David Moenning’s Daily State of the Markets: 06/14
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Still Standing Aside?
Good morning. Before yesterday’s PPI number, there was some hope that even a so-so report would trigger a sigh-of-relief rally. The thinking was that part of the reason for the precipitous decline lately had to do with the fact that the bulls have been standing on the sidelines waiting on the data. And with few buyers around to support prices, the indices have been at the mercy of the bears, who have shown little mercy in the last month. Stocks had become very oversold, fear was in the air, and the bears seemed to be pressing – the combination of which, usually leads to a rebound.
But unfortunately this was not the case. Despite rather benign PPI numbers, stocks sank to new lows once again. While the consensus had been looking for an increase of +0.4% in the headline PPI, the actual number came in at one-half that level. However, traders have largely ignored the headline number for the past year, so the bulls really couldn’t expect to reap any benefit this time. No, the more important number was the Core Rate, which, at +0.3% was actually higher than the consensus.
The problem wasn’t so much that the numbers suggested that inflation is a big problem going forward, because it isn’t. The problem was that the report didn’t provide any clarity on the expectations of what the Fed will do. And with the CPI on tap for this morning, the bulls once again decided to stand aside. Thus, with little reason to buy and overseas markets, the metals, and just about anything cyclical plunging, the indices once again fell of their own weight late in the day.
The technicians will point to the increased volume and miserable breadth as worrisome signs, however, until we get a peek at the CPI, technical analysis may mean little. So without any further tongue wagging about the past, let’s get to the numbers, which are the key to the future.
Unfortunately, while the headline number came in on target, the Core CPI was a tenth higher than expected. Traders were hoping for the Core Rate to be better than the consensus of +0.2%, but instead we got an increase of +0.3%. The news has sent stocks and bonds into a tailspin and the market has given up all of an early 50-point gain.
The major issue in the report is the Core CPI on a year-over-year basis. Last month’s number caused some discomfort among the FOMC members as the level exceeded the Fed’s so-called “comfort zone” by a tenth. Thus this morning’s reading of 2.4% almost guarantees more rate hikes.
Running through the rest of pre-game indicators, overseas markets are sporting mixed reviews. Gold is attempting to rebound a bit after yesterday’s pasting. Gold futures are higher by $4.2 to $571 at the moment. Oil is also a bit higher this morning as crude futures are currently trading higher by $1.32 to $68.88. Interest rates are moving up on the CPI news, with the 2-year currently trading at 5.06% while the 10-yr is quoted at 4.96% right now. And finally, with about 45 before the bell, stock futures in the U.S. are slumping and have reversed early gains created by Goldman’s upgrade of the Semis. The Dow futures are currently off by 10 points; the S&Ps are just below unchanged, and the NASDAQ is sporting an advance of about 3 points.
So with another rate hike or two now on the way, the key question is if the current decline has fully discounted the potential damage to the economy and earnings. And now that the big bad event is out of the way, it will be interesting to see if the bulls can mount any kind of defense here.
Stocks “In Play” This Morning:
Casey’s General Stores (CASY) – Reported $0.22 vs. $0.15, Revenues $890.2M vs. $864.3, Raised dividend
Diageo PLC (DEO) – Mentioned positively in Barron’s
Sycamore Networks (SCMR) – Upgraded at Citigroup
National Semiconductor (NSM) – Upgraded at Goldman Sachs
Maxim Integrated (MXIM) – Downgraded at Goldman Sachs
Intel (INTC) – Upgraded at Goldman Sachs
Sandisk (SNDK) – Upgraded at Goldman Sachs
Advanced Micro Devices (AMD) – Upgraded at Goldman Sachs
Legg Mason (LM) – Upgraded at Friedman Billings
Boeing (BA) – Upgraded at Goldman Sachs
Northrop Grumman (NOC) – Downgraded at Goldman Sachs
Chicago Mercantile Holdings (CME) – Coverage initiated Overweight at LEH
Nasdaq Stock Market (NDAQ) – Coverage initiated Overweight at LEH
Caremark Rx (CMX) – Initiated with Buy Rating at FTN Midwest
Michael’s Stores (MIK) – Mentioned positively at UBS
Archer Daniels Midland (ADM) – Upgraded at Harris Nesbitt
New York Comm Bancorp (NYB) – Upgraded at Ryan Beck
Positions in stocks mentioned: GS
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.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.
Good morning. Before yesterday’s PPI number, there was some hope that even a so-so report would trigger a sigh-of-relief rally. The thinking was that part of the reason for the precipitous decline lately had to do with the fact that the bulls have been standing on the sidelines waiting on the data. And with few buyers around to support prices, the indices have been at the mercy of the bears, who have shown little mercy in the last month. Stocks had become very oversold, fear was in the air, and the bears seemed to be pressing – the combination of which, usually leads to a rebound.
But unfortunately this was not the case. Despite rather benign PPI numbers, stocks sank to new lows once again. While the consensus had been looking for an increase of +0.4% in the headline PPI, the actual number came in at one-half that level. However, traders have largely ignored the headline number for the past year, so the bulls really couldn’t expect to reap any benefit this time. No, the more important number was the Core Rate, which, at +0.3% was actually higher than the consensus.
The problem wasn’t so much that the numbers suggested that inflation is a big problem going forward, because it isn’t. The problem was that the report didn’t provide any clarity on the expectations of what the Fed will do. And with the CPI on tap for this morning, the bulls once again decided to stand aside. Thus, with little reason to buy and overseas markets, the metals, and just about anything cyclical plunging, the indices once again fell of their own weight late in the day.
The technicians will point to the increased volume and miserable breadth as worrisome signs, however, until we get a peek at the CPI, technical analysis may mean little. So without any further tongue wagging about the past, let’s get to the numbers, which are the key to the future.
Unfortunately, while the headline number came in on target, the Core CPI was a tenth higher than expected. Traders were hoping for the Core Rate to be better than the consensus of +0.2%, but instead we got an increase of +0.3%. The news has sent stocks and bonds into a tailspin and the market has given up all of an early 50-point gain.
The major issue in the report is the Core CPI on a year-over-year basis. Last month’s number caused some discomfort among the FOMC members as the level exceeded the Fed’s so-called “comfort zone” by a tenth. Thus this morning’s reading of 2.4% almost guarantees more rate hikes.
Running through the rest of pre-game indicators, overseas markets are sporting mixed reviews. Gold is attempting to rebound a bit after yesterday’s pasting. Gold futures are higher by $4.2 to $571 at the moment. Oil is also a bit higher this morning as crude futures are currently trading higher by $1.32 to $68.88. Interest rates are moving up on the CPI news, with the 2-year currently trading at 5.06% while the 10-yr is quoted at 4.96% right now. And finally, with about 45 before the bell, stock futures in the U.S. are slumping and have reversed early gains created by Goldman’s upgrade of the Semis. The Dow futures are currently off by 10 points; the S&Ps are just below unchanged, and the NASDAQ is sporting an advance of about 3 points.
So with another rate hike or two now on the way, the key question is if the current decline has fully discounted the potential damage to the economy and earnings. And now that the big bad event is out of the way, it will be interesting to see if the bulls can mount any kind of defense here.
Stocks “In Play” This Morning:
Casey’s General Stores (CASY) – Reported $0.22 vs. $0.15, Revenues $890.2M vs. $864.3, Raised dividend
Diageo PLC (DEO) – Mentioned positively in Barron’s
Sycamore Networks (SCMR) – Upgraded at Citigroup
National Semiconductor (NSM) – Upgraded at Goldman Sachs
Maxim Integrated (MXIM) – Downgraded at Goldman Sachs
Intel (INTC) – Upgraded at Goldman Sachs
Sandisk (SNDK) – Upgraded at Goldman Sachs
Advanced Micro Devices (AMD) – Upgraded at Goldman Sachs
Legg Mason (LM) – Upgraded at Friedman Billings
Boeing (BA) – Upgraded at Goldman Sachs
Northrop Grumman (NOC) – Downgraded at Goldman Sachs
Chicago Mercantile Holdings (CME) – Coverage initiated Overweight at LEH
Nasdaq Stock Market (NDAQ) – Coverage initiated Overweight at LEH
Caremark Rx (CMX) – Initiated with Buy Rating at FTN Midwest
Michael’s Stores (MIK) – Mentioned positively at UBS
Archer Daniels Midland (ADM) – Upgraded at Harris Nesbitt
New York Comm Bancorp (NYB) – Upgraded at Ryan Beck
Positions in stocks mentioned: GS
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.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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