David Moenning's Daily State of the Markets: Voting With Their Feet


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October 7, 2009 9:25 AM EDT

Over the past month, this market has been all about the outlook for the economy. Stocks advanced to new highs once people in high places started to talk about the recession ending and then pulled back when we saw some economic data come in weaker than expectations. All the while, investors could find just about any opinion they were looking for on the subject and it was easy to be swayed in either direction. But yesterday, Australia voted with their feet.

Stocks popped higher yesterday on the back of the Aussie Reserve Bank’s decision to initiate a rate-hike campaign by increasing interest rates by 0.25% to 3.25%. The head of the central bank also noted that this was likely the first of many rate hikes to come. He opined that the global economy is back on a growth path and the recovery is likely to continue into 2010. The bank board said that the need for ultra-low interest rates has passed and that it is now prudent to begin gradually lessening the stimulus provided by the central bank.

In case it isn’t immediately obvious, the fact that the Aussie’s feel it is safe to start removing the excess liquidity they provided during the credit crisis is a good thing. This means that some confidence is returning to the markets and that the risk of a double-dip – or worse – would seem to be abating.

I know what you’re thinking. Aren’t traders in the U.S. worried about Ben Bernanke’s bunch taking such steps prematurely? If you recall the market recently fretting over just such a fear, give yourself a gold star. However, yesterday, New York Fed President Dudley said that the fed funds rate is likely to remain exceptionally low for an extended period of time here in the U.S. Thus, investors can take solace in the fact that the economy is indeed improving around the world and yet the U.S. central bankers don’t plan on taking away the punch bowl too soon.

This not-too-hot and yet not-too-cold scenario appeared to encourage the dip-buyers return to return to the game with enthusiasm yesterday. However, the fun was interrupted during the lunch break by a rumor that Goldman Sachs (GS) was experiencing large losses on derivative trades. Within an hour the 150 point gain had been cut to just 60 points and it looked like the bears might be making a comeback.

But in light of the fact that no one was able to substantiate, deny, or further the rumor, pretty soon the buyers returned and the S&P closed just 1.6% away from its recent higher. And as long as we’re doing the math, it looks like the Dow is less than 100 points (98.62 to be exact) from the Promised Land and the NASDAQ is just about 2% shy of its recent cycle high. So, with earnings season about to officially start, it looks like traders are looking on the bright side.

Turning to this morning, once again the economic calendar is blank today. However, we will get the results of the Treasury’s 10-year note auction at 1:00 pm eastern.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asia following Wall Street higher while Europe is fractionally lower. Crude futures are moving up again with the latest quote showing oil trading higher by $0.24 to $71.21. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.24%, while the yield on the 3-month T-Bill is currently at 0.07%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 10 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 2 points below fair value at the moment.

Yesterday’s Earnings After the Bell:

YUM! Brands (YUM) – Reported $0.70 vs. $0.58

Today’s Earnings Before the Bell:

Costco (COST) – Reported $0.85 vs. $0.77
Family Dollar (FDO) – Reported $0.43 vs. $0.41
Monsanto (MON) – Reported $0.02 vs. $0.01


Upgrades/Downgrades/Brokerage Research:

Vail Resorts (MTN) – Upgraded at BofA/Merrill
News Corp (NWSA) – Upgraded at BofA/Merrill
Walt Disney (DIS) – Upgraded at BofA/Merrill
Viacom (VIA.B) – Upgraded at BofA/Merrill
St. Jude Medical (STJ) – Downgraded at Canaccord Adams
Coca-Cola (KO) – Upgraded at Deutsche Bank
Goodrich (GR) – Upgraded at FBR Capital
Wyndham Worldwide (WYN) – Upgraded at Goldman
Companhia Vale do Rio Doce (VALE) – Upgraded at Goldman
Kohl’s (KSS) – Upgraded at Morgan Stanley
Abercrombie & Fitch (ANF) – Upgraded at Morgan Stanley
Google (GOOG) – Target increased at Oppenheimer
Estee Lauder (EL) – Upgraded at Piper Jaffray
Under Armour (UA) – Upgraded at Piper Jaffray
Zumiez (ZUMZ) – Upgraded at Piper Jaffray
Aeropostale (ARO) – Downgraded at Piper Jaffray
Taiwan Semiconductor (TSM) – Downgraded at UBS
Bank of America (BAC) – Upgraded at Wells Fargo
Goldman Sachs (GS) – Target increased at Wells Fargo
JP Morgan (JPM) – Target increased at Wells Fargo
Bank of America (BAC) – Target reduced at Wells Fargo
Morgan Stanley (MS) – Target reduced at Wells Fargo

Long positions in stocks mentioned: GS, GOOG, ARO

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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