David Moenning's Daily State of the Markets: 7/17

July 17, 2008 10:02 AM EDT

What Was Bad Is Now Good and...

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

Wednesday's stock market session seemed to indicate that what was bad is now good and what was good is now apparently very bad! In other words, suddenly the losers are now the leaders and the old leaders are now the laggards. Those bank stocks that have been eating your portfolio alive for the past year are suddenly all the rage. And if you’ve got energy in your portfolio – well, we feel for you. Forget the fact that you’re account is up on the year while the S&P 500 is down a cool 15%. And to think all it took was for a bank to actually beat earnings estimates and raise their dividend. Boy, I sure wish somebody had thought of that sooner.

With Wells Fargo (WFC) beating estimates by a nifty $0.02 and saying next to nothing bad about writedowns, capital raising, or reserve requirements, traders suddenly got the idea that maybe, just maybe they had become a tad too negative on the banking sector. But then again, maybe the fact that just about every hedge fund on the planet was short the sector had a little something to do with the 32.8% rise in the stock of Wells Fargo.

But Wells wasn’t alone as Wednesday was arguably the best day ever for the financial sector. The XLF (the financial sector spider) soared +13.1%, the BKX – aka the Banking sector index – jumped +17.3%, Fannie Mae (FNM) gained +31% and Freddie Mac popped +29.9%, heck, even the Mortgage Index, which is at the eye of this whole storm rose by an impressive +14%. So, where does this monster day leave us? Well, Fannie Mae is almost back to Monday’s closing price and the banking index came all the way back to... wait for it... last Thursday!

Putting all sarcasm aside, it was refreshing to see the Dow jump 277 points yesterday. And while the move did next to nothing in terms of interrupting the downtrend that has been in effect for the past two months and 2000 points, the bulls will take whatever green they can get these days.

I guess the good news is that the day wasn’t just about one bank beating their estimates and actually having enough cash still lying around to pay out a little something extra to their shareholders. No, the bulls also got some help from another drop in oil prices, a nice earnings report from Charles Schwab (SCHW), a handful of decent numbers in the tech arena, and another surprise deal on the M&A front.

But unfortunately, the day wasn’t all good news as the CPI data came in on the disturbing side and the minutes from the latest Fed meeting show that not everybody’s on board with Gentle Ben’s approach of fixing what needs fixing first.

Speaking of what the Fed might be fixing to do in the future, the CPI report was a bit of a horror show. The headline CPI jumped 1.1% in June, which was well above the expectations for an increase of +0.7% and the second highest increase since 1982. On a year-over-year basis, the reading of 5.0% was the highest since 1991. In short, if inflation pressures don’t start to moderate soon, the Fed and the stock market will indeed find themselves between a rock and a hard place.

Turning to this morning, we’ve got some housing data that wasn’t too bad with both housing starts and permits coming in above expectations and then the weekly Jobless Claims were below the consensus numbers.

Running through the rest of the pre-game indicators; the major foreign markets are higher across the board. Crude futures are down this morning with the latest quote showing oil trading down $0.29 at $134.31. Interest rates are up a bit this morning with the yield on the 10-yr currently trading at 3.97%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a solid open. The Dow futures are currently higher by about 75 points; the S&P’s are up by about 7 points, while the NASDAQ looks to be about 12 points above fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

Alliance Data (NYSE: ADS) – Reported $1.04 vs. $1.01
Crown Holdings (NYSE: CCK) – Reported $0.61 vs. $0.55
eBay (NASDAQ: EBAY) – Reported $0.43 vs. $0.41
Kinder Morgan Partners (NYSE: KMP) – Reported $0.64 vs. $0.55
Landstar Systems (NASDAQ: LSTR) – Reported $0.56 vs. $0.55
Xilinx (NASDAQ: XLNX) – Reported $0.37 vs. $0.36
YUM Brands (NYSE: YUM) – Reported $0.45 vs. $0.42

Today’s Earnings Before the Bell:

TD Ameritrade (NASDAQ: AMTD) – Reported $0.34 vs. $0.32
Baxter Intl (NYSE: BAX) – Reported $0.85 vs. $0.82
Bank of New York Mellon (NYSE: BK) – Reported $0.74 vs. $0.75
Blackrock (NYSE: BLK) – Reported $2.14 vs. $1.99
Continental Airlines (NYSE: CAL) – Reported -$0.25 vs. -$0.48
Danaher (NYSE: DHR) – Reported $1.09 vs. $1.06
Harley Davidson (NYSE: HOG) – Reported $0.95 vs. $0.76
Intl Game Tech (NYSE: IGT) – Reported $0.36 vs. $0.36
JP Morgan Chase (NYSE: JPM) – Reported $0.54 vs. $0.48
Coca Cola (NYSE: KO) – Reported $1.01 vs. $0.96
PNC Financial (NYSE: PNC) – Reported $1.37 vs. $1.17
United Technologies (NYSE: UTX) – Reported $1.32 vs. $1.30

News, Upgrades/Downgrades/Brokerage Research:

Genentech (NYSE: DNA) – Initiated Buy at Citi
ACE Limited (NYSE: ACE) – Upgraded at Citi
eBay (Nasdaq: EBAY) – Downgraded at Goldman, Merrill
Companhia Vale do Rio Doce (NYSE: RIO) – Upgraded at Merrill
Comcast (Nasdaq: CMCSA) – Upgraded at Merrill
ASML Holdings (Nasdaq: ASML) – Downgraded at Merrill, RBC Capital
Starbucks (Nasdaq: SBUX) – Downgraded at Piper Jaffray
EOG Resources (NYSE: EOG) – Upgraded at RBC Capital
Wells Fargo (NYSE: WFC) – Downgraded at UBS
Linear Technology (Nasdaq: LLTC) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: KO

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.

Related Categories

Contributors

Stocks Mentioned

Related Entities

• Piper Jaffray
• UBS
• JPMorgan
• Citi
• RBC Capital
• David Moenning

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?