David Moenning's Daily State of the Markets: 1/30

Sell 50, 25 and/or 0?

Much of the rally over the last couple of days can be attributed to the realization that another 50 basis point cut in interest rates WILL have a positive effect on the economy going forward. Assuming the Fed comes through with a total rate reduction of 1.25% this month, the thinking lately has been that the economic slowdown that is currently occurring (a) will be short lived and (b) is probably already discounted in current stock prices.

There is little doubt that cutting interest rates further will help the beleaguered financial sector, the housing industry, and the consumer. Then when you toss in a stimulus package, which will effectively drop money from the sky, and the positive outlooks we've seen from the railroads and some big names such as IBM, GM, and Disney, well, it’s hard to see the economy heading into the abyss anytime soon.

Although the housing numbers continue to be downright ugly, yesterday's better-than expected report on orders Durable Goods made this point clear and even put the idea of smaller rate cut on the table. Thus, if one believes that the economy isn’t as bad off as the bears would have us believe, a cynic could argue that traders might very well be setting up to “sell the news” of the 50 basis point cut today. After all, most of the financials are already up more than 30% in just a few days and we have gotten the bounce in the indices that was to be expected after the plunge that has occurred thus far in ‘08.



However, if Mr. Bernanke decides that the economy isn’t in bad shape and only cuts 25 today – or decides that they’ve done enough for now – you can rest assured that there will also be some selling as the fear that the economy could worsen will resume. So, without wasting a lot more time speculating; let’s just say that all eyes will be on Mr. Bernanke’s crew at 2:15 eastern today.

Turning to this morning, we’ve got some economic data to review which is making the prediction of what the Fed is planning to do a little more difficult. ADP just reported that their survey of the job growth in the private sector was much better than expected. The report showed a gain of 130,000 jobs in January, which was more than three times the estimate for a gain of 40,000. This has traders now looking for a strong number from the Labor Department’s report on non-farm payrolls due out on Friday.

We also got a report on the fourth quarter's GDP, which came in much weaker than expected. The country’s GDP grew by just +0.6% in the fourth quarter, which was only one-half of the estimates for an increase of +1.2%. Personal Consumption was also light at 2.0% versus 2.6% while the inflation components were pretty much on target with expectations.

Running through the rest of the pre-game indicators; the overseas markets are lower. Crude futures are up this morning with the futures currently trading higher $0.65 to $92.29. Interest rates are moving up on the stronger economic data with the 10-yr trading at a yield of 3.70% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 13 points; the S&Ps are down by about 5 points, while the NASDAQ looks to be about 11 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Allstate (NYSE: ALL) – Reported $1.24 vs. $1.32
Chubb (NYSE: CB) – Reported $1.60 vs. $1.47
Centex (NYSE: CTX) – Reported -$3.87 vs. -$0.64
Foundry Networks (Nasdaq: FDRY) – Reported $0.18 vs. $0.17
Flextronics (Nasdaq: FLEX) – Reported $0.30 vs. $0.26
JB Hunt Trans (Nasdaq: JBHT) – Reported $0.46 vs. $0.36
Jones Lang LaSalle (NYSE: JLL) – Reported $3.16 vs. $2.79
Tupperware (NYSE: TUP) – Reported $0.93 vs. $0.80
Yahoo (Nasdaq: YHOO) – Reported $0.15 vs. $0.11
UPS (NYSE: UPS) – Reported $1.13 vs. $1.12

Today's Earnings Before the Bell:

Boeing (NYSE: BA) – Reported $1.35 vs. $1.31
Baker Hughes (NYSE: BHI) – Reported $1.26 vs. $1.28
Dominion Resources (NYSE: D) – Reported $0.52 vs. $0.55
Eastman Kodak (NYSE: EK) – Reported $0.31 vs. $0.50
Hess Corp (NYSE: HES) – Reported $1.59 vs. $1.63
Kraft (NYSE: KFT) – Reported $0.44 vs. $0.44
Merck (NYSE: MRK) – Reported $0.80 vs. $0.73

News, Upgrades/Downgrades/Brokerage Research:

Intel (Nasdaq: INTC) – Mentioned positively in Barron’s
Avon Products (NYSE: AVP) – Upgraded at Bear Stearns
Electronic Arts (Nasdaq: ERTS) – Upgraded at Bear Stearns
Yahoo! (Nasdaq: YHOO) – Downgraded at Citi, Oppenheimer
Sprint Nextel (NYSE: S) – Target reduced at Deutsche Bank
T Rowe Price (Nasdaq: TROW) – Downgraded at Friedman
United States Steel (NYSE: X) – Estimates reduced at Goldman
Gilead Sciences (Nasdaq: GILD) – Target reduced at Goldman
Albemarle (NYSE: ALB) – Upgraded at JP Morgan, UBS
Nike (NYSE: NKE) – Upgraded at JP Morgan
Merrill Lynch (NYSE: MER) – Downgraded at Oppenheimer
Centex (NYSE: CTX) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: BHI

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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