David Moenning's Daily State of the Markets: 2/5

Recession Talk Returns

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

After last week’s expected bounce higher, which produced the best weekly results for the S&P 500 since 2003, the bears decided it was time to get back to work yesterday. And since there wasn’t really anything new for our furry friends to crow about, they resurrected an oldie but a goody, and talked to anyone that would listen about the potential horrors of a recession.

UBS seemed to put the bears on a roll yesterday with downgrades of American Express (AXP), Capital One (COF), and Discover (DFS). The report cited concerns about a consumer-led recession during the first half of 2008, which UBS projects, could lead to higher unemployment and more credit problems.

Speaking of credit, the Fed’s Senior Loan Officer Survey confirmed that there has been a significant tightening of lending standards by both banks and credit card companies. For example, the report revealed a record tightening of standards on loans for commercial property. However, this is hardly surprising after the extended period of exceptionally low lending standards. Credit card companies are also trying to become more stringent with their qualification requirements, as only 32% of applicants are being approved for new cards these days. This represents a reduction of about 20% from the end of the year.

Yesterday's economic data wasn’t exactly inspiring as the report on Factory Orders came in a bit below expectations. Although orders rose by 2.3% in December, which was the largest increase in 5 months, the numbers were short of the 2.5% gain analysts had been looking for.

While stocks were lower yesterday, there really wasn’t much in the way of selling interest, as evidenced by the rather paltry volume totals. But, the short-term overbought condition of the market was good enough for a triple-digit decline. In short, most traders recognize that the move toward the early-cycle names such as the financials, transports, and consumer discretionary area may have become a bit overdone in the short-term. And so, with the bulls taking a break, the bears didn’t meet with much resistance yesterday.

Turning to this morning, once again, we don’t have any economic data to review before the bell today but we will get a report on ISM Non-Manufacturing at 10:00.

Stocks are lower in the pre-market session as there are still concerns relating to the U.S. economy hanging around. The recession talk and an overbought condition afflicted the foreign markets and the sour sentiment has spilled over to our market in the early going.

Running through the rest of the pre-game indicators; overseas markets are lower across the board this morning. Crude futures are down again with the latest quote off $0.88 to $89.14. Interest rates are moving lower with the 10-yr trading at a yield of 3.62% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently down about 70 points; the S&Ps are off by about 8 points, while the NASDAQ looks to be about 12 below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Anadarko Petroleum (NYSE: APC) – Reported $0.56 vs. $0.76
Boston Scientific (NYSE: BSX) – Reported $0.24 vs. $0.18
Computer Sciences (NYSE: CSC) – Reported $1.11 vs. $1.00
Lincoln National (NYSE: LNC) – Reported $1.16 vs. $1.36
Manitowoc (NYSE: MTW) – Reported $0.74 vs. $0.67
News Corp (NYSE: NWS.A) – Reported $0.27 vs. $0.28
Thornburg Mortgage (NYSE: TMA) – Reported $0.33 vs. $0.27
Yum Brands (NYSE: YUM) – Reported $0.44 vs. $0.42

Today’s Earnings Before the Bell:

Avon Products (NYSE: AVP) – Reported $0.64 vs. $0.62
Church & Dwight (NYSE: CHD) – Reported $0.46 vs. $0.45
CME Group (NYSE: CME) – Reported $3.77 vs. $3.60
Duke Energy (NYSE: DUK) – Reported $0.27 vs. $0.24
Hewitt Assoc (NYSE: HEW) – Reported $0.59 vs. $0.40
NYSE Euronext (NYSE: NYX) – Reported $0.66 vs. $0.67
Tyco (NYSE: TYC) – Reported $0.73 vs. $0.56
Whirlpool (NYSE: WHR) – Reported $2.38 vs. $2.15

News, Upgrades/Downgrades/Brokerage Research:

Yahoo! (Nasdaq: YHOO) – Downgraded at Bank of America
Hasbro (NYSE: HAS) – Upgraded at Bank of America
MDC Holdings (NYSE: MDC) – Upgraded at Bank of America
Pulte Home (NYSE: PHM) – Upgraded at Bank of America
KB Home (NYSE: KBH) – Upgraded at Bank of America
Toll Brothers (NYSE: TOL) – Upgraded at Bank of America
Potash (NYSE: POT) – Upgraded at Citi
Broadcom (Nasdaq: BRCM) – Upgraded at Goldman
Comp Vale do Rio Doce (NYSE: RIO) – Upgraded at Goldman
Chartered Semiconductor (Nasdaq: CHRT) – Upgraded at Goldman
Barnes & Noble (NYSE: BKS) – Downgraded at JP Morgan
Arch Coal (NYSE: ACI) – Upgraded at JP Morgan
Electronic Data Systems (NYSE: EDS) – Downgraded at Morgan Stanley
Goldman Sachs (NYSE: GS) – Downgraded at Oppenheimer
CSX Corp (NYSE: CSX) – Downgraded at UBS
Norfolk Southern (NYSE: NSC) – Downgraded at UBS
Diamond Offshore Drilling (NYSE: DO) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: POT, APC, HEW

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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