Stock Market Today: 3Q Ends with Worst Business Activity in 3 Years

The major headlines in the stock market today include: The third quarter stumbles to a close as economic activity shrunk for the first time in three years, concerns over Spanish banks persist and personal income falls.

• Third quarter ends with a dud– Stocks opened lower Friday as investors confront news that economic activity is shrinking for the first time in three years. Investors also remain worried over Spain's economic turmoil and are awaiting results from stress tests of Spanish banks. The market rallied yesterday after Spain's austerity budget was announced but uncertainty still outweighs any optimism concerning Europe. "The focus is back on Europe at this point," Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, South Carolina, told Bloomberg News. "It's this ebb and flow of crisis- response-complacency. You get everything fine for a while and then increase in stress."
• Business activity contracts for first time in 3 years- The Chicago Purchasing Managers' index fell to 49.7 in September, its lowest level in three years. The reading measures manufacturing and non-manufacturing activity in the Chicago region and is considered a mirror of national activity. Any reading under 50 signals contraction and this was the first time activity shrank since September 2009. The sharp decline from last month's 53 was very unexpected and shows the economy has not improved over the past four years. Breaking down the report, the employment index came in at a two-and-a-half year low and new orders, backlogs and deliveries had their-three month moving averages at the lowest since the third quarter of 2009. "The chain that links all this stuff together is just a loss of confidence as we head toward the end of the year in fiscal policy," Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York told Bloomberg. "Businesses have been cutting back on their investment spending."

Investors: Economic data like this reiterates why income is key. .

• Personal spending outgrows personal income- The Commerce Department reported that personal income grew only 0.1% in August while spending increased 0.5%. The rise in personal spending was mostly due to higher gas prices which rose 28.2 cents last month. Adjusting for inflation spending barely moved, gaining 0.1%. Consumer spending is said to account for 70% of the economy and a gain this small is certainly disappointing. What's worse is that consumers are saving less as their income continues to fall even as prices rise. After taking out taxes and inflation income declined 0.3%, marking the first decline since last November. "With other sectors of the economy slowing down, relying on consumers is not the exact position we want to be in right now when incomes are slowing sharply," Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York told Reuters.
• Research in Motion Ltd. (Nasdaq: RIMM) rallies after beating earnings- RIMM reported strong second-quarter revenues, fueled by sales of smartphones in emerging countries in Africa and Asia. The company was able to sell 7.4 million phones almost 500,000 more than projected. Yet RIMM still posted a net loss of 45 cents per share for the quarter compared to a profit of 63 cents last year. And even though sales were better than expected, revenue is down 31% from the year-ago quarter. RIMM is hoping for a successful launch of the Blackberry 10 in order to turn itself around. This is a start in that direction but they are still far from being a solid company. "If they can have another quarter of not burning cash and can get the device out in a few months, then investors are thinking, "Perhaps they have a chance to come back,'" said Neeraj Monga, an analyst at Veritas Investment Research in Toronto who rates RIMM a sell. RIMM is up almost 10% as of noon.

The Dow Jones was down 86 points, or 0.64%, and the S&P 500 was down 10.01 points, or 0.69% as of noon.

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