David Moenning's Daily State of the Markets: 5/29
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All About Bonds
The last two sessions have been clear “tells” as to what’s driving the market these days. In short, you can forget about the economy. Don’t worry about the government takeover of GM. Never mind the earnings. Jobs don’t matter. Housing is old news. And the PPIP – that’s ancient history. No, nowadays this range bound, schizophrenic market is all about the bond market.
For the second day in a row, stocks responded in rather spectacular fashion to the action in the bond pits. Sure there was a lot of chatter yesterday about GM heading to Chapter 11 on Monday, the price of oil, and some fun stuff in the tech/telecom sector. But the day ultimately boiled down to the result of the 7-Yr T-Note auction.
However, unlike Wednesday’s fun and games with treasury yields, Thursday’s action went the other way as traders breathed a sigh of relief that the government’s auction of 7-year notes wasn’t the abject disaster that had been feared.
The uninitiated might have assumed that the 110 point spike in 15 minutes was in response to a news item or an economic report. But in reality, stocks spurted higher on word that the bond auction wasn’t half bad. Don’t misunderstand; the auction results weren’t great by any stretch of the imagination. But with all the talk about investors walking away from anything over a 3-year commitment to the good ‘ol USofA, the fact that the buyers showed up as usual created a reason to hit the buy button at least a time or two.
It probably didn’t hurt either that there is just one trading day left in the month of May. Thus, while window dressing is illegal and the SEC has supposedly cracked down on the practice by fund managers, it has been known to happen on occasion.
There was also some talk yesterday about the idea that bond yields aren’t rising because of the worry over the awe-inspiring amount of debt the powers-that-be intend to rack up, but because the economy is getting better. However, if you’re on board this bandwagon, I’d like to talk to you about a new hedge fund with returns that have doubled the market each and every year with a virtually risk-free investment strategy…
All kidding aside, a couple other things appeared to help the bulls’ cause yesterday. First, the rating agencies have been falling all over themselves in the last 48 hours trying to downplay the worries about the U.S. Government’s AAA debt rating. And second, GE’s CEO Jeffrey Immelt said that the worst of the global downturn is over.
But after the 104 point pop, we find ourselves at roughly the same spot we were on the second trading day of May. While it’s been interesting, the bottom line is that stocks still appear to be stuck in a trading range with no indication as to when or which direction this thing will break.
Turning to this morning, Fed officials have told CNBC that the FOMC has no plans to up the rate of bond buying in response to the increase in interest rates. The Fed says its purpose is to support the credit market, not to set rates.
On the economic front, the government reported that GDP for the first quarter fell by -5.7%, which was worse than the expectations for a reading of -5.5%, but better than the government’s first guesstimate of -6.1%. In addition, the GDP Price index came in a tenth better at 2.8, Personal Consumption was reported at 2.2% and the Core PCE was right on target with expectations at 1.5%.
Running through the rest of the pre-game indicators, the major overseas markets are up nicely across the board. Crude futures are moving up again with the latest quote showing oil trading higher by $1.14 at $66.22. On the interest rate front, we’ve got the yield on the 10-yr at 3.63%, while the yield on the 3-month T-Bill is trading at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 30 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 6 points above fair value at the moment.
Stocks "In Play" This Morning:
Upgrades/Downgrades/Brokerage Research:
Lexmark (NYSE: LXK) – Upgraded at Barclays
Phillip Morris (NYSE: PM) – Target increased at Citi
Fairchild Semiconductor (NYSE: FCS) – Target increased at Citi
Burger King Holdings (NYSE: BKC) – Downgraded at Citi
Crown Holdings (NYSE: CK) – Downgraded at Goldman
Sealed Air (NYSE: SEE) – Downgraded at Goldman
News Corp (NYSE: NWS) – Upgraded at JP Morgan
Office Depot (NYSE: ODP) – Upgraded at JP Morgan
Arch Chemical (NYSE: ARJ) – Upgraded at Oppenheimer
CBS Corp (NYSE: CBS) – Upgraded at UBS
Level 3 Communications (Nasdaq: LVLT) – Downgraded at UBS
Long positions in stocks mentioned: JPM
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.
The last two sessions have been clear “tells” as to what’s driving the market these days. In short, you can forget about the economy. Don’t worry about the government takeover of GM. Never mind the earnings. Jobs don’t matter. Housing is old news. And the PPIP – that’s ancient history. No, nowadays this range bound, schizophrenic market is all about the bond market.
For the second day in a row, stocks responded in rather spectacular fashion to the action in the bond pits. Sure there was a lot of chatter yesterday about GM heading to Chapter 11 on Monday, the price of oil, and some fun stuff in the tech/telecom sector. But the day ultimately boiled down to the result of the 7-Yr T-Note auction.
However, unlike Wednesday’s fun and games with treasury yields, Thursday’s action went the other way as traders breathed a sigh of relief that the government’s auction of 7-year notes wasn’t the abject disaster that had been feared.
The uninitiated might have assumed that the 110 point spike in 15 minutes was in response to a news item or an economic report. But in reality, stocks spurted higher on word that the bond auction wasn’t half bad. Don’t misunderstand; the auction results weren’t great by any stretch of the imagination. But with all the talk about investors walking away from anything over a 3-year commitment to the good ‘ol USofA, the fact that the buyers showed up as usual created a reason to hit the buy button at least a time or two.
It probably didn’t hurt either that there is just one trading day left in the month of May. Thus, while window dressing is illegal and the SEC has supposedly cracked down on the practice by fund managers, it has been known to happen on occasion.
There was also some talk yesterday about the idea that bond yields aren’t rising because of the worry over the awe-inspiring amount of debt the powers-that-be intend to rack up, but because the economy is getting better. However, if you’re on board this bandwagon, I’d like to talk to you about a new hedge fund with returns that have doubled the market each and every year with a virtually risk-free investment strategy…
All kidding aside, a couple other things appeared to help the bulls’ cause yesterday. First, the rating agencies have been falling all over themselves in the last 48 hours trying to downplay the worries about the U.S. Government’s AAA debt rating. And second, GE’s CEO Jeffrey Immelt said that the worst of the global downturn is over.
But after the 104 point pop, we find ourselves at roughly the same spot we were on the second trading day of May. While it’s been interesting, the bottom line is that stocks still appear to be stuck in a trading range with no indication as to when or which direction this thing will break.
Turning to this morning, Fed officials have told CNBC that the FOMC has no plans to up the rate of bond buying in response to the increase in interest rates. The Fed says its purpose is to support the credit market, not to set rates.
On the economic front, the government reported that GDP for the first quarter fell by -5.7%, which was worse than the expectations for a reading of -5.5%, but better than the government’s first guesstimate of -6.1%. In addition, the GDP Price index came in a tenth better at 2.8, Personal Consumption was reported at 2.2% and the Core PCE was right on target with expectations at 1.5%.
Running through the rest of the pre-game indicators, the major overseas markets are up nicely across the board. Crude futures are moving up again with the latest quote showing oil trading higher by $1.14 at $66.22. On the interest rate front, we’ve got the yield on the 10-yr at 3.63%, while the yield on the 3-month T-Bill is trading at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 30 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 6 points above fair value at the moment.
Stocks "In Play" This Morning:
Upgrades/Downgrades/Brokerage Research:
Lexmark (NYSE: LXK) – Upgraded at Barclays
Phillip Morris (NYSE: PM) – Target increased at Citi
Fairchild Semiconductor (NYSE: FCS) – Target increased at Citi
Burger King Holdings (NYSE: BKC) – Downgraded at Citi
Crown Holdings (NYSE: CK) – Downgraded at Goldman
Sealed Air (NYSE: SEE) – Downgraded at Goldman
News Corp (NYSE: NWS) – Upgraded at JP Morgan
Office Depot (NYSE: ODP) – Upgraded at JP Morgan
Arch Chemical (NYSE: ARJ) – Upgraded at Oppenheimer
CBS Corp (NYSE: CBS) – Upgraded at UBS
Level 3 Communications (Nasdaq: LVLT) – Downgraded at UBS
Long positions in stocks mentioned: JPM
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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