Today's Market Update with...

William Ferguson, Value Line's Senior Industry Analyst

It was a mixed session of trading on Wall Street yesterday, as the Dow Jones Industrial Average moved 14 points higher to end the day at 9,882, while the NASDAQ fell 26 points (or 1.2%). The Dow received a nice boost from IBM, as investors took kindly to the news that the bellwether plans to double its stock repurchase fund, which now stands at approximately $10 billion. In all, the bears still outpaced the bulls, making it five out of the last six trading days.

Investors spent most of yesterday digesting a series of reports (discussed below) that may well shed some light on the possible scope of a U.S. economic recovery, at least in its initial stages. The consensus reaction seemed to be mixed, which was likely the reason for the uneven performance of the equity market.

On the positive side, investors were pleased with the results of The Standard & Poor’s/Case-Shiller home price index, which showed that home prices in 20 major metropolitan markets rose for the third consecutive month in August. And although home prices fell 11.4% year-over-year in August, the magnitude of the decline has slowed since February, an indication that the housing market, which is a key cog in any long-term economic recovery, appears to be stabilizing.

Still, concerns linger in the investment community about the size of a potential economic recovery, as The Conference Board’s Consumer Confidence index fell unexpectedly, to 47.7, in October—its second lowest reading since May. The data fueled worries that consumers might not be ready to spend during the upcoming holiday season. Consumer strength, which has been hurt by the worst employment picture in more than 25 years, is considered vital to any economic recovery. Thus, we continue to expect growth to slow in the final quarter of 2009.

We believe that this all adds up to what will be another volatile trading session on Wall Street today. With less than an hour to go before trading commences, the futures are pointing to a lower opening for the market. The new day brings another round of earnings releases and some data on the housing market and durable goods. All of this comes prior to the much anticipated release of third-quarter GDP data tomorrow. At first glance, our feeling is that another session of profit taking may be in store for the market today. Stay tuned.