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Stock Market Update for 10/19/2010

October 19, 2010

Stocks are notably lower in mid-morning trading on Tuesday, as China’s rate hike spurred an upward move in the dollar which has substantially weakened equities. The unexpected news out of China overshadowed the day’s strong quarterly results from the likes of Bank of America (BAC) and Coca-Cola (KO).

The major averages have all moved off of their lows in recent dealing, but still remain firmly in the red. The Dow is down by 105.88 points or 1 percent at 11,037.81, the Nasdaq is down by 28.07 points or 1.1 percent to 2,452.59 and the S&P 500 is down by 10.85 points or 0.9 percent at 1,173.86.

The decline in U.S. stocks comes as China’s central bank raised its key interest rates unexpectedly by 25 basis points in a bid to cool accelerating inflation and overheated economy. The People’s Bank of China hiked the one-year benchmark deposit rate to 2.50 percent from 2.25 percent and the one-year lending rate to 5.56 percent from 5.31 percent. It was China’s first tightening move since December 2007.

In earnings news, Bank of America reported adjusted third-quarter net income of $0.27 per share on revenues of $26.7 billion. Wall Street analysts expected the company to report earnings of $0.16 per share on revenues of $27.15 billion for the quarter.

Coca-Cola Co. posted adjusted third-quarter net income of $0.92 per share, topping expectations for $0.89 per share for the quarter. Revenues for the quarter were $8.43 billion, beating projections called for $8.30 billion for the quarter. The company also said that it expects to repurchase about $2 billion in shares by the end of 2010.

Further, Johnson & Johnson (JNJ) said its third-quarter net earnings rose to $1.23 per share from $1.20 per share in the same quarter last year. Analysts expected the company to report earnings of $1.15 per share. Sales to customers for the quarter declined to $14.982 billion and were short of estimates for $15.18 billion.

The company raised its earnings guidance for full-year 2010 to $4.70 – $4.80 per share, reflecting recent currency exchange rates. Analysts expect the company to report earnings of $4.70 per share for fiscal 2010.

New York-based investment banking firm Goldman Sachs Group, Inc. (GS) announced third quarter earnings of $2.98 per share, exceeding expectations for $2.28 per share. Net revenues for the quarter were $8.90 billion, firmly topping projections for $7.92 billion.

After the closing bell on Monday, Apple Inc. (AAPL) said that its fourth quarter profit jumped 70 percent from last year, driven by strong computer, iPhone and iPad sales. The company’s quarterly earnings per share breezed past Wall Street expectations along with its quarterly sales.

IBM Corp. (IBM) said that its third-quarter profit increased 12 percent over last year, reflecting healthy results from its hardware, software and services businesses, as well as expanded margins.

Quarterly earnings came in well ahead of the analysts’ expectations, as did revenues. Looking ahead, the company raised its earnings outlook for fiscal year 2010 for the second time.

On the economic front this morning, the Commerce Department reported that housing starts rose by 0.3 percent in September to a yearly rate of 610,000 units. The jump surpassed average economist estimates for the rate to rise to 579,000.

On the other hand, building permits fell 5.6 percent to an annual rate of 539,000. The drop was steeper than expected, with economists projecting the rate to fall to 565,000 from 571,000 initially reported last month.

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