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Stocks on the Defensive as Investors Awaited the Volcker Rule

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Stocks on the Defensive as Investors Awaited the Volcker Rule

Stocks started the trading session on the defensive as investors awaited the Volcker rule decision that would likely alter the course of revenue generation for the nation’s largest banks.  China notched up strong Retail Sales numbers which helped buoy equity bourses.  Earning for housing builders continue to impress market participants as housing prices continued to rise.  As the session wore on, the major indices continued to decline with all three major indices settling down for the session.

Toll Brothers Inc.’s (NYSE:TOL) fiscal fourth-quarter earnings sank compared with last year, but the luxury homebuilder expects both revenue growth and increasing profitability in fiscal 2014.  For the quarter that ended Oct. 31, it earned $94.9 million, or 54 cents per share. That compares with earnings of $411.4 million, or $2.35 per share, in last year’s quarter. Revenue soared 65 percent to $1.04 billion. Analysts expected earnings of 43 cents per share on $1.03 billion in revenue.

The Volcker Rule, which was formally adopted on Tuesday by financial regulators, started out as a way to keep big banks from making risky bets with insured deposits.  The focus turned to limiting how banks can hedge their risks, and altering proprietary trading. The end result is a rule intended to safeguard deposits may expose banks to unnecessary risk.

Once of the main issues which will be difficult is determining how market making is view relatively to proprietary trading.  If a bank takes on risks that cannot be hedge from one of their customers, will the residual risks be considered proprietary trading.  This issue has not been resolved, and will likely continue to be flushed out over the course of the next year.
 
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The S&P 500 index moved lower but volume was light allowing the accumulation / distribution line to remain stable despite the down move.  The index is trading above the 50 and 200 day moving averages keeping the uptrend intact.

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