David Moenning's Daily State of the Markets: 5/7

May 7, 2009 10:05 AM EDT

Don't Worry, Be Happy!

As the details of the stress tests from each of the nation’s 19 biggest banks were leaked to a variety of news outlets yesterday afternoon, the bulls could be heard singing softly in the background. Linked hoof to hoof and gently swaying to and fro, our heroes in horns displayed their softer side with a sweet rendition of Bobby McFerrin’s “Don’t Worry, Be Happy.”

Okay, there is a decent chance that some imbibing of celebratory bubbly may have been the catalyst for this “moment” in the bull camp. Or maybe our bovine buddies were simply delirious over the fact that the very banks everyone thought were going bust two short months ago are now members of the three and four-baggers club. But in any event, the bull camp is indeed a happy place to be these days.

While the day got started on an upbeat note thanks to the ADP jobs report that was significantly better than expected, once the news started hitting the wires about which banks needed to raise what, the bulls and anyone owning bank stocks began dancing in the streets.

By this point, there probably aren’t many investors that really expected the government to have constructed a test that all the banks would fail. Although this would have been an excellent idea in 2005, the concept of telling the world that our banks are still in deep doo-doo doesn’t seem to make much sense these days. So, while there was some initial skittishness a few weeks back about what Mr. Geithner and his bank regulator pals had up their sleeves, it is now appears that the stress tests are nothing to get too stressed out about.

However, the way the results were leaked to a host of news sources including Bloomberg, AP, the Wall Street Journal, the New York Times, and Reuters was definitely odd. And frankly, the results of the tests weren’t really much of a surprise after the FDIC’s Sheila Bair told us early in the day that the results would likely be a “confidence booster.”

To the uninitiated, the question of the day yesterday became: Why on earth are the banks rallying when Bank of America (BAC) needs to raise $34 billion, Citi (C) will require $10B, Wells (WFC) has to come up with $15B, and GMAC needs at least another $11.5 billion to stay in business after November 9th? The answer, of course, is that this is the stuff that “sigh of relief” rallies are made of.

Sure, shareholders are going to be diluted when the banks raise more capital. And yes, the raising of the capital could put a strain on the system. But since the government has got the banks’ backs and the numbers weren’t really as bad as had been feared, there is a decent chance that the last of the shorts in the banking sector ran for cover yesterday afternoon while the trader types pressed their bets to the upside.

Which brings us to the question we ask ourselves almost daily (and sometimes hourly): Where do we go from here? By all accounts, the answer appears to be up (and up and up!). However, the singing, the champagne, and the dancing does make us want to run out and sell a little something here – just in case these trees don’t grow to the sky after all.

Turning to this morning, Q1 Nonfarm Productivity was reported at +0.8%, which was above the consensus for an increase of +0.6%. Also in the report, we find that Unit Labor Costs (a measure of inflation) came in a bit hotter with an increase of +3.3%, which was above the estimate for a gain of +2.7%. And finally, the weekly jobless claims were down 34K to 601,000, which was better than the expectations for 635K.

Running through the rest of the pre-game indicators, the major overseas markets are up strong across the board. Crude futures are moving up with the latest quote showing oil trading higher by $1.71 to $58.05. On the interest rate front, we’ve got the yield on the 10-yr currently soaring to 3.26%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a – where else – higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 9 points, while the NASDAQ looks to be about 11 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Alon USA Energy (NYSE: ALJ) – Reported $0.37 vs. $0.31
Anadarko Petroleum (NYSE: APC) – Reported -$0.53 vs. -$0.63
Avis Budget Group (NYSE: CAR) – Reported -$0.44 vs. -$0.73
Cisco Systems (Nasdaq: CSCO) – Reported $0.30 vs. $0.25
Embarq (NYSE: EQ) – Reported $1.21 vs. $1.28
Expeditors Intl (EXPD) – Reported $0.27 vs. $0.30
Murphy Oil (NYSE: MUR) – Reported $0.37 vs. $0.26
Macrovision (Nasdaq: MVSN) – Reported $0.31 vs. $0.20
News Corp (NYSE: NWS.A) – Reported $1.04 vs. $0.16
Onyx Pharmaceuticals (ONXX) – Reported $0.14 vs. $0.18
Prudential (NYSE: PRU) – Reported $1.05 vs. $0.78
Boston Beer (NYSE: SAM) – Reported $0.10 vs. -$0.10
Sunoco (NYSE: SUN) – Reported $0.50 vs. $0.33
Symantec (Nasdaq: SYMC) – Reported $0.38 vs. $0.35
Tesoro (NYSE: TSO) – Reported $0.37 vs. $0.40

Today’s Earnings Before the Bell:

Alliant Techsystems (NYSE: ATK) – Reported $02.28 vs. $2.10
Cameron Intl (NYSE: CAM) – Reported $0.59 vs. $0.57
Dynegy (NYSE: DYN) – Reported -$0.40 vs. -$0.03
General Motors (NYSE: GM) – Reported -$9.66 vs. -$11.03
IMAX (Nasdaq: IMAX) – Reported -$0.06 vs. -$0.09
Lamar Advertising (Nasdaq: LAMR) – Reported -$0.23 vs. -$029.
NASDAQ OMX Group (Nasdaq: NDAQ) – Reported $0.48 vs. $0.47
Sirius XM Radio (Nasdaq: SIRI) – Reported -$0.07 vs. -$0.03
Sara Lee (NYSE: SLE) – Reported $0.25 vs. $0.18
Teradata Crop (NYSE: TDC) – Reported $0.26 vs. $0.14
Watson Wyatt (NYSE: WW) – Reported $0.95 vs. $0.93

Upgrades/Downgrades/Brokerage Research:

NiSource (NYSE: NI) – Downgraded at BofA/Merrill
Tesoro (NYSE: TSO) – Downgraded at BofA/Merrill
LM Ericsson (Nasdaq: ERIC) – Upgraded at BofA/Merrill
Symantec (Nasdaq: SYMC) – Downgraded at Citi
EOG Resources (NYSE: EOG) – Downgraded at Citi
Newfield Exploration (NYSE: NFX) – Upgraded at Citi
Intel (Nasdaq: INTC) – Added to US Focus list at Credit Suisse
Kinross Gold (NYSE: KGC) – Downgraded at Credit Suisse
Capital One (NYSE: COF) – Upgraded at Goldman
American Express (NYSE: AXP) – Upgraded at Goldman
Fifth Third Bancorp (Nasdaq: FITB) – Upgraded at Goldman
Bank of New York Mellon (NYSE: BK) – Added to Conviction Buy list at Goldman
Northern Trust (NTRS) – Removed from Conviction Buy list at Goldman
PMC Sierra (Nasdaq: PMCS) – Removed from Conviction Buy list at Goldman
Key Corp (NYSE: KEY) – Downgraded at Goldman
Comerica (NYSE: CMA) – Downgraded at Goldman
SunTrust Banks (NYSE: STI) – Downgraded at Goldman
AT&T (NYSE: T) – Downgraded at JP Morgan
Verizon (NYSE: VZ) – Downgraded at JP Morgan
Morgan Stanley (NYSE: MS) – Downgraded at Keefe Bruyette Woods
Bank of America (NYSE: BAC) – Upgraded

Disclosure: Mr. Moenning and/or related firms hold long positions in: BAC, SYMC, WW, INTC, VZ

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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• Goldman Sachs Conviction Buy List
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• Shelia Bair
• FDIC
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