US Market Commentary (After Market Close): Dollar's Gain Drags Down Stocks

A stronger dollar dampened the mood of participants for the entire session, resulting in broad-based losses for stocks.

Stocks had spent the first part of the session chopping around listlessly, but began to slide as the U.S. dollar was able to further extend its rebound from the previous session, when the Dollar Index registered a fresh 52-week low. Though the greenback made a couple of pullbacks in the early going, it never left positive territory. That induced some short covering, which helped it finish the session with a 0.8% gain, its best single-session percentage advance in more than one month.

Stocks chopped along in listless action during the early going and briefly made their way to modest gains amid momentary pullbacks by the greenback, but stocks soon fell into the red as the dollar firmed up its gains. Amid the dollar's strong advance, the S&P 500 logged its worst performance by percent of this month, though to be fair, the only other loss this month took place earlier this week when the broader market slipped less than 0.01%.

Energy stocks were the worst performers this session. Their weakness was worsened by sharply lower oil prices, which dropped 3.0% to settle pit trade at $76.91 per barrel. Oil prices had started pit trade lower amid gains in the greenback, but its slide was exacerbated by disappointing weekly inventory data. Both crude oil and gasoline had surprisingly large builds.

Strength in the dollar weighed on other commodities, too. In turn, the CRB Commodity Index fell 1.6%. That didn't hurt materials stocks too much, though. The materials sector settled a relatively tame 0.6% lower, but that is owed to a strong run up in shares of Dow Chemical (DOW 28.60, +1.89), which announced today a handful of divestitures and business agreements.

Among the other corporate announcements, Wal-Mart (WMT 53.24, +0.27) posted better-than-expected third quarter earnings of $0.84 per share and raised its fiscal 2010 forecast to range from $3.57 to $3.61 per share, which still brackets the consensus estimate of $3.58 per share, but allows for more of an upside surprise. On a similar note, Hewlett-Packard (HPQ 49.70, -0.30) issued upside guidance for the fourth quarter, saying that it expects to bring in $1.14 per share, and also raised its forecast for fiscal 2010 to the range $4.25 to $4.35 per share so that there is more room to exceed the current consensus of $4.28 per share. HP's announcement was made in conjunction with news that it will acquire 3Com (COMS 7.46, +1.77) for some $2.7 billion in cash. Applied Materials (AMAT 12.82, -0.43) reported that it brought in better-than-expected adjusted earnings of $0.11 per share. It went on to issue a strong revenue forecast that predicts top line growth in excess of 30% for fiscal 2010.

Improved jobless claims data did little to lift the mood of participants. The latest initial jobless claims tally drifted to a lower-than-expected 502,000, which is the lowest weekly total since January. Meanwhile, continuing claims came in at 5.63 million, which is the lowest level since March. That decline is owed to the expiration of unemployed benefits, not new hiring, however.

Treasuries had a solid session, despite an initially negative response to news that a $16 billion auction of 30-year Bonds produced a lower-than-expected bid-to-cover ratio of 2.26 and a lower-than-expected yield of almost 4.47%. The 30-year Bond finished the session up some 14 ticks, while the benchmark 10-year Note advanced 12 ticks. Their respective yields stand at 4.39% and 3.44%.

Separately, the Treasury budget for October came in with a $176 billion deficit, which is worse than the $165 billion deficit that had been widely forecast. According to CNBC, that is the steepest October deficit on record.