Stocks: A Positive End to a Horrible Month

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In U.S. economic news Friday, U.S. consumer sentiment was unchanged at 57.6 in the final reading on from the October University of Michigan report, compared to the 57.5 in the preliminary, which had plunged from 70.3 in September. The current economic conditions index dipped to 58.4 from the preliminary 58.9 (September 75.0). The economic outlook index edged up to 57.0 from 56.7 in the preliminary (67.2 in September).

U.S. Chicago PMI slumped to 37.8 in October, from 56.7 in September, the lowest headline reading since 2001. The employment index fell to 41.5 from 49.1. Production plunged to 30.9 from 71.4, as did new orders which dropped to 32.5 from 53.9. Prices paid declined to 53.7 from 80.7.

"The data are much worse than expected, but they do parallel the fall-off in other purchasing managers surveys, including Philly and New York," says Action Economics.

U.S. consumer spending fell 0.3% in September, led by a 3.1% drop in durable spending that reflects weak car sales. Incomes rose 0.2%. Income was a bit stronger than the consensus estimate, while spending was in line. Employee compensation rose 0.1%, but transfers surged 2.0% mostly reflecting insurance payments for damage caused by Hurricane Ike. The savings rate rose to 1.3% from 0.8% in August.

"Consumers continue to spend more than they should," wrote S&P economists in a note Friday. "We expect the saving rate to rise further in coming months."

The U.S. employment cost index increased 0.7% in the third quarter, in line with expectations. This corresponds to only a 2.9% year-over-year increase, the weakest such gain in 11 years. Wages and salaries rose 0.6%, which corresponds to a 3.1% year-over-year gain compared to 3.3% in the second quarter, held back by less commissions and bonuses given in the weak economy. Benefit costs rose 0.6%, bringing the year-over-year rate to 2.6% from 3.2% the quarter before.

"The data continue to reflect the subdued trend in employment costs to help to ease some of the inflation concerns at the Fed," according to S&P economists.

In a specch Friday, Bernanke said that regardless of the organizational form, "we must strive to design a housing financing system that ensures the successful funding and securitization of mortgages during times of financial stress but that does not create institutions that pose systemic risks to our financial markets and the economy." He said the government "likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress." But he warned that "once government guarantees are involved, the problems of systemic risks and contingent taxpayer involvement must be dealt with clearly and credibly." Bernanke said achieving "the appropriate balance among these design challenges will be difficult, but it nevertheless must be high on the policy agenda for financial reform."

Among other stocks in the news Friday, Intel Corp. (INTC) reportedly said in an SEC filing that the financial crisis could have a negative impact on its business and financial condition, and that the crisis could make it unable to obtain short-term financing of the operations from issuance of commercial paper.

The prospects for a Web-advertising partnership between Google (GOOG) and Yahoo (YHOO) have dimmed, according to a Wall Street Journal report, with both sides considering walking away from the deal as early as next week, citing people familiar with the matter.

Biogen Idec (BIIB) elected to participate with Genentech (DNA) in the development and commercialization of GA101 in the U.S. GA101 is a novel humanized anti-CD20 monoclonal antibody engineered to increase both direct- and immune-mediated target cell death for the potential treatment of hematologic malignancies.

NYSE Euronext (NYX) reported pro forma non-GAAP third quarter EPS of 72 cents, vs. 75 cents one year earlier, despite a 16% revenue rise.

Aon Corp. (AOC) posted third-quarter EPS from continuing operations (excluding certain items) of 69 cents, vs. 52 cents one year earlier, on a 6% revenue rise.

Electronic Arts (ERTS) posted a second-quarter non-GAAP loss of 6 cents per share, vs. 27 cents EPS one year earlier, despite a 20% revenue rise. Sales were driven by the launches of Madden NFL 09, SPORE, Mercenaries 2: World in Flames, NCAA Football 09, Tiger Woods PGA Tour 09, Warhammer Online: Age of Reckoning, as well as the continued strength of Rock Band. The company will cut 6% of its workforce. It sees fiscal 2009 non-GAAP EPS of $1.00-$1.40 on revenue of $5 billion-$5.3 billion (non-GAAP basis). Wall Street is looking for $1.42 fiscal 2009 EPS.

Burger King Holdings (BKC) posted first-quarter adjusted EPS of 38 cents, vs. 35 cents one year earlier, on 3.6% higher same-store sales and 12% higher total sales. Wall Street was looking for 39 cents. The company reaffirmed its fiscal 2009 EPS forecast of $1.54-$1.59.