David Moenning's Daily State of the Markets: 05/01

May 1, 2008 10:29 AM EDT

Looking For Vigilance?

Here’s a link to listen to an Audio Version of the report:

At first glance, it appeared that the stock market got everything it was looking for yesterday. On the economic front, the GDP report actually came in a bit better than expected and was by no means the disaster that many feared. Yes, it was true that the growth for the quarter was due entirely to a buildup in inventories. But, with expectations for those inventories to be worked off in Q2, the bottom line is that, so far at least, the economy has technically avoided a recession.

Next up, it looked like the Fed delivered the goods in their announcement of a one-quarter point cut in both the Fed Funds and the Discount Rate and the intimation that they were moving toward a neutral stance. This was the seventh rate reduction in this cycle and the Fed Funds rate now stands at 2.0%, which is the lowest level since December 2004.

While everyone expected the rate cut by the Fed, there was a great deal of anxiety over the verbiage in the statement accompanying the move. And although you did have to look hard, there was one very important line missing from the statement. Gone was the sentence saying that “downside risks to growth remain.� So, either the FOMC thinks we’re out of the woods in terms of the risks of recession, or, more likely, they were sending a message that the rate cuts may be coming to an end.

Turning to the stock market, the indices were moving higher into the Fed move and even went up after the announcement. It looked like all three major indexes had finally broken above the top end of their respective trading ranges and that the bulls were in charge. But as is often the case with these important technical levels, the bulls were overrun by sell programs and the indices all wound up finishing down on the day.

The problem appears to be that the boys in the bond pits were looking for a little more vigilance from the Fed in terms of their efforts to fight inflation. The thinking is that if the Fed would just stop cutting rates – and fast – the dollar would stop plummeting and the rise in commodity prices would come to an end. And if commodity prices were to stop rising, then the inflation that is currently happening would likely dissipate.

However, with nearly two months before the next Fed meeting, Mr. Bernanke and Co. decided to keep their options open. And while this appears to be a smart move, bond traders threw a temper tantrum after the Fed decision. So, with bond yields plunging, stocks had little choice to key off the move in bonds.

Turning to this morning, the government just reported that Personal Incomes grew by 0.3% in March, which was a tenth light compared to expectations. But if there is one thing you can always count on in America it is that people like to shop. So, Personal Spending came in double the consensus estimates at +0.4%. On the inflation front, the Core PCE was in line with expectations.

Sticking with the economic news, Jobless Claims jumped up 35,000 to 380,000. This number was higher than anticipated and is putting some pressure on the indices in the pre-market.

Running through the rest of the pre-game indicators; the foreign markets were mostly closed overnight. Crude futures are moving down with the latest quote showing oil lower by $0.82 to $112.64. Interest rates are moving down as the yield on the 10-yr is currently trading at 3.73%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a mixed open. The Dow futures are currently off by about 10 points; the S&P’s are up about one-half point, while the NASDAQ looks to be about 6 points above fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

Avalon Bay (NYSE: AVB) – Reported $1.24 vs. $1.23
Allied Waste (NYSE: AW) – Reported $0.20 vs. $0.17
Allegheny Energy (NYSE: AYE) – Reported $0.80 vs. $0.78
Central Euro Distr (Nasdaq: CEDC) – Reported $0.45 vs. $0.28
Centex (NYSE: CTX) – Reported -$7.34 vs. -$2.22
Essex Property Trust (NYSE: ESS) – Reported $1.67 vs. $1.63
Genco Shipping (NYSE: GNK) – Reported $1.65 vs. $1.41
Grey Wolf (NYSE: GW) – Reported $0.15 vs. $0.14

JDS Uniphase (Nasdaq: JDSU) – Reported $0.14 vs. $0.14
Las Vegas Sands (NYSE: LVS) – Reported $0.07 vs. $0.39
Murphy Oil (NYSE: MUR) – Reported $1.92 vs. $1.89
Realty Income (NYSE: O) – Reported $0.46 vs. $0.48
Owens Illinois (NYSE: OI) – Reported $1.08 vs. $0.79
Oceaneering Intl (NYSE: OII) – Reported $0.74 vs. $0.73
Prudential (NYSE: PRU) – Reported $1.65 vs. $1.81
SBA Communications (Nasdaq: SBAC) – Reported -$0.11 vs. -$0.10
Starbucks (Nasdaq: SBUX) – Reported $0.15 vs. $0.15
Symantec (Nasdaq: SYMC) – Reported $0.36 vs. $0.33
Unum (NYSE: UNM) – Reported $0.59 vs. $0.57

Today’s Earnings Before the Bell:
Assurant (NYSE: AIZ) – Reported $1.80 vs. $1.51
Burger King (NYSE: BKC) – Reported $0.30 vs. $0.27
Cameron Intl (NYSE: CAM) – Reported $0.55 vs. $0.54
CIGNA (NYSE: CI) – Reported $0.94 vs. $0.96
Clorox (NYSE: CLX) – Reported $0. vs. $0.76
Comcast (Nasdaq: CMCSA) – Reported $0.19 vs. $0.19
CVS Caremark (NYSE: CVS) – Reported $0.55 vs. $0.31
Eastman Kodak (NYSE: EK) – Reported -$0.33 vs. -$0.06
Intl Flavors (NYSE: IFF) – Reported $0.75 vs. $0.74
NYMEX Holdings NYSE: (NYSE: NMX) – Reported $0.83 vs. $0.82
Sepracor (Nasdaq: SEPR) – Reported $0.53 vs. $0.46
Tyco (NYSE: TYC) – Reported $0.67 vs. $0.58
Xcel Energy (NYSE: XEL) – Reported $0.35 vs. $0.32
Exxon Mobil (NYSE: XOM) – Reported $2.03 vs. $2.11
Dentsply (Nasdaq: XRAY) – Reported $0.45 vs. $0.43

News, Upgrades/Downgrades/Brokerage Research:

Chicago Bridge (NYSE: CBI) – Downgraded at Citi
Annaly Capital (NYSE: NLY) – Downgraded at Citi
Union Pacific (NYSE: UNP) – Removed from Conviction Buy list at Goldman
Kansas City Southern (NYSE: KSU) – Added to Conviction Buy list at Goldman
Kinross Gold (NYSE: KGC) – Upgraded at HSBC
Garmin Ltd (Nasdaq: GRMN) – Downgraded at Merrill
First Solar (Nasdaq: FSLR) – Downgraded at Oppenheimer
Yum Brands (NYSE: YUM) – Downgraded at UBS
Hovnanian Enterprises (NYSE: HOV) – Downgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: CEDC, AIZ

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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