David Moenning's Daily State of the Markets: Will Shoppers Step Up?


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August 5, 2009 10:04 AM EDT

Will Shoppers Step Up?

Stocks inched higher again on Tuesday in response primarily to a report on pending home sales. The report came in with a fifth straight monthly gain and was largely better than consensus expectations. But, for the most part, it was a fairly quiet day as investors appeared to be taking a break after the wild ride to the upside over the past three and one-half weeks.

So, with most traders probably thinking more about summer vacation than anything else at the moment and stocks clearly in the midst of a very nice uptrend, we would like to turn our attention this morning to the question of the day: Is the consumer likely to come out of their shell sometime soon?

Although the economic data we watch shows that the recession is ending right here, right now (which explains the recent run for the roses in the stock market), the outlook regarding the strength of the recovery remains a big question mark. And since the consumer is responsible for something on the order of two-thirds of this country’s GDP, the mood of the consumer is going to have a large say in what kind of recovery we’ll be looking at.

If yesterday’s economic data told us anything it was that consumers in the U.S. still appear to be missing in action. Personal incomes fell by -1.3% in June, which, while it sounds bad, was actually payback for the one-time payments from the American Recovery and Reinvestment Act. Despite this “ya-but,” it was the largest drop since January 2005 and it is worth noting that the expectations had been for an increase of 1.2%. And then when you factor in May’s downward revision, it becomes clear that American’s don’t appear to have extra income to spend at the present time.

However, being the good little shoppers that we are, consumers did manage to push the needle higher on the gauge of Personal Spending in June. But, the Cash-for-Clunkers program was probably at work here as the government used up nearly $1 Billion in incentives to get people to buy cars. The plan clearly worked as vehicle sales jumped 16.5% in July. Unfortunately though, the bottom line is that when you adjust for inflation, real spending was actually down on the month.

So, with the jobs picture still looking bleak, it is a safe bet that the consumer isn’t going to return to their free spending ways of a couple years back. And even if they wanted to, we should remember that credit will be MUCH tougher to get and the housing market will no longer act as an ATM to finance all those discretionary purchases. Thus, we probably shouldn’t expect the consumer to provide a dramatic boost to the economy going forward.

The point, you ask? In short, if the consumer remains in hiding, the recovery may be subpar and/or short-lived. So, while we can definitely enjoy the fun in the summer sun as far as the stock market is concerned, we will suggest that this is not time to be asleep at the switch.

Turning to this morning, the private sector jobs front appears to be getting “less worse.” ADP reported that the private sector lost 371,000 jobs in July, which, while lower than the expectations for losses on the order of 350K, was better than June’s job loss totals of 463K.

Running through the rest of the pre-game indicators, the major overseas markets are mixed with Asia down and Europe up a smidge. Crude futures are moving down with the latest quote showing oil trading off by $0.18 to $71.24. On the interest rate front, we’ve got the yield on the 10-yr trading up big at 3.75%, 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 slightly lower open. The Dow futures are currently off by about 20 points; the S&P’s are down by about 1 point, while the NASDAQ looks to also be about a point below fair value at the moment.

Today’s Earnings Before the Bell:

Agrium (AGU) – Reported $2.35 vs. $1.78
Baker Hughes (BHI) – Reported $0.41 vs. $0.46
Boyd Gaming (BYD) – Reported $0.12 vs. $0.12
Dean Foods (DF) – Reported $0.43 vs. $0.43
Devon Energy (DVN) – Reported $0.85 vs. $0.59
Foster Wheeler (FWLT) – Reported $0.98 vs. $0.62
Garmin (GRMN) – Reported $0.83 vs. $0.51
International Flavors (IFF) – Reported $0.65 vs. $0.63
Marsh McLennan (MMC) – Reported $0.33 vs. $0.33
Overseas Shipholding (OSG) – Reported -$0.29 vs. -$0.66
Procter & Gamble (PG) – Reported $0.80 vs. $0.78
Quanta Services (PWR) – Reported $0.20 vs. $0.18
Polo Ralph Lauren (RL) – Reported $0.76 vs. $0.49
RR Donnelley (RRD) – Reported $0.37 vs. $0.29

Upgrades/Downgrades/Brokerage Research:

Southern Copper (PCU) – Upgraded at BofA/Merrill
Duke Energy (DUK) – Downgraded at Barclays
Emergency Medical Services (EMS) – Upgraded at Citi
Health Net (HNT) – Upgraded at Citi
Aluminum Corporation of China (ACH) – Upgraded at Citi
ValueClick (VCLK) – Downgraded at Citi
3Com (COMS) – Initiated Buy at Goldman
Cognizant Technology (CTSH) – Upgraded at Goldman
Solera Holdings (SLH) – Downgraded at Goldman
Caterpillar (CAT) – Mentioned cautiously at Goldman
Whole Foods (WFMI) – Upgraded at Morgan Stanley
Simon Properties (SPG) – Downgraded at Oppenheimer
Kimco Realty (KIM) – Downgraded at Oppenheimer
Archer-Daniels (ADM) – Downgraded at Oppenheimer
CommVault Systems (CVLT) – Downgraded at Thomas Weisel
FTI Consulting (FCN) – Downgraded at UBS
Brinker Intl (EAT) – Upgraded at UBS


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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