52) stellar Q3 earnings report by which the company delivered EPS of $3.25, $0.90 ahead of analyst expectations, on $7.29 bln in revenues, has served as a particular bright spot today and adds to its 15.6% year-to-date rise. Technology has lent further momentum through its 0.9% surge. Qualcomm (QCOM 44.17 +1.46) has been the sector's early riser, lifted by Goldman Sachs' upgrade, while solid gains offered by a host of mainstays have contributed to the sector's standing and overall market's gains...

Energy, however, has continued to deteriorate in sympathy with falling oil prices while Consumer Discretionary has also traded below the flat line. The latter has been under modest pressure as investors weigh better than expected Q2 earnings and upside FY06 guidance from Circuit City (CC 16.49 +0.98) against Q3 earnings warnings from Leggett & Platt (LEG 21.02 -1.78), Brunswick (BC 38.26 -4.24) and Maytag (MYG 18.11 -0.43), with the latter weighing on acquirer Whirlpool (WHR 74.23 -2.02). Weakness in homebuilding (-0.6%), after Aug. housing starts fell 1.3% to 2.01 mln (consensus 2.03 mln) and building permits fell 2.2% to 2.12 mln (consensus 2.13 mln), has also stalled recovery efforts... However, the market as a whole has basically overlooked the morning's economic docket in favor of this afternoon's FOMC policy announcement (2:15 ET). While the potential 25 bp rate hike will come as little surprise, the market remains braced for the accompanying text that may allude to the Fed's longer-term tightening vision...

The Treasury market, on the contrary, has headed south. The 10-year note, which ended four sessions of declines yesterday on speculation that record jumps in energy prices would curb the economy, reversed that course today; the 10-year note is currently off 6 ticks, yielding 4.27%...DJTA +0.9, DJUA +0.3, DOT +0.6, Nasdaq 100 +0.8, Russell 2000 +0.4, SOX +1.0, S&P Midcap 400 +0.1, XOI -1.2, NYSE Adv/Dec 1814/1290, Nasdaq Adv/Dec 1706/1125

It seems that some gamblers have remembered that higher interest rates are not "market positive".