David Moenning’s Daily State of the Markets: 11/06

Back To The Bunker?

It is said that Wall Street overdoes everything, including every major move in every direction. So, after an 18% pop higher in just six days, the Bears could be heard making the argument yesterday that the move to the upside might be getting just a teensy bit ahead of itself. After all, since the market had plunged about 30% over the course of a month in an effort to discount the damage to the economy and the financial system caused by the credit calamity, the ensuing rally had effectively gone a long way toward undoing that discounting.

What I am attempting to say it that after all the excitement and the emotion of the election, traders came back to work yesterday faced with the reality of a global economic slowdown; the depths of which no one is entirely sure of at this time.

As we’ve been reporting, the economic data, which has been all but ignored over the past week, has been nothing short of horrific. And yesterday’s data wasn’t much better as ADP said the economy dropped another 157,000 jobs in October and Challenger informed us that layoffs for last month came in at a five-year high. Now toss in the biggest contraction on record for the ISM Non-Manufacturing index – meaning that the service sector isn’t in great shape either – and it became clear that the economy is going to need a lot more than a new guy in the oval office to get things moving in the right direction.

After a brief hiatus, the financial sector was back in the spotlight yesterday. First, the monoline insurers had a rough go as both Ambac (ABK) and MBIA (MBI) reported quarters that came up more than a little short of analyst’s already reduced expectations. And as one might have expected, these two stocks were bloodied to the tune of -41% and -22% respectively. Next, a report from Sanford Bernstein suggested that the peak in bank charge-offs for regional banks may still be a year away. And finally, GMAC danced around the idea that its ResCap unit may not make it on its own.

But unfortunately, the fun didn’t stop at our shores as we also got some more evidence that the U.S. isn’t alone in this mess. ArcelorMittal (MT), which just happens to be the world’s biggest steel company, missed earnings by a cool $2.78 (or about 27%). Okay, that happens during earnings season. But Mr. Mittal then went on to say that this was perhaps the worst crisis he had ever seen and that his company was cutting production by more than 30% (which was double the level of cuts announced just a couple weeks ago) in response to yep, you guessed it: slowing global demand.

That theme continued after the close when the ever-upbeat Mr. John Chambers remarked that the challenges facing both Cisco Systems (CSCO) and the nation have expanded into Europe, Asia, and the emerging markets. And while the company did manage beat the Street’s estimate (insert sarcastic gasp here) by $0.03, Mr. Chambers said that there is much uncertainty in the market at this time and then outlined steps the company would be taking to cut costs.

So, after the 5% downdraft that wound up being yesterday’s session, is it time to grab the helmet and head back into the bunker? Well, for now, we’re going to call this an expected pullback. But we should also remember that another full-fledged retest wouldn’t be out of the question.

Turning to this morning, a much bigger than expected rate cut from the Bank of England (150 basis points vs. 50) in addition to the moves by the ECB and the Swiss, who each cut 50 basis points, is helping the market deal with the another round of selling overseas.

On the economic front, Nonfarm Productivity came in with a gain of +1.1% versus expectations of +0.7% while Unit Labor Costs were higher than projected at +3.6% vs. +3.0%.

Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are down with the latest quote showing oil trading off by $1.87 to $63.42. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.69% while the yield on the 3-month T-Bill is at 0.33% and overnight LIBOR is at 0.33% which is up from yesterday’s rate of 0.32%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 75 points; the S&P’s are down by about 11 points, while the NASDAQ looks to be about 26 points below fair value at the moment.

Stocks “In Play” This Morning:


Yesterday’s Earnings After the Bell:

Apollo Investment (AINV) – Reported $0.40 vs. $0.36
Alon Energy (ALJ) – Reported $0.52 vs. $0.21
Activision Blizzard (ATVI) – Reported $0.07 vs. $0.13
Crown Castle (CCI) – Reported -$0.13 vs. -$0.05
Central European Distributors (CEDC) – Reported $0.89 vs. $0.72
Charles River Labs (CRL) – Reported $0.76 vs. $0.75
Cisco Systems (CSCO) – Reported $0.42 vs. $0.39
Eagle Bulk Shipping (EGLE) – Reported $0.49 vs. $0.44
First Marblehead (FMD) – Reported -$0.94 vs. -$0.06
Hertz Global (HTZ) – Reported $0.33 vs. $0.53
Kinross Gold (KGC) – Reported $0.13 vs. $0.13
Liberty Global (LBTYA) – Reported -$0.18 vs. $0.01
News Corp (NWS.A) – Reported $0.20 vs. $0.22
Rackspace (RAX) – Reported $0.04 vs. $0.02
Sunoco (SUN) – Reported $4.78 vs. $2.44
Syniverse Holdings (SVR) – Reported $0.50 vs. $0.42
Ternium (TX) – Reported $1.53 vs. $1.45
Vulcan Materials (VMC) – Reported $0.53 vs. $0.84
Whole Foods (WFMI) – Reported $0.13 vs. $0.13

Today’s Earnings Before the Bell:

Autonation (NYSE: AN) – Reported $0.25 vs. $0.29
Barr Pharmaceuticals (NYSE: BRL) – Reported $0.83 vs. $0.71
Constellation Energy Group (NYSE: CEG) – Reported $0.76 vs. $0.84
Dynegy (NYSE: DYN) – Reported $0.72 vs. $0.10
El Paso (NYSE: EP) – Reported $0.35 vs. $0.32
Perrigo (Nasdaq: PRGO) – Reported $0.41 vs. $0.43
Petrohawk (NYSE: HK) – Reported $0.19 vs. $0.20
King Pharmaceuticals (NYSE: KG) – Reported $0.33 vs. $0.26

Lamar Advertising (Nasdaq: LAMR) – Reported $0.04 vs. $0.05
NASDAQ OMX (Nasdaq: NDAQ) – Reported $0.52 vs. $0.52
OfficeMax (NYSE: OMX) – Reported $0.36 vs. $0.34
Pioneer Drilling (NYSE: PDC) – Reported $0.48 vs. $0.42
Teva Pharmaceuticals (Nasdaq: TEVA) – Reported $0.72 vs. $0.70
Wendy’s/Arby’s (NYSE: WEN) – Reported -$0.34 vs. $0.05

News, Upgrades/Downgrades/Brokerage Research:

Aeropostale (NYSE: ARO) – October Same Store Sales +1% vs. StreetAccount +2.8%
BJ’s Wholesale Club (NYSE: BJ) – October Same Store Sales +10.2% vs. StreetAccount +7.4%
Costco (Nasdaq: COST) – October Same Store Sales -1% vs. StreetAccount +4.3%
Dillard’s (NYSE: DDS) – October Same Store Sales -8% vs. StreetAccount -11%
Gap (NYSE: GPS) – October Same Store Sales 16% vs. StreetAccount -10.7%
JC Penney (NYSE: JCP) – October Same Store Sales -13% vs. StreetAccount -14.2%
Macy’s (NYSE: M) – October Same Store Sales -6.3% vs. StreetAccount -6.2%
Target (NYSE: TGT) – October Same Store Sales -4.8% vs. StreetAccount -3.3%
Wal-Mart (NYSE: WMT) – October Same Store Sales +2.8% vs. StreetAccount +1.4%
Sovereign Bancorp (NYSE: SOV) – Upgraded at Citi
Foster Wheeler (Nasdaq: FWLT) – Downgraded at Citi
Amazon.com (Nasdaq: AMZN) – Downgraded at Citi
CNOOC (NYSE: CEO) – Downgraded at Credit Suisse
Urban Outfitters (Nasdaq: URBN) – Downgraded at FBR
Devon Energy (NYSE: DVN) – Downgraded at Goldman, FBR
EOG Resources (NYSE: EOG) – Downgraded at Goldman
Encore Acquisition (NYSE: EAC) – Upgraded at Goldman
XTO Energy (NYSE: XTO) – Upgraded at Goldman
News Corp (NYSE: NWS.A) – Downgraded at JP Morgan
Syniverse Holdings (NYSE: SVR) – Downgraded at RW Baird
General Growth Properties (NYSE: GGP) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: WMT, SVR, HK

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.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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