David Moenning's Daily State of the Markets: Are We Back to the Banks?
Are We Back to the Banks?
Stocks gave back 1% or so yesterday as the bears, after being completely stymied for more than four weeks, returned to a familiar theme – trouble in the banking industry. The banking index, which had enjoyed a run of 26.8% over the past three weeks and had popped 12.5% alone last week, had a tough outing and fell by -4.35% on the session.
The source of the difficulty in the sector, which then spilled over into the broad market, was a report from respected banking analyst Dick Bove of Rochdale Securities. Bove basically recommended taking profits in the banks as he sees the potential for a pullback in the sector. “The recent rise in the stocks does not appear to be driven by a change in the near-term earnings outlook, but by a change in psychology,” he said.
Bove, who has been spot-on with regard to the trials and tribulations in the sector, went on to say that the banks are trading on “fumes” and not reality, and that bank earnings will not improve in the third or even the fourth quarter this year. “Many of these companies will show losses,” he said.
Mr. Bove’s recommended course of action is to take a little something off the table. “The rational investor would step away from the psychology at this point and take some profits.”
But, just in case analysts might be tempted to toss the 68 year-old banking analyst into the doom-and-gloom-camp, Bove added that his view of the banking industry is attractive in the long-term.
So there you have it; the “something” that tends to come out of the woodwork after a big run, which gives the bears a reason to be for a while. As we have opined recently, this surprise piece of bad news usually emboldens the bears, scares the Johnny-come-lately’s, and causes the dip buyers to stand down for a spell. And in my humble opinion, this is exactly what happened yesterday.
So… With the market having run uninterrupted for a month straight, it would appear that we just might have the start of a little corrective action on our hands. We should also note that up until yesterday, the dip buyers had been chomping at the bit each and every time red numbers appeared on the screens. Thus, it will be interesting to see if the bulls will stand aside for a while longer or return to their buy-the-dip strategy.
Turning to this morning, we’ve got the Fed announcement on tap this afternoon at 2:15 pm eastern. In addition, it was interesting to hear Dr. Doom himself tell CNBC this morning that he sees a low probability of a double-dip recession, though he feels there is risk due to fiscal deficits and higher oil prices. In addition, Roubini was relatively upbeat on the stock market as he sees the prospect for the S&P 500 returning to the March 9th low as “unlikely.”
Running through the rest of the pre-game indicators, the major overseas markets are once again mixed by region with Asia following Wall Street lower while Europe is rebounding on economic data. Crude futures are moving higher with the latest quote showing oil trading up by $0.19 to $69.64. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.66%, 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 once again pointing to a flat open. The Dow futures are currently down about 9 points; the S&P’s about even, while the NASDAQ looks to also be within a point of fair value at the moment.
Yesterday’s Earnings After the Bell:
Applied Materials (AMAT) – Reported -$0.02 vs. -$0.08
Bob Evans (BOBE) – Reported $0.52 vs. $0.52
Today’s Earnings Before the Bell:
Ethan Allen (ETH) – Reported -$0.23 vs. -$0.17
Liz Claiborne (LIZ) – Reported -$0.48 vs. -$0.39
Macy’s (M) – Reported $0.20 vs. $0.15
Sara Lee (SLE) – Reported -$0.02 vs. $0.24
Upgrades/Downgrades/Brokerage Research:
SunPower (SPWRA) – Downgraded at BofA/Merrill
Allstate (ALL) – Upgraded at BofA/Merrill
Cree (CREE) – Upgraded at BofA/Merrill
Ingersoll-Rand (IR) – Added to Top Picks Live at Citi
VeriSign (VRSN) – Upgraded at Credit Suisse
Garmin (GRMN) – Added toSell list at Goldman
Columbia Sportswear (COLM) – Upgraded at Goldman
International Paper (IP) – Added toBuy at Goldman
Bucyrus (BUCY) – Added to Buy at Goldman
Owens-Illinois (OI) – Removed from Buy at Goldman
Joy Global (JOYG) – Removed fromBuy at Goldman
Louisiana-Pacific (LPX) – Downgraded at Goldman
Salesforce.com (CRM) – Upgraded at Morgan Stanley
Long positions in stocks mentioned: 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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