Stocks Trade Lower

U.S. stocks were lower in slow trading Tuesday afternoon amid some profit taking after There was some volatility tied to a mixed bag of earnings reports, including some disappointing tech-sector results. Investor Kirk Kerkorian also liquidated the bulk of his Ford Motor Co. (F) holdings. Energy stocks were lower as oil futures skidded on economic slowdown worries and an expected increase in U.S. petroleum inventories.

Traders were also keeping an eye on credit default swap (CDS) settlements for Lehman Brothers' and WaMu.

S&P MarketScope notes that many advisers say equity prices are unusually attractive and many hedge funds, believing the market is at a bottom, are becoming fully invested in stocks. But other observers remain bearish.

Many market players say the market has discounted a recession, notes S&P MarketScope. But some economists say this recession will be steeper and longer than many anticipated, as the U.S. financial crisis -- and economic slowdown -- have become global.

Bond prices were sharply higher amid the weakness in equities. The U.S. dollar index was surging. Gold futures were lower, while oil futures fell.

At around 3:10 p.m. ET Tuesday, the Dow Jones industrial average was lower by 38.23 points at 9,227.20. The S&P 500 index fell 6.84 points to 978.56. The tech-heavy Nasdaq composite index shed 32.11 points to 1,737.92.

On the New York Stock Exchange, 18 stocks fell in price for every 13 that gained. The ratio on the Nasdaq was 17-10 negative.

Lehman Brothers' credit default swaps worth hundreds of billions of dollars came due Tuesday. According to the Depository Trust & Clearing Corporation, the liquidation process for forward open commitments involving Lehman's CDS settlements has been completed. The FICC announced that "no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades."

"So it looks as though there was no major fallout from the settlement to member firms," wrote Action Economics analysts in a website posting Tuesday. "We'll have to wait to see if there was a broader market impact, however."

The New York Times reported Monday that New York State and federal prosecutors are investigating trading in credit-default swaps, the insurance like securities that have come under close scrutiny for their role in the financial crisis.

Kirk Kerkorian's Tracinda Corp on Monday sold 7.3 million Ford shares at an average $2.43 price, and intends to further reduce its remaining 135.5 million shares (6.09% of the total outstanding).

Fedspeak is due from Minneapolis Fed President Gary Stern on "Policy and the Economy in the Wake of the Shock" but the dinner speech will be well after the market close and won't be a factor this session, says Action Economics.

Treasury Secretary Henry Paulson will discuss "China and the Global Economy" before a U.S.-China Annual Gala in New York City Tuesday evening.

On Tuesday, the Fed announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors. Under the MMIFF, the New York Fed will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The Fed said "short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households."

Reuters reports the interbank cost of borrowing dollars, euros and sterling fell across all maturites on Tuesday, the British Bankers' Association's daily fixing showed. Dollar overnight rates were fixed below the Federal Reserve's 1.5% target for its federal funds rate, and overnight euros were fixed further below the European Central Bank's 3.75% target. The spread of three-month London interbank offered rates over OIS rates for all three currencies narrowed.

U.S. ICSC-UBS chain store sales index fell 1.6% in the week ended October 18, after a 0.7% increase the week before. On a weekly, year-over-year basis, sales slowed to a 0.9% rate versus 1.0% previously. The month-to-date, year-over-year pace was steady at 0.6%. The ongoing turmoil in the financial markets and the jagged moves in stocks has tempered consumption, even as gas prices have fallen sharply, notes Action Economics.

There are no other significant economic reports scheduled for release Tuesday.

In markets outside the U.S. Tuesday, London stocks fell 1.24%, Frankfurt stocks fell 1.05%, but Paris stocks rose 0.78%. Tokyo stocks rose 3.34%, Hong Kong stocks fell 1.84%, and Shanghai stocks fell 0.78%.

Treasuries were higher after a subdued, fairly normal overnight trade. The 10-year note was higher in price at 102-15/32 for a yield of 3.705%, while the 30-year bond was higher at 105-07/32 for a yield of 4.195%.

The U.S. dollar index was up 1.19 to 84.16 amid reports global banks are picking up the U.S. currency for their funding needs. Reuters says Bernanke's conditional endorsement of a second U.S. economic stimulus plan boosted the buck even though the concept would require the Washington issuing more debt.

After dipping to lows of $69.77 earlier in the session, November West Texas Intermediate crude oil futures traded at $70.68 Tuesday afternoon, down $3.57 per barrel on the day.

Among Tuesday's stocks in the news, Texas Instruments (TXN) reported third-quarter earnings per share (EPS) of 43 cents, vs. 54 cents one year earlier, on a 7.4% revenue decline. The company said revenue was weak because consumers and corporations reduced their spending. TI expects fourth quarter revenue to decline substantially based on weak order trends. The company will reduce annual expenses by more than $200 million in its Wireless business, especially in its cellular baseband operation, and is pursuing the sale of the merchant portion of this operation. Deutsche Bank reportedly downgraded the shares to hold from buy.

American Express (AXP) posted better-than-expected third-quarter EPS from continuing operations of 74 cents, vs. 94 cents one year earlier, as slowing growth in Cardmember spending, moderating lending volumes, and significant additions to loan loss reserves offset a 3% revenue rise. Wall Street was looking for EPS of 59 cents. AmEx said it will reduce operating costs and staffing levels, and will record a related charge in the fourth quarter.

DuPont (DD) posted third-quarter EPS of 56 cents, vs. 59 cents (excluding items) one year earlier, as higher costs and expenses offset a 9.3% sales rise. DuPont sees fourth-quarter EPS of 20-25 cents, which reflects continuing hurricane-related business interruption impacts of about 10 cents and expected weakening demand in North American and Western European markets. The company cut its $3.45-$3.55 2008 EPS guidance to $3.25-$3.30.

3M Co. (MMM) posted third-quarter EPS of $1.42, vs. $1.29 one year earlier (both excluding special items), on a 6.2% revenue rise. The company sees $5.40-$5.48 2008 EPS (excluding special items).

Caterpillar (CAT) reported third-quarter EPS of $1.39, vs. $1.40 one year earlier, as slightly higher operating expenses offset a 13% revenue rise. The company continues to expect 2008 sales and revenue to be more than $50 billion and EPS of about $6.00. It expects 2009 sales and revenue to be flat with 2008. Overall, Caterpillar says it expects world economic growth will slow from 3.8% in 2007 to 2.8% in 2008.

Pfizer (PFE) reported third-quarter adjusted EPS of 62 cents, vs. 58 cents one year earlier, on a 2% rise in adjusted revenues. Based on year-to-date performance, and the outlook for the remainder of 2008, Pfizer raised the lower end of its 2008 revenue guidance range to $48 billion-$49 billion from $47 billion-$49 billion.

Freeport-McMoRan Copper & Gold (FCX) reported third-quarter EPS of $1.31, vs. $1.87 one year earlier, on an 8.9% revenue decline amid lower copper prices. The company said it is revising its operating plans to target reductions in costs, defer or eliminate capital projects, defer exploration expenditures and potentially curtail production at high-cost operations given weaken industry and economic conditions.

Fifth Third Bancorp (FITB) post ed a third-quarter loss per share of 14 cents, vs. 61 cents EPS one year earlier, as higher credit costs and market valuation adjustments offset a 41% rise in net interest income.