Monday Morning Outlook

Investors turned cautious throughout the week, flocking to safer investments like Treasuries and the Dollar as stocks continued to trade in the red. The mood was weakened throughout the week as disappointing economic and corporate news pushed the indices off their 13-month highs established earlier in the week.

While builders waited to see whether a tax credit for homebuyers would be extended, construction of new homes unexpectedly plunged in October, falling 10.6% to a seasonally adjusted rate of 529K units. October’s reading comes in well below September’s tally of 592K, and well below economists’ prediction of 600K units.

The results amplified just how dependent the housing market is on government support to aid its recovery. Meanwhile, applications for building permits, a widely used measurement of future activity, plunged 4% to an annual rate of 552K units, well below analysts' expectations of 580K.

The number of first-time claims for unemployment benefits remained unchanged for the week ending November 14. There were 505K claims, which matched analysts’ expectations. Initial claims, which are used as a measurement of the pace of layoffs and the willingness of companies to hire new workers, remain nearly 22% below the total number of claims filed earlier this spring and just below the 533K claims this time last year.

Meanwhile, the total number of out-of-work people continuing to receive benefits dropped by 39K to a seasonally adjusted 5.6M. However, there were almost 4.2M people receiving benefits from the government’s extended program, up by more than 120K claims from the previous week.

On the brighter side, consumer prices advanced at a rapid pace in October. Rising costs for energy spurred the increase. For the month, prices at the consumer level gained 0.3%, just ahead of the 0.2% jump economists had projected. However, overall prices were down from this time last year, lower by 0.2%, as the recession continues to restrict prices.

Core inflation, which excludes energy and food costs, increased 0.2% in October, just above the 0.1% jump expected. During the month, energy prices rose 1.5%, the biggest increase since a 4.6% jump in August, while food prices edged up 0.1%. Outside of food and energy, the 0.2% jump in core inflation was led by a 1.6% surge in the price of new autos.

Lastly, the U.S. index of forward-looking leading economic indicators advanced 0.3% in October, just shy of the 0.4% gain economists were anticipating. The 0.3% increase follows a 1% gain in September and a 0.4% increase in August. The report showed that six of the ten indicators making up the survey advanced during the month, which was aided by such factors as interest rates, initial unemployment insurance claims and stock prices.

The week ahead will see a handful of economic data released that will include the FHFA Home Price Index report for September, the revised Michigan Sentiment and Consumer Confidence for November, as well as the preliminary readings for GDP and GDP Deflator for the 3rd quarter.

The week will also include the Existing Home Sales, Personal Income, Personal Spending, PCE Prices, Durable Orders and New Home Sales reports for October, along with weekly results for Initial Claims and Crude Inventories will also be revealed.

The DOW closed the week higher, adding 47.69 points, or 0.5%, to close at 10,318.16. The S&P finished the week in the red, falling 2.10 points, or 0.2%, ending at 1,091.38. The NASDAQ also concluded the week down, slipping 21.84 points, or 1.0%, to close at 2,146.04.