David Moenning's Daily State of the Markets: 3/2
A Double Dose
Traders got a double dose of dismal news on Friday, which certainly didn’t help the bulls’ cause. First we learned that the economy is tanking even faster than analysts had projected. And second, the -42% drop in Citi’s (C) shares suggested that even the third government intervention may not be enough to do the trick.
If you will recall, last month the GDP data came in a bit better than expected, which of course caused some hope to build that maybe, just maybe, things weren’t quite as bad as they seemed. However, on Friday, the BEA announced that Q4 GDP was actually much worse than expected. The annualized rate of the contraction in the economy came in at -6.2%, which was well below January’s go-round at -3.8% and represented the biggest drop since the first quarter of 1982.
Looking ahead, we need to keep in mind that despite everything the new administration is doing to try and stimulate things, the economy is like an ocean liner and as such, it takes a while to get the thing turned around. The good news is that at least part of the stimulus package should begin to show up in the second half of this year. But unfortunately, the calendar says it’s only March.
The other does of bad news on Friday came from Citigroup. After rallying more than 20% in the prior three sessions, the bank stocks were hit again on Friday with the BKX losing nearly 9%. Nationalization fears came roaring back after the government was forced to rework their deal with Citi so that the banking giant wound up with the “right” kind of capital on their books. In the process, the government became the bank’s biggest shareholder, with the taxpayer stake now sitting at 38%.
The problem for you non-accounting types out there (which definitely includes yours truly) is that Friday’s move dilutes existing shareholders to the tune of 75% and reduces the bank’s book value by roughly 30%. And despite this third attempt by the government to stabilize Citi, nothing has yet been done about the core problem – the monstrous amount of toxic assets on the books and/or how to value them. So, until somebody can figure out how to deal with the elephant in the room, this saga isn’t likely to find an end any time soon.
The good news is that, on Friday at least, the stock market didn’t crater on the double dose of bad news. Perhaps the shorts, as usual, didn’t want to press their bets over the weekend – just in case something good would happen while the markets were closed. Or perhaps traders viewed both issues as “old news.” However, the bottom line is that the decline of 119 points didn’t seem all that bad.
Well, okay, we should probably point out that it was the third straight losing session and Friday closed out one of the worst months in ages. Oh, and the S&P 500 did close at its worst level since December 1996 while the Dow finished at its lowest point since May 1997. But, the bottom line is it could have been worse.
Turning to this morning, it looks like the negative vibe from Friday has carried over into Monday as the futures are pointing to another rough open. The issue du jour has to do with AIG losing a little money during the quarter – $61.5 Billion to be exact – and turning to the government again for help.
On the economic front, Personal Incomes for January came in a bit better than expected with a gain of +0.4% versus the consensus for a decline of -0.2% while Personal Spending was also a couple tenths higher than expectations at +0.6%.
Running through the rest of the pre-game indicators, the major foreign markets are down at least -3% across the board. Crude futures are lower with the latest quote showing oil trading down by $2.17 to $42.59. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.95%, while overnight LIBOR is at 0.31% and the yield on the 3-month T-Bill is trading at 0.24%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a down open. The Dow futures are currently off by about 120 points; the S&P’s are down by about 17 points, while the NASDAQ looks to be about 20 points below fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
American Capital (Nasdaq: ACAS) – Reported $0.41 vs. $0.64
American Intl Group (NYSE: AIG) – Reported -$14.17 vs. -$0.37
Dish Network (Nasdaq: DISH) – Reported $0.48 vs. $0.48
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Dell (Nasdaq: DELL) – Upgraded at Argus Research
Cisco Systems (Nasdaq: CSCO) – Upgraded at Argus Research
Tyco (NYSE: TYC) – Upgraded at Citi
SAP (NYSE: SAP) – Upgraded at Deutsche Bank
Molson Coors (NYSE: TAP) – Added toBuy list at Goldman
State Street (NYSE: STT) – Downgraded at Goldman
Lockheed Martin (NYSE: LMT) – Removed from Buy list at Goldman
AT&T (NYSE: T) – Upgraded at Goldman
Kohl’s (NYSE: KSS) – Upgraded at Goldman
Aeropostale (NYSE: ARO) – Upgraded at Goldman
Barrick Gold (NYSE: ABX) – Upgraded at JP Morgan
Newmont Mining (NYSE: NEM) – Downgraded at JP Morgan
Helmerich & Payne (NYSE: HP) – Downgraded at JP Morgan
Wendy’s Arby’s (NYSE: WEN) – Upgraded at JP Morgan
Janus Capital (NYSE: JNS) – Upgraded at JP Morgan
Kinross Gold (NYSE: KGC) – Upgraded at JP Morgan
Adobe Systems (Nasdaq: ADBE) – Upgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: none
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.TopStockPortfolios.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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