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October 16, 2014

Stocks went nowhere on Thursday despite opening lower again as markets in Europe were notably weak again ahead of the US open. Bond yields in Germany continued to power lower while yields in Greece rose the most in two years. US stocks finished the day little changed, though each of the averages were down more than 1% at their lows. The small-cap Russell 2000, for the fourth straight day, outperformed the major stock indexes and gained 1.4% on Thursday.

First, the scoreboard:

Dow: 16,117.2, -24.5, (-0.1%)
S&P 500: 1,862.7, +0.2, (+0.01%)
Nasdaq: 4,217.4, +2, (+0.05%)

And now, the top stories on Thursday:

1. On Thursday, St. Louis Federal Reserve president James Bullard moved markets after saying the FOMC should consider pausing the taper of its QE program; the Fed is currently on track to finish this program later this month. Speaking in an interview on Bloomberg TV, Bullard said that in the face of declining inflation expectations, this is something that the Fed should at least think about, and these comments sent stocks rallying off their lowest levels and jump-started the averages to begin meaningfully shaving their losses.

2. On Thursday, analysts at Credit Suisse noted that following recent market developments, including worries over global growth and declining inflation expectations, the market has pushed back its expectations for the Fed's first rate hike to the fourth quarter of 2015, the latest these expectations have been since May 2013.

3. The weekly report on initial jobless claims came in far better than expectations, as claims fell to 264,000 from 287,000 a week ago, the lowest level since April 15, 2000. Following the report, Ian Shepherdson at Pantheon Macroeconomics said, "In one word: Spectacular... Whether claims can be sustained at such a low level — an all-time low, as a share of employment — is debatable...but this is a clear signal of real strength in the labor market."

4. Industrial production data from the Federal Reserve showed that production rose 1% month-over-month in September, better than the 0.4% expected by economists. This also showed an increase of 3.2% on an annualized basis for the third quarter. "This was a very encouraging report, and the strong performance in the manufacturing sector will go some way in allaying fears about weakening momentum in this sector," TD Securities' Millan Mulraine said following the report.

5. The National Association of Homebuilders' Market Index unexpectedly fell to 54 in October from 59 in September. Expectations were for the reading to be unchanged at 59. Following the report, David Crowe, NAHB chief economist, said, "After the HMI posted a nine-year high in September, it's not surprising to see the number drop in October. However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market."

6. The Philadelphia Federal Reserve's latest manufacturing report came in better than expected, showing a reading of 20.7 against expectations for a decline to 19.8 from last month's 22.5.

7. Netflix shares got smoked on Thursday, falling about 19% after the streaming internet video company last night reported third quarter subscriber growth that missed expectations and gave a fourth quarter earnings outlook that disappointed. Following the report, Morgan Stanley analyst Benjamin Swinburne wrote in a note to clients that, "We are disappointed Netflix fell short of its 3Q guidance in both the US and internationally. However, stepping back from the miss, we see points of light particularly in the context of shares trading [at around $330.]" The steep drop in Netflix shares may have cost Carl Icahn up to $200 million.

8. Goldman Sachs was the latest of the big US banks to report earnings, reporting earnings per share of $4.57 against expectations for earnings of $3.21. "The combination of improving economic conditions in the US and a strong global franchise continued to drive client activity across our diverse set of businesses," CEO Lloyd Blankfein said. In the third quarter, investment banking revenue at the firm rose 26%.

9. Warren Buffett has begun reducing his stake in Tesco, the UK retail chain that has seen ten senior executives either been asked to leave the firm or resign since the company acknowledged it overstated profits by $316 million. Buffett has trimmed his stake to less than 3% of the company, down from a stake of almost 4% at the beginning of the month.

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