Tuesday's Brew (Nov 7)

Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. Stock futures were higher in pre-market activity, but a comparison to fair value, which predicts the direction of equities at the open, points to the S&P 500 opening slightly higher while the Nasdaq looks set to open a bit lower. Tuesday marks election day, and is likely to monopolize the news media and top traders' concerns. One-third of the Senate seats and 435 House positions will be in play.

OVERSEAS MARKET NEWS

Markets in Asia were mostly noneventful today, outside of Australia, where the S&P/ASX 200 Index rose 0.87%. Australia's indices benefited from anticipation of a favorable rate decision on Wednesday from Australia's Reserve Bank.

Stocks were up across Europe this morning. The Euro Stoxx 50, measuring stocks across the 12 member nations, was up 0.4% just past midday Tuesday. The rise in Europe is generally being attributed to the strength in corporate earnings and to takeover activity.

ECONOMIC DATA & NEWS

Heading the economic news front, consumer credit for September is expected by economists surveyed by Bloomberg to increase by $6 billion, after showing $5 billion growth in August. The question we have been juggling with for years is just how far extended can the American consumer get before he goes bust. The rise of interest rates has certainly begun to strain the consumer, and housing defaults and foreclosures are on the rise, but still not at a concerning level.

However, today Toll Brothers (TOL) added more fuel to the fire, with its outlook on housing. TOL's fiscal Q4 revenues fell 10%, and the home builder further reduced its forecast for the number of homes it expects to construct in its FY 07. Chairman & CEO Robert Toll's comments were telling, as he said, "We continue to look for signs that a recovery is imminent but can't yet say that one is in sight.''

Chicago Fed Chief Moskow's comments fell on deaf ears yesterday, as he indicated that interest rates may yet be raised. We view this as a sign that the recent trend lower for stocks has lost some technical strength, and would need further catalyst to head decisively lower in the near-term. Cleveland Fed head, Sandra Pianalto offset Moskow's comments, stating "I expect the economy to weather the recent challenges in the housing market.''

In our opinion, the economic fuel that has driven shares lower recently is running out of steam. However, today's election results could start the trend down another level should the Democrats score victories and take control of Congress. However, anything short of that, we anticipate will help solidify ground under current market levels near term.

COMMODITY MARKET ACTIVITY & NEWS
Gold is down fractionally this morning, as sugar leads all commodities, up nearly 4%. On the downside, natural gas is slipping approximately 2.5% today. Crude is unchanged, despite a rebel seizure of a pumping station in Nigeria yesterday. One-fifth of U.S. oil imports are sourced from Nigeria, and the current situation has affected 50,000 barrels a day of production. Refinery maintenance season has ended, and capacity usage is rising, so we expect oil inventory growth to weaken while gasoline inventory should strengthen. This should help the consumer, as gas prices should benefit, barring any significant crude interruption.

STOCKS

Reporting earnings on Tuesday, Dean Foods, Emerson Electric, RR Donnelley & Sons, International Game Technologies, Sara Lee Corp., Tenet Healthcare, and Watson Pharma Inc. The big story today is Toll Brothers and Beazer Homes, both reporting that the housing slump continues, in our opinion. The general tone for stocks today, in our view, is negative, and we expect much of yesterday's gain to be given back today. We hope you enjoyed your "Morning Coffee" and we wish you a good day trading. Read our weekly market-moving event planner at "The Greek's Week Ahead." (disclosure)