David Moenning's Daily State of the Markets: 11/05

November 5, 2008 10:24 AM EST

Looking Ahead

Wall Streeters joined Main Streeters yesterday and spent the vast majority of their Election Day looking ahead. While the general public looked ahead to who is going to lead the country out of war and the economic crisis, the stock market was looking ahead to better days and traders may have even been daydreaming about the next great bull run.

Please don’t misinterpret that comment. We are not suggesting that the 1450 point rally in the Dow over the past six trading days means that a new bull market has or is about to begin. However, with the commercial paper and interbank lending markets improving on a daily basis (remember, LIBOR has now fallen for 18 straight sessions) it is easy to look forward to better times.

As we have been saying lately, the drastic steps taken by Governments and Central Bankers around the globe coupled with the improvement in the lending markets means that we are not likely facing the financial Armageddon that was feared in early October. And unless we are staring at something along the lines of the Great Depression, the stock market’s decline of -45% over the past year has probably fairly discounted anything short of a replay of the 1929-32 economic scenario.

Speaking of the economy, while traders have earned the right to look ahead for a while, it is difficult to look past some of the recent economic data. While the data may not be considered disastrous, even the most ardent bulls will admit that the numbers have been pretty darned ugly. For example, we learned Monday that the manufacturing sector hit a brick wall in September as the ISM Manufacturing Composite Index fell to its lowest level since September 1982. New Orders fell to their lowest level since June 1980 and Production also dropped to its lowest level in 28 years. Next, the combination of the credit crisis, the weakening economy, and plunging consumer confidence may represent the perfect storm for the auto makers as we learned that total light vehicle sales declined by 15.6% in September to the lowest since February 1983.

So, if you are wondering how the stock market can sprint higher in the face of such miserable data, you probably aren’t alone. However, the key thing to remember about the stock market is that it discounts the future. And since stocks have been doing nothing but discounting a rough patch in the economy for some time now, all of this bad economic news has probably already been “baked in.�

Getting back to Main Street, now that the votes have been counted, it is time for everyone, including our new president to look ahead. The economic challenges facing this new administration are daunting and getting us out of this debacle is going to take foresight and significant cooperation. So, let’s hope that the change the voters were looking for comes to pass.

Turning to this morning, the ADP Employment report for the private sector came in below expectations; showing job losses of -157,000 vs. expectations for -100,000. And in looking at the markets, while the celebration continues on Main Street after an historic election, Wall Street appears to have turned its attention back to the global slowdown. But after a stellar run over the past week, a pullback is to be expected.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia up and Europe down. Crude futures are lower with the latest quote showing oil trading down by $1.91 to $68.62. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.73% while the yield on the 3-month T-Bill is at 0.44% and overnight LIBOR is at 0.32% which is down from yesterday’s rate of 0.38%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to down open. The Dow futures are currently off by about 140 points; the S&P’s are down by about 22 points, while the NASDAQ looks to be about 23 points below fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

HCC Insurance (NYSE: HCC) – Reported $0.51 vs. $0.73
HealthSouth (NYSE: HLS) – Reported $0.03 vs. $0.06
Blue Nile (Nasdaq: NILE) – Reported $0.15 vs. $0.16
Pioneer Natural (NYSE: PXD) – Reported $0.91 vs. $1.20
Papa John’s (Nasdaq: PZZA) – Reported $0.28 vs. $0.36
Boston Beer (NYSE: SAM) – Reported $0.14 vs. $0.28
Stone Energy (NYSE: SGY) – Reported $1.04 vs. $1.80
Titanium Metals (NYSE: TIE) – Reported $0.22 vs. $0.21

Today’s Earnings Before the Bell:

AMBAC (NYSE: ABK) – Reported -$7.81 vs. -$0.90
Agrium (NYSE: AGU) – Reported $2.31 vs. $1.94
Cognizant Technology (Nasdaq: CTSH) – Reported $0.38 vs. $0.37
Duke Energy (NYSE: DUK) – Reported $0.33 vs. $0.44
Devon Energy (NYSE: DVN) – Reported $3.09 vs. $3.06
General Growth Properties (NYSE: GGP) – Reported $0.64 vs. $0.76
Hospira (NYSE: HSP) – Reported $0.63 vs. $0.63
Interactive Corp (Nasdaq: IACI) – Reported -$0.14 vs. $0.15
Kimco Realty (NYSE: KIM) – Reported $0.68 vs. $0.68
Quicksilver Resources (NYSE: KWK) – Reported $0.41 vs. $0.34
MBIA (NYSE: MBI) – Reported -$2.22 vs. -$0.41
Medco Health Solutions (NYSE: MHS) – Reported $0.63 vs. $0.62

Marsh & McLennan (NYSE: MMC) – Reported $0.21 vs. $0.32
Transocean (NYSE: RIG) – Reported $3.44 vs. $3.54
Sara Lee (NYSE: SLE) – Reported $0.32 vs. $0.18
Time Warner (NYSE: TWX) – Reported $0.34 vs. $0.28

News, Upgrades/Downgrades/Brokerage Research:

Eastman Kodak (NYSE: EK) – Downgraded at Argus Research
Choice Hotels (NYSE: CHH) – Upgraded at Argus
Coeur d’Alene Mines (NYSE: CDE) – Downgraded at Argus
Entergy Corp (NYSE: ETR) – Upgraded at Bank of America
Louisiana Pacific (NYSE: LPX) – Downgraded at Bank of America
Health Net (NYSE: HNT) – Downgraded at Citi
Southern Copper (NYSE: PCU) – Downgraded at Deutsche Bank
ONEOK Inc (NYSE: OKE) – Added to Conviction Buy list at Goldman
Microchip (Nasdaq: MCHP) – Downgraded at Goldman
Lincoln National (NYSE: LNC) – Downgraded at Merrill
Principal Financial (NYSE: PFG) – Upgraded at Merrill
Verizon (NYSE: VZ) – Target cut at UBS
AT&T (NYSE: T) – Target cut at UBS
Burlington Northern (NYSE: BNI) – Downgraded at UBS
Union Pacific (NYSE: UNP) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: BNI

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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• Goldman Sachs Conviction Buy List
• Deutsche Bank
• UBS
• ISM Manufacturing
• ADP Employment Report
• Citi
• Banc of America
• Argus
• David Moenning
• Crude Oil

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