Stocks Surge on Rate Cut Hopes

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0% in September and 12.4% in August; excluding transportation, new orders were down 0.7%. Nondefense capital goods orders excluding aircraft were down 2.3%. Shipments rebounded 0.6% after a cumulative decline of 3.6% over the prior two months. Nondefense capital goods shipments excluding aircraft were down 1.2%. Inventories rose 0.2%. The inventory/shipment ratio dipped to 1.47 from 1.48.

While the headline data are weaker than expected, the overall volatility in the data, and the mix of this data set, probably won't give much direction to the markets, says Action Economics.

The report revised the third-quarter GDP component outlook by shaving $1 billion from Action Economics' assumption of a $14 billion boost to third-quarter inventories and adding $1-$2 billion to its assumed $4 billion increase to fixed investment. Action Economics said it still expects a sharp upward revision in third-quarter GDP growth to 4.8% from 3.9%, while its fourth-quarter forecast remains at 1.7%. For equipment and software spending, it expects the 5.9% gain in the third quarter to rise to around 6.5%, and now sees a 1% rate of decline in the fourth quarter instead of its prior flat forecast.

The Fed Beige Book, covering the survey period of October to mid-November, showed a slowing pace to economic growth, with retail spending relatively soft and retailers expecting a slow holiday season. The Dallas Fed reported a rise in demand for legal services for bankruptcy filings, a sign of a weakening economy.

Ablin at Harris predicts that retail sales will climb 2% to 4% this Christmas from a year ago, about half the growth rate seen in last year's holiday season.

Existing home sales fell 1.2% in October to an annualized rate of 4.97 million units from a revised 5.03 million units in September. Economists had expected a decline to a 5.00 million annualized rate in October. Single-family home sales were unchanged in October, while multi-family sales fell 9.1%.

October's sales decline extended the big August-September drop-off, which suggests that disruption effects from credit market turmoil continued for another month. The 3.0% bounce in October housing starts reported last week had fanned some hope that the mortgage market bottlenecks following August's market seize-up were unwinding, but that didn't pan out. It may be that the natural lag in the existing home sales figures, since they are counted at closing rather than initiation, may have delayed any bounce, though any rebound in November would be from a much weaker level, Action Economics said.

"Given recent developments in the financial markets, it is too soon to say that October's diminished rate of decline in sales is a sign of potential stabilization," Bear Stearns' U.S. chief economist John Ryding said in a research note. He also noted that the three-month rates of decline in home sales are more than double the 12-month decline rates.

The era of $100-a-barrel will have to wait a little longer. January NYMEX crude fell $2.92 to $91.50 per barrel on Wednesday, after a smaller-than-expected drawdown in U.S. crude stockpiles. The Energy Information Administration reported that crude inventories dropped by 400,000 barrels in the week ending Nov. 23, less than one-third the 1.4 million barrel draw that had been forecast. Distillate inventories fell by 100,000 barrels, while gasoline stockpiles rose by 1.4 million barrels last week.

Among other stocks in the news Wednesday, Herman Miller (MLHR) shares rose 17.9% after it raised its second quarter EPS guidance to 56-63 cents (excluding a charge) on sales near or slightly above the top-end of previous guidance of $475-$500 million. The office-furniture maker also raised its long-term operating income target to 13% of sales.

CBRL Group (CBRL) posted first quarter EPS of 57 cents vs. 45 cents from continuing operations on 1.8% higher same-store sales at Cracker Barrel Old Country Stores, and 4.1% higher total sales. The restaurant operator sees 3% to 4% fiscal 2008 revenue growth, and $3.00-$3.15 EPS from continuing operations. Shares fell 4.1%.

QLT Inc. (QLTI) shares jumped 23.9% after it said its directors have formed a special committee to review all strategic alternatives available to the company, including transactions involving the sale of all or part of the assets of the company.

Overstock.com (OSTK) shares climbed 14.7% on an upgrade by Stifel Nicolaus to a hold from a sell rating.

European stocks advanced Wednesday. In London, the FTSE 100 index climbed 2.70% to 6,306.20. In Paris, the CAC 40 index rose 2.34% to 5,561.21. Germany's DAX index gained 2.55% to trade at 7,723.66.

Major Asian markets finished mixed. Japan's Nikkei 225 index fell 0.45% to 15,153.78. In Hong Kong, the Hang Seng index added 0.59% to 27,371.24.

Treasury market

Bonds, which had rallied recently on perception the Fed would lower rates at the Dec. 11 meeting, moved lower Wednesday as stocks gained.

The 2-year Treasury note was off 06/32 to 100-27/32 for yield of 3.17%, 10-year notes fell 21/32 to 101-25/32 for a yield of 4.03% and the 30-year bond dropped 30/32 to 109-16/32 for a yield of 4.42%.

Bogoslaw is a reporter for BusinessWeek's Investing channel .