Daily State of the Markets 4/6: It Takes Both Hands

Good morning. It took two hands to count up the positive inputs to Monday's session as evidence continues to mount that the economy has turned the corner. While it may sound counterintuitive to be buying stocks on the news that the economy is indeed growing and starting to create jobs, the argument can be made that the recent spate of good economic news means there is no reason for fund managers not to have their portfolios fully invested at this time. Well, other than the fact that things are becoming overbought and extended, that is.

First and foremost, stocks rallied out of the gate on the back of Friday's employment report. While the report has been discussed ad nausea, the bottom line is the fact that there were fewer census workers hired meant that the private sector created more jobs than forecasted. And since the markets were closed on Friday, the pop higher after the opening bell can be directly attributed to the jobs report.

From there, the bulls received more than a fistful of reports that seemed to fall squarely on their side of the ledger. On the economic front, the report on the services sector, also known as the ISM Non-Manufacturing Index, came in above expectations, marked the third straight month of expansion in the sector, and hit the highest level since May 2006.

Sticking with the theme of an improving economy, the National Association of Realtors reported that Pending Homes Sales (i.e. the number of sales contracts signed) unexpectedly increased 8.2% in February. While the weather was a deterrent, apparently the allure of a big tax credit (due to expire in April) was enough to encourage people to get out there and buy homes.

Next up, there was the better-than-expected results from truck orders in March. And then the tech sector got a nice boost from both Apple (AAPL) and the SIA (Semiconductor Industry Association) data as the SOX enjoyed a 3% up day. In addition, oil and the rest of the commodities rallied on the back of the improved sentiment surrounding the recovery trade while bond yields also moved up in reaction to the upbeat economic data. Well, okay, another part of the move in bonds has to do with the massive amount of supply the government is trying to sell this week, but that doesn't fit very well into this morning's positive economic theme.

While stocks did peter out about mid-morning and weren't able to build on the initial enthusiasm, chart technicians will point to the fact that the major indices all broke out to new cycle-highs as a positive. We should also note that the Dow and S&P are rapidly returning to pre-Lehman levels while the NASDAQ appears to have its sights set on the 2008 highs. And while we hate to sound like the boy who cried wolf, we should once again point out that stocks are overbought and the move is becoming quite extended. Although such things do not trigger moves to the downside, they do set the table.

Turning to this morning... We don't have any economic data to review today. However, we will get the minutes from the latest FOMC meeting at 2:00 pm eastern. Stocks are a little on the weak side in the pre-market as traders may be a little uneasy about the Treasury auction slated for this afternoon.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are higher. Crude futures are down $0.08 to $86.54. On the interest rate front, the yield on the 10-yr is currently trading at 3.95%. Next, gold is moving down $4.40 to $1129.40 and the dollar is higher against the Yen, Euro, and Pound. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 38 points; the S&P’s are down about 5 points, while the NASDAQ looks to be about 9 points below fair value at the moment.

Wall Street Research Summary

Upgrades:

DuPont (DD) - BofA/Merrill
Korea Electric Power (KEP) - Citi
Citrix Systems (CTXS) - Target increased at ISI Group
VMWare (VMW) - Target increased at ISI Group
International Game Technology (IGT) - Mentioned positively at Oppenheimer
Bally Technologies (BLI) - Mentioned positively at Oppenheimer
WMS Industries (WMS) - Mentioned positively at Oppenheimer
Walt Disney (DIS) - Soleil Securities
Dollar General (DG) - Wells Fargo
Ensco PLC (ESV) - Initiated overweight at JPMorgan
Halliburton (HAL) - Initiated overweight at JPMorgan
Schlumberger (SLB) - Initiated overweight at JPMorgan

Downgrades:

McAfee (MFE) - Target decreased at ISI Group
Symantec (SYMC) - Target decreased at ISI Group
WSP Holdings (WH) - Oppenheimer
Transocean (RIG) - Initiated underweight at JPMorgan
Diamond Offshore (DO) - Initiated underweight at JPMorgan
Weatherford Intl (WFT) - Initiated underweight at JPMorgan

Long positions in stocks mentioned: AAPL

Remember to take time to enjoy your day

David D. Moenning
Founder TopStockPortfolios.com

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

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