David Moenning's Daily State of the Markets: It's A Confidence Thing


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September 30, 2009 9:54 AM EDT

At this stage of the game, one could argue that it’s all about confidence. For example, part of the reason traders love to see M&A activity is it demonstrates confidence in the environment, the current pricing in the market, and the outlook for the future. In addition, if the bulls are going to win their argument that the stock market should head higher over the next six months, buyers will need to have a fair amount of confidence in the economy, the earnings picture, and the consumer before placing those buy orders.

And it was the issue of confidence, or in this case, a lack thereof, that tripped up stock prices yesterday on the next-to-last day of the third quarter. So, while reviewing economic reports and industry surveys may not be everyone’s cup of tea, staying in tune with what people are thinking and how they are feeling is a necessary evil these days.

There were three different reports on confidence levels yesterday: Consumer Confidence, the CEO Outlook, and the Discover Small Business Index. So, let’s do a quick review of each and see what we see.


The Consumer Confidence Index fell 1.4 points in September to a reading of 53.1. This was down from the August reading of 54.5 and well below the consensus expectation for a reading of 57.0. And unfortunately, while a reading of 57 might sound decent, it is, in fact, well below average as the index stood at approximately 112 in 2007 and 150ish in 2001.

The Present Situation component of the report fell 2.7 points, while Expectations dropped 0.5 points. As a result, Ned Davis Research reports that their confidence spread (the difference between the present situation and expectations components) fell to -50.6, the lowest level since January 1993. This is likely due to the fear of a "jobless recovery."

Next up, we got some good news from the Business Roundtable CEO Economic Outlook. Their Index jumped 26.4 points in the third quarter, which was the most in the history of the survey. The Index rose to a reading of 44.9, its highest level in a year. It was also positive to see that the number of executives who see the economy deteriorating in the next six months fell once again.

Finally, the Discover Small Business Watch Index fell 2.1 points in September, which was the first decline in the last four months, to 87.7. Unfortunately, more than 2/3 of small business owners believe the recession is not over yet. Half of those surveyed reported plans to actually reduce capital expenditures and just below half of the respondents reported experiencing cash flow problems. However, the index has gained 13.1 points over the past year, which is the most since records began in 2006.

Turning to this morning, ADP reported that the private sector lost -254K jobs in September, which was above the consensus for -200K. However, it was the smallest number of job losses for the private sector since July 2008. In addition, the final result for the second quarter’s GDP came in with a decline of -0.7%, which was better than expectations for -1.2%. Traders apparently like this news as the futures are moving up on the data.

Running through the rest of the pre-game indicators, the foreign markets are fractionally mixed. Crude futures are moving higher with the latest quote showing oil trading up by $0.95 to $66.04. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.32%, while the yield on the 3-month T-Bill is currently 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 50 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Yesterday’s Earnings After the Bell:

Darden Restaurants (DRI) – Reported $0.67 vs. $0.66
Jabil Circuit (JBL) – Reported $0.16 vs. $0.08
Allscripts-Misys (MDRX) – Reported $0.15 vs. $0.14
Micron (MU) – Reported -$0.10 vs. -$0.18
Nike (NKE) – Reported $1.04 vs. $0.97
Worthington (WOR) – Reported $0.11 vs. $0.04

Upgrades/Downgrades/Brokerage Research:

Target (TGT) – Started with Outperform rating at Bernstein
Costco (COST) – Started with Market Perform rating at Bernstein
Wal-Mart (WMT) – Started with Market Perform rating at Bernstein
Global Crossing (GLBC) – Downgraded at Citi
Goldman Sachs (GS) – Estimates and target increased at Credit Suisse
Morgan Stanley (MS) – Estimates reduced at Credit Suisse
Huntington Bancshares (HBAN) – Upgraded at Deutsche Bank
Covidien (COV) – Initiated Buy at Goldman. On Buy List
Nuvasive (NUVA) – Initiated Buy at Goldman
Zimmer Holdings (ZMH) – Initiated Buy at Goldman
Molex (MOLX) – Initiated Buy at Goldman
Becton Dickinson (BDX) – Initiated Sell at Goldman
St. Jude Medical (STJ) – Initiated Sell at Goldman
AmerisourceBergen (ABC) – Upgraded at Goldman
Nike (NKE) – Upgraded at Goldman
Olympic Steel (ZEUS) – Estimates and target increased at Jefferies
Micron Technology (MU) – Mentioned positively at Morgan Stanley
General Dynamics (GD) – Target increased at Oppenheimer
Dollar Tree (DLTR) – Initiated Outperform at RBC Capital
Target (TGT) – Downgraded at UBS
Affiliated Computer (ACS) – Downgraded at UBS

Long positions in stocks mentioned: GS, MU

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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