Daily State of the Markets 10/20


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October 20, 2009 9:46 AM EDT

The bears tell us that by most counts, the stock market should be pulling back right about now. After a huge run up off of the bottom and then a series of impressive bursts higher, we’d normally see at least some sort of pullback lasting more than a couple of days. And from a short-term perspective, with all the hoopla about Dow 10K, one might have expected to see the bears enjoy a day or three in the sun. After all, stocks are very overbought, valuations are becoming stretched, sentiment is running a little hot, and even the technicians admit that things are becoming a little extended.

But so far at least, the bulls have been able to find a way to just ‘keep on keepin’ on’ with nary a scary day to be found on a monthly basis. And the most recent edition of the bull’s fun in the sun didn’t really have a single trigger. No, yesterday’s run for the roses was sponsored more by a potpourri of positives than any one news item.

Let’s see, we had another day of dollar demise, which, of course, sent oil and commodities higher. And in case you haven’t been following this trade on a daily basis, stocks have been following the oil market around like a little puppy dog lately. So, while it may sound counterintuitive, higher oil has meant higher stock prices on the back of what is called the reflation or recovery trade.

Speaking of the recovery trade, with Ben Bernanke telling everyone that Asia is leading us out of the global downturn, the upbeat comments regarding China’s 2009 GDP growth expectations certainly helped the bulls’ cause. As did talk of more M&A in the fertilizer space and an increase in earnings guidance from Eaton (ETN).

And while it is no longer clear which continent is the tail and which is the dog, the fact that the global bourses were higher overnight was another feather in the bulls’ cap to start the day.

In reality though, none of the above would normally be enough to warrant a triple digit move on the Dow. So, we should probably turn to our old standby – performance anxiety – to help explain yet another batch of new cycle highs on the indices.

In case you don’t make your living chasing the S&P 500, you need to recognize that having cash in a portfolio is quickly becoming viewed as a negative. It would appear that managers are doing their darndest to get that trash off their books and into stocks – where it can make some money. After all, by now everybody knows that stocks only go one direction!

Turning to this morning, the Producer Price Index for September came in with a drop of -0.6%, which was well below the consensus for an unchanged reading. And when you strip out Food & Energy, the so-called Core PPI dropped by -0.1%, which was also less than the consensus for an increase of +0.1%. In addition, Housing Starts for September came in at 590K which was below the consensus expectations for 610K. And then Building Permits were reported at 573K; also below the consensus for 595K.

Running through the rest of the pre-game indicators, the foreign markets are split by region with Asia up and Europe down a fraction. Crude futures are pulling back with the latest quote showing oil trading off by $0.24 to $79.37. On the interest rate front, we’ve got the yield on the 10-yr trading lower at 3.34%, while the yield on the 3-month T-Bill is currently at 0.07%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a mixed open. The Dow futures are currently off by about 10 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Yesterday’s Earnings After the Bell:
# Apple (AAPL) – Reported $1.82 vs. $1.44
# Boston Scientific (BSX) – Reported $0.19 vs. $0.14
# JB Hunt Transport (JBHT) – Reported $0.31 vs. $0.28
# Packaging Corp (PKG) – Reported $0.25 vs. $0.25
# Steel Dynamics (STLD) – Reported $0.30 vs. $0.23
# Texas Instruments (TXN) – Reported $0.42 vs. $0.40
# Zions Bancorp (ZION) – Reported -$1.41 vs. -$1.24

Today’s Earnings Before the Bell:

# Biogen Idec (BIIB) – Reported $1.12 vs. $1.04
# Bank of New York Mellon (BK) – Reported $0.54 vs. $0.45
# Blackrock (BLK) – Reported $2.10 vs. $1.93
# Brinker (EAT) – Reported $0.17 vs. $0.15
# Peabody Energy (BTU) – Reported $0.49 vs. $0.22
# Caterpillar (CAT) – Reported $0.64 vs. $0.04
# Comerica (CMA) – Reported -$0.10 vs. -$0.52
# Coach (COH) – Reported $0.44 vs. $0.39
# DuPont (DD) – Reported $0.45 vs. $0.33
# Quest Diagnostics (DGX) – Reported $1.02 vs. $0.96
# Forest Labs (FRX) – Reported $0.85 vs. $0.86
# Illinois Tool (ITW) – Reported $0.60 vs. $0.53
# Coca-Cola (KO) – Reported $0.82 vs. $0.81
# Lockheed Martin (LMT) – Reported $2.07 vs. $1.83
# Lexmark (LXK) – Reported $0.65 vs. $1.28
# Precision Castparts (PCP) – Reported $1.54 vs. $1.63
# Pfizer (PFE) – Reported $0.51 vs. $0.48
# Parker Hannifin (PH) – Reported $0.45 vs. $0.17
# Regions Financial (RF) – Reported -$0.37 vs. -$0.26
# Sherwin-Williams (SHW) – Reported $1.51 vs. $1.35
# State Street (STT) – Reported $1.05 vs. $1.03
# Supervalu (SVU) – Reported $0.35 vs. $0.33
# UnitedHealth (UNH) – Reported $0.89 vs. $0.76
# United Technologies (UTX) – Reported $1.14 vs. $1.12
# Western Union (WU) – Reported $0.33 vs. $0.32

This Morning's Upgrades:
# Sealed Air (SEE) – Upgraded at Barclays
# Ford (F) – Upgraded at Barclays
# Family Dollar (FDO) – Upgraded at Credit Suisse
# Tenaris (TS) – Upgraded at Goldman
# Charles River Laboratories (CRL) – Upgraded at Goldman
# Knightsbridge Tankers (VLCCF) – Upgraded at JP Morgan
# DTE Energy (DTE) – Upgraded at Morgan Stanley
# Cablevision (CVC) – Upgraded at Morgan Stanley
# Cisco Systems (CSCO) – Target increased at Oppenheimer
# Amazon.com (AMZN) – Upgraded at Oppenheimer
# Bank of America (BAC) – Upgraded at RBC Capital
# Lockheed Martin (LMT) – Upgraded at Societe Generale
# General Dynamics (GD) – Upgraded at Societe Generale
# Apple (AAPL) – Target increased at UBS

This Morning's Downgrades:
# Pactiv (PTV) – Downgraded at Barclays
# Weatherford Intl (WFT) – Downgraded at Goldman
# Parexel (PRXL) – Downgraded at Goldman
# Leap Wireless (LEAP) – Downgraded at Goldman
# MetroPCS (PCS) – Downgraded at Goldman
# Overseas Shipholding (OSG) – Downgraded at JP Morgan
# Boeing (BA) – Downgraded at Morgan Stanley
# Spirit Aerosystems (SPR) – Downgraded at Morgan Stanley
# Wendy’s/Arby’s Group (WEN) – Downgraded at UBS
# Boston Scientific (BSX) – Downgraded at Wells Fargo

Long positions in stocks mentioned: GS, CSCO, AAPL

Have a great day and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

For more "top stock" portfolios and research, visit www.TopStockPortfolios.com


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