David Moenning's Daily State of the Markets: It's Almost Official


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September 24, 2009 9:13 AM EDT

Although the National Bureau of Economic Research (NBER) has the final say in declaring the exact times that recessions begin and end, Ben Bernanke’s FOMC made it almost official yesterday by saying that activity in the economy has “picked up.” While Alan Greenspan would likely cringe at such simple phrasing, this was actually an upgrade from last meeting’s note where the Fed said that the economy was “leveling out.” Thus, if one couples this with Bernanke’s statement this past week that the recession is probably technically over, it is going to be hard for the bears to argue that we’re still in a recession.

While some investors would prefer to wait for the official word that the recession is over before getting back into the pool, we should keep in mind that the NBER isn’t known for the timeliness of its proclamations. For example, it was December 2008 when they made the pronouncement that the U.S. economy had gone into recession in December 2007. And given that the stock market is a discounting mechanism, if anyone out there is still waiting for the official word that the recession over before investing, you will likely miss the entire move higher.

Speaking of moving higher, that is exactly what stocks did immediately following the Fed’s most upbeat statement in quite some time yesterday. But, as is often the case after such a big event, the “sell the news” crowd showed up and knocked the stuffing out of the market as the Dow dove 170 points in the last 90 minutes.

There didn’t seem to be any specific catalyst for the big dive, which lends credibility to our theory that traders were “selling the news” about an improving economy after “buying the rumor” over the past three weeks.

This is not to say that there weren’t some negative inputs yesterday. But up until we got the “almost official” word that the recession is over, most of these little items had been ignored. So, now that the it looks like bears might have gotten their party started, it is probably a good idea to peek our heads into a tent of the bear camp and listen to an argument or two.

For starters, our friends in fur suggest that the FOMC announcement made it clear that the punch bowl isn’t going to be left out too long this time around. Thus, the worry over higher interest rates and the potential for the Fed to act too soon may partially explain the dive in stock prices.

Next up, valuation concerns were in focus Wednesday with the WSJ's Heard on the Street column noting that expectations for the S&P to earn $70 a share in 2010 might be a little ambitious. In addition, Bloomberg pointed out that as of Tuesday’s close, the S&P was above all but one of the projections from Wall Street strategists.

And finally, supply concerns have attracted some attention lately as TrimTabs said that underwriters have sold just over $5B worth of new stock in each of the last two weeks, and that this week's figure could double that to a three-month high of roughly $10B.

So, while there was nary a trendline nor a support level broken yesterday, we should probably remember that the bears have not had a day or two in the sun for quite some time.

Turning to this morning, Weekly Jobless Claims came in at 530K, which was below the consensus for 550K and last week’s revised total of 551K. Continuing Claims were reported at 6.138M vs. consensus for 6.183M and last week’s revised total of 6.261M.

Running through the rest of the pre-game indicators, the foreign markets are mixed. Crude futures are moving lower with the latest quote showing oil trading down by $0.40 to $68.57. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.43%, while the yield on the 3-month T-Bill is currently at 0.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a better 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 11 points above fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

Red Hat (RHT) – Upgraded at BofA/Merrill
Apple (AAPL) – Mentioned positively at Barclays regarding FASB rule change
Calpine (CPN) – Upgraded at Citi
National Semiconductor (NSM) – Upgraded at Citi
Knight Transportation (KNX) – Upgraded at Credit Suisse
Bed Bath & Beyond (BBBY) – Downgraded at Credit Suisse
Cardinal Health (CAH) – Downgraded at Deutsche Bank
Taubman Centers (TCO) – Removed fromBuyListat Goldman
Ann Taylor (ANN) – Downgraded at Goldman
Meritage Home (MTH) – Added toBuy List at Goldman
Citrix Systems (CTXS) – Added toBuy List at Goldman
DR Horton (DHI) – Target increased at Goldman
Toll Brothers (TOL) – Target increased at Goldman
MDC Holdings (MDC) – Target increased at Goldman
NVR Inc (NVR) – Target increased at Goldman
Ryland Group (RYL) – Target increased at Goldman
Hovnanian (HOV) – Target increased at Goldman
KB Home (KBH) – Target increased at Goldman
Lennar (LEN) – Target increased at Goldman
AstraZeneca (AZN) – Downgraded at Goldman
L-3 Communications (LLL) – Downgraded at JP Morgan
Pioneer Natural (PXD) – Upgraded at Morgan Stanley
Apache (APA) – Upgraded at Morgan Stanley
KLA-Tencor (KLAC) – Upgraded at Oppenheimer
NII Holdings (NIHD) – Target increased at Thomas Weisel
Kinross Gold (KGC) – Downgraded at Thomas Weisel

Long positions in stocks mentioned: GS, AAPL

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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