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David Moenning's Daily State of the Markets: 2/7

February 7, 2008 9:34 AM EST
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Price: $183.69 --0%

Rating Summary:
    15 Buy, 23 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 10 | New: 10
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Hope Proves Elusive

Here's a link to listen to an Audio Version of the report

Although the bulls appeared to be on track for a bounce after Tuesday’s thrashing, hope for improving market sentiment proved elusive yesterday as fear once again wound up dominating the action by the close. At the end of the day, investors were staring at a third straight down day and total losses of 543 points on the week.

Our heroes in horns seemed to have things going their way in the early going. Tuesday’s selloff felt like it had been overdone and as such, the bulls were hoping that some positive action early on might get the bears running for cover. In the plus column, stocks were bouncing across the pond, the economic data was a positive for a change as the reports on Nonfarm Productivity and Unit Labor Costs were both better than expected, and earnings from Disney (DIS), JDS Uniphase (JDSU), and Time Warner (TWX) were all constructive.

However, the minus side of the column began to fill up as the day wore on. Despite billions of dollars being put into the banking system and interest rates being cut aggressively, it is clear that the CDO market continues to be in a state of paralysis. Next, evidence that the economy may be slipping into recession continues to mount. Then there was the report on the big decline in the value of “deal paper” (loans used to finance takeover deals), which, unfortunately is still sitting on the books of banks because they can’t sell the stuff. Next, there was a simply dismal earnings report from Macy’s, which, of course, sparked concerns about the consumer.

And as if this weren’t enough, investors were also treated to some rather hawkish comments from Philly Fed President Charles Plosser yesterday. In short, Plosser said that “we must not lose sight of the other part of the Fed’s dual mandate – which is price stability.” So, despite the fact that just about everybody on the Street is now concerned about a recession that the Fed can’t stop, Mr. Plosser felt it was important to yammer on about the evils of inflation yesterday.

Although Ben Bernanke runs the show; it is comments like this from Mr. Plosser that gives the markets pause.

Turning to this morning, things were relatively quiet until another Fed Governor decided to throw his two cents in about inflation worries. This time it was Atlanta Fed President Dennis Lockhart, who said that while recent policy easing and injections of liquidity should help stabilize the markets, inflation measures have been above the Fed’s comfort zone. And with that, the Dow futures moved from +11 to -125.

Never mind the fact that the Bank of England cut rates and the ECB left rates unchanged. Never mind that Cisco's earnings were disappointing. The bottom line is if our Fed decides to worry about their image and focus on inflation, the worries about the Fed falling behind the curve again might be justified. And with the newly anointed inflation hawk Richard Fisher speaking at 1:00 pm today, it would appear that hope for a rebound may continue to remain elusive.

Running through the rest of the pre-game indicators; most Asian markets were closed to celebrate the year of the Rat. The European markets are lower across the board this morning as the ECB continues to stick to its stubborn stance on rates. Crude futures are lower with the latest quote off $0.22 to $86.92. Interest rates are moving lower with the 10-yr trading at a yield of 3.58% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off about 40 points; the S&Ps are down by about 10 points, while the NASDAQ looks to be about 30 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Avalon Bay (NYSE: AVB) – Reported $1.14 vs. $1.19
Crown Castle (NYSE: CCI) – Reported -$0.30 vs. -$0.10
Cisco Systems (Nasdaq: CSCO)– Reported $0.38 vs. $0.38
Electronic Data Systems (NYSE: EDS) – Reported $0.55 vs. $0.57
FMC Corp (NYSE: FMC) – Reported $0.59 vs. $0.70
MetLife (NYSE: MET) – Reported $1.44 vs. $1.43
Prudential (NYSE: PRU) – Reported $1.73 vs. $1.88
Sunoco (NYSE: SUN) – Reported $0.20 vs. $0.43

Today's Earnings Before the Bell:

Aetna (NYSE: AET) – Reported $0.88 vs. $0.88
Assurant (NYSE: AIZ) – Reported $1.29 vs. $1.29
DR Horton (NYSE: DHI) – Reported -$0.41 vs. -$0.45
Diamond Offshore (NYSE: DO) – Reported $1.61 vs. $1.68
Moody’s (NYSE: MCO) – Reported $0.60 vs. $0.47
MDC Holdings (NYSE: MDC) – Reported -$6.44 vs. -$0.50
PepsiCo (NYSE: PEP) – Reported $0.80 vs. $0.80
Prologis (NYSE: PLD) – Reported $0.79 vs. $0.67
AGCO Corp (NYSE: AG) – Reported $0.82 vs. $0.63

News, Upgrades/Downgrades/Brokerage Research:
BT Group (NYSE: BT) – Downgraded at Bear Stearns
Polo Ralph Lauren (NYSE: RL) – Downgraded at Citi
Thornburg Mortgage (NYSE: TMA) – Upgraded at Credit Suisse
Danaher (NYSE: DHR) – Upgraded at Deutsche Bank
Mylan Labs (NYSE: MYL) – Removed from Conviction Buy list at Goldman
Cisco Systems (CSCO) – Downgraded at JP Morgan, RW Baird
XL Capital (NYSE: XL) – Downgraded at JP Morgan
DirecTV Group (NYSE: DTV) – Upgraded at Merrill
Celanese (NYSE: CE) – Upgraded at UBS
Principal Financial Group (NYSE: PFG) – Upgraded at UBS
Wal-Mart (NYSE: WMT) – January Sales +0.5% vs. StreetAccount +2.1, Blames weather

Mr. Moenning holds Long positions in stocks mentioned: AIZ, AG

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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