David Moenning's Daily State of the Markets: All About Jobs (Or Is It?)


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August 7, 2009 9:54 AM EDT

Although the market opened higher on strong overseas performance and some decent economic news, the gains quickly turned to modest losses yesterday and investors basically spent the rest of the day shuffling along waiting on this morning’s Non-Farm Payroll numbers.

While I apologize for sounding like a broken record, we have argued that stocks have rallied off the July low – to the tune of +14.4% in less than 4 weeks – on the idea that the recession is ending. It also hasn’t hurt that the earnings season has been significantly better than expected. Thus, as we’ve mentioned a time or three, it would appear that this combination has forced underinvested mutual fund managers to stop worrying about the return of the bear and to start worrying about keeping up with the S&P 500.


We’ve opined that it is fund managers returning their mutual funds to a fully invested position that has been the driving force behind the latest run for the roses. We will also suggest that at some point this seemingly endless flow of buy orders will begin to fade and that the fundamental question regarding the strength of the economic recovery will take over as the market’s driving force. And this brings us to the question of why this morning’s jobs report seems to be even more important than usual.

Most every economic forecast I’ve seen suggests that the recovery is likely to be a little lame. And just about everybody agrees that the job market is going to remain a challenge for quite some time as the phrase “jobless recovery” has been used early and often. And most everyone that has been around this game a while understands that job totals are a lagging indicator in relation to the state of the economy. So, given that the recession hasn’t even been declared dead yet, I must admit that it is more than a little surprising to see so many people sitting on the edge of their seats worrying about the July jobs numbers.

It’s as if the fast money types believe a bad report will negate the idea that the recession has ended or that the earnings season wasn’t half bad. And it’s as if a good report will confirm all of the above and provide a reason for stocks to continue their upside dance uninterrupted.

But in reality, we should probably recognize that this particular report won’t really tell us all that much about the economy. We KNOW that the economy has been losing jobs and will continue to do so for some time. And the fact that the recession may be technically ending doesn’t change this. So, why are so many talking heads putting so much emphasis on a number that has a snowball’s chance in Haiti of showing any significant improvement at this time? The answer, of course, is because the market cares and the bottom line is that this is all that really ever matters.

So, despite my view on the overall importance of the data, the clock says we should probably get to it. The Labor Department has just reported that the economy lost just 247,000 jobs last month, which was significantly better than the estimate for losses totaling 325K. In addition, the Unemployment rate was better than expected at 9.4% vs. 9.6% and average hourly earnings increased by +0.2%. In short, this report confirms the economic stabilization theme and appears to be bullish for stocks at the outset.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are down across the board. Crude futures are moving up with the latest quote showing oil trading up by $0.17 to $72.11. On the interest rate front, we’ve got the yield on the 10-yr trading up significantly at 3.87%, while the yield on the 3-month T-Bill is trading at 0.17%. 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 70 points; the S&P’s are up by about 8 points, while the NASDAQ looks to also be about 13 points above fair value at the moment.

Yesterday’s Earnings After the Bell:

Affiliated Computer (ACS) – Reported $0.99 vs. $0.96
Alkermes (ALKS) – Reported -$0.08 vs. -$0.08
Beazer Homes (BZH) – Reported -$0.72 vs. -$1.84
CBS Corporation (CBS) – Reported $0.08 vs. $0.07
California Pizza Kitchen (CPKI) – Reported $0.25 vs. $0.25
Chiquita Brands (CQB) – Reported $2.08 vs. $0.83
Computer Sciences (CSC) – Reported $0.74 vs. $0.51
EOG Resources (EOG) – Reported $0.73 vs. $0.42
Hansen Natural (HANS) – Reported $0.60 vs. $0.60
Leap Wireless (LEAP) – Reported -$0.89 vs. -$0.30
Microchip (MCHP) – Reported $0.15 vs. $0.13
NVIDIA (NVDA) – Reported $0.07 vs. -$0.02
Public Storage (PSA) – Reported $1.40 vs. $1.21
Ralcorp Holdings (RAH) – Reported $1.30 vs. $1.30
ResMed (RMD) – Reported $0.59 vs. $0.56
Treehouse Foods (THS) – Reported $0.50 vs. $0.36
Verisign (VRSN) – Reported $0.31 vs. $0.32
Weight Watchers (WTW) – Reported $0.78 vs. $0.73

Today’s Earnings Before the Bell:

American Intl Group (AIG) – Reported $2.30 vs. $1.31
AES Corp (AES) – Reported $0.28 vs. $0.22
Brookfield Asset Mgmt (BAM) – Reported $0.24 vs. $0.16
Lifepoint Hospitals (LPNT) – Reported $0.54 vs. $0.59
Mirant (MIR) – Reported $0.90 vs. $0.53
Warner Chilcott (WCRX) – Reported $0.44 vs. $0.40
Cimarex (XEC) – Reported $0.46 vs. $0.41

Upgrades/Downgrades/Brokerage Research:

King Pharmaceuticals (KG) – Upgraded at BofA/Merrill
Zale (ZLC) – Downgraded at BofA/Merrill
Telecom Italia (TI) – Downgraded at BofA/Merrill
Amgen (AMGN) – Mentioned positively at Barclays
Urban Outfitters (URBN) – Upgraded at Barclays
Developers Diversified Realty (DDR) – Downgraded at Citi
Kraft (KFT) – Upgraded at Credit Suisse
Alliance Bernstein (AB) – Upgraded at Credit Suisse
Genzyme (GENZ) – Added to Conviction Sell list at Goldman Sachs
DR Horton (DHI) – Added to Conviction Buy list at Goldman
Leap Wireless (LEAP) – Downgraded at Morgan Stanley
Crocs (CROX) – Upgraded at Piper Jaffray
Monsanto (MON) – Estimates reduced at UBS
Marsh McLennan (MMC) – Upgraded at UBS

Long positions in stocks mentioned: KG

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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