Market Wrap - Home Prices, Growth Slowing, and Stock of the Day

Stocks across the board closed lower with the S&P 500 falling by 0.5% and the tech-heavy NASDAQ holding up a little better with a loss of 0.3%.

The SPDR Gold ETF ($GLD) lost 0.4% and the US Oil ETF ($USO) gave back 0.7%.

• The bears can thank Congress and the Fiscal Cliff for the afternoon selling binge that took stocks from unchanged to the red. When politicians come out and say there is no room being made in regards to the fiscal cliff it is never good for stocks. That is exactly what happened during the 2pm hour and why stocks gave back some of the gains from last week.
• Before the opening bell the OECD slashed global growth estimates for 2013 and 2014. For 2013 the organization see growth of 2.9% versus previous estimates of 3.4% for the global economy. In 2013 the economy is expected to grow by 3.4%, however that is lower than the 4.2% they predicted in May. The OECD sees the US growing by 2.0% next year IF they take care of the fiscal cliff situation. The Eurozone will stay in recession according to the OECD and will contract by 0.1% in 2013 before returning to growth in 2014 with a gain of 1.3%.
• Home prices rise in the month of September by 3% year-over-year according to Case-Shiller. Prices are now 26% off their 2006 peak. The 3% increase is the largest annual jump since July 2010 and the streak of increasing prices is now at 6 months. The iShares Dow Jones Home Construction ETF ($ITB) closed with a gain of 0.1% on the day.
• Some top performing stocks and ETFs we follow at PFG:
• Cree ($CREE) up 3.4%
• iPath Grains ETN ($JJG) up 2.1%
• Linn Energy ($LINE) up 1.0%
• Dillard's ($DDS) up 2.2%
• CAI International ($CAP) up 1.6%
• Trex ($TREX) up 0.8%
• Stock of the Day: Visa ($V) was down 0.3%, but is only two days removed from an all-time high and if the holiday sales number continue to impress it should be a boost for the credit card company.

Stocks Remain Attractive

In the last few weeks the estimates for 2013 earnings for the S&P 500 have come down slightly based on a poll of a number of analysts. This is never a good thing, however even with lowered expectations the market is trading at extremely attractive levels based on historical numbers.

The consensus estimate for 2013 is $113 in earnings for the S&P 500. Based on today's closing price the index is trading with P/E ratio of 12.37 using the estimate. The current 2014 estimate is for earnings to jump into the mid-$120's. Anyway you slice it, the market is CHEAP based on the futures earnings estimates.

The key word here is "estimates". The number can change dramatically if the US falls off the fiscal cliff or if Europe goes deep into a double dip recession. But, even if 2013 drops to $105 in earnings, the S&P 500 is still only posted a P/E ratio of 13.31.

THE BOTTOMLINE: Stocks are cheap if you are a long-term investor.

Market Recap - Romney Bounce?

Romney Bounce 
Was the stock market bounce during the last three hours of trading driven by something more than just late day buying? Or was it the fact that traders were betting on a Romney victory tomorrow to push stocks higher? Honestly, it was probably a few traders betting on Romney, but with such low volume the market can be moved easily. We will know more about what the market thinks during tomorrow's trading session. Regardless of who you are voting for, stocks would prefer a more "market friendly" Romney in the short-term.

S&P Holding Support
The  S&P 500 continues to hold support above the 1400 area with a low today of 1408 before bouncing and closing at 1417, up 3 points. Tomorrow will likely see more below average volume as traders wait for the announcement of the leader of the free world for the next 4 years. As long as the index can continue to trade above support the longer term uptrend remains intact and investors need to be leaning heavily to the bullish side.

Utilities Not Holding Support
One sector that has been lagging the overall market and is breaking through support is the Utilities. The SPDR Utilities ETF (XLU) was down 1.6% today is trading that the lowest level in 5 months. Even though the ETF offers an attractive dividend yield of 3.6%, the high valuation (for utilities) is too much for investors to ignore. There is also the fact investors are willing to take more risk today than they were last year and will prefer avoid the "safe" sectors such as utilities and consumer staples. I will continue to underweight the sector for the near future.

Falling Oil Good for Airlines
The price of oil bounced 1% today, but this is after falling about 15% in the last 6 weeks. This is good for anyone filling up their tanks (that is assuming you can get gas in the Northeast) and especially the airlines. Even Superstorm Sandy could not hold back the Airline stocks. Today the Guggenheim Airline ETF (FAA) gained 1.0% and is closing in on a 4-month high. We recommended buying FAA in our ETF Bulletin newsletter for subscribers in late September and the ETF is up 5% since that email alert.

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