David Moenning's Daily State of the Markets: 1/16
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Still Searching For a Bottom
Here's a link to listen to an Audio Version of the report:
For the past six months, traders have basically been desperately searching for an end to the subprime mess. As can be seen on the charts, stocks have rallied each time it was believed that the problems were under control and then headed south each time this theory was debunked. This trend continued yesterday after Citigroup (NYSE: C) reported a simply miserable quarter and then told analysts on the conference call that “there are still risks relating to subprime securities” out there.
To put is mildly, this is not what anyone wanted to hear. Investors would much prefer to think that this problem is just about over and would much rather hear that companies have “kitchen sinked” their reports instead of ‘fessing up to a few billion in losses here and there. However, it is becoming quite clear that the markets will not be rid of the subprime mess for some time and therefore, investors may have a tough time calling a bottom in stock prices.
Another big problem investors had with the Citigroup report yesterday had to do with all-important U.S. consumer. While it was Citigroup’s worst quarter in history and the $9.8 billion loss was staggering, it was actually the CEO's comments on the consumer that hit the stock market squarely between the eyes. Citi said that it saw deterioration in consumer credit on a monthly basis during the fourth quarter. And this, coupled with the report from the Commerce Department which showed that Retail Sales in 2007 were the weakest in five years, caused investors to jump to the conclusion that a recession is close at hand.
So, given that we are seeing a decisive shift in investor attitudes toward the expectation of a recession as well as the feeling that the Fed is not only behind the curve but no longer in control, it is not exactly surprising to see short-term investors leaning hard on the sell button on a daily basis.
What the bulls need right now is some evidence that the economy is not falling off of a cliff and that outside of real estate and banks, corporate America is continuing to fare pretty darned well. But with the S&P 500 having broken down through the sideways range of the last six months and now flirting with the lows seen last March, it may be hard to convince traders’ to look to the bright side.
Turning to this morning, we've got another inflation report to sift through, so let’s get to it. The government reported that the Consumer Price Index rose by +0.3% in December, which was a tenth above expectations for an increase of +0.2%. When you strip out food and energy, the Core rate saw an increase of +0.2%, which was spot-on with analyst expectations. On an annual basis, the CPI rose by 4.1% in 2007 and the Core increased by 2.4%, which were both in line with the consensus estimates.
On the news front, Intel's (Nasdaq: INTC) earnings report after the close caused a fair amount of angst around the globe about a slowdown and China’s announcement that they increased the reserve ratio didn’t help the Asian markets. And in the pre-market here in the U.S., the fact that the CPI report didn’t contain any good news has caused traders to return to the sell side.
Running through the rest of the pre-game indicators; the overseas markets are down significantly across the board. Crude futures are lower so far with the latest quote showing the February contract down by $0.94 to $90.96. Interest rates are falling with the 10-yr trading at a yield of 3.67% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower down again. The Dow futures are currently off by about 75 points; the S&Ps are down by about 12, 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:
Intel (Nasdaq: INTC) – Reported $0.405 vs. $0.40
Today's Earnings Before the Bell:
JP Morgan (NYSE: JPM) – Reported $0.86 vs. $0.91
Wells Fargo (NYSE: WFC) – Reported $0.41 vs. $0.39
News, Upgrades/Downgrades/Brokerage Research:
FMC Corp (NYSE: FMC) – Upgraded at Bank of America
Boston Scientific (NYSE: BSX) – Upgraded at Bank of America
ING Group (NYSE: ING) – Downgraded at Bear Stearns
Temple Inland (NYSE: TIN) – Upgraded at Citi
Affiliated Computer Services (NYSE: ACS) – Upgraded at Credit Suisse
AK Steel (NYSE: AKS) – Upgraded at Goldman Sachs
Astrazeneca (NYSE: AZN) – Upgraded at Goldman Sachs
Deutsche Telecom (NYSE: DT) – Downgraded at JP Morgan
Diageo (NYSE: DEO) – Upgraded at Lehman
Kindred Healthcare (NYSE: KND) – Upgraded at Lehman
Intel (Nasdaq: INTC) – Upgraded at Morgan Stanley, Target reduced at UBS
Broadcom (Nasdaq: BRCM) – Target at UBS
Coca Cola (NYSE: KO) – Target increased at UBS
Estee Lauder (NYSE: EL) – Upgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: KO
Note: All earnings reports compared to Reuter’s consensus estimates
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: Linkwww.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.
Here's a link to listen to an Audio Version of the report:
For the past six months, traders have basically been desperately searching for an end to the subprime mess. As can be seen on the charts, stocks have rallied each time it was believed that the problems were under control and then headed south each time this theory was debunked. This trend continued yesterday after Citigroup (NYSE: C) reported a simply miserable quarter and then told analysts on the conference call that “there are still risks relating to subprime securities” out there.
To put is mildly, this is not what anyone wanted to hear. Investors would much prefer to think that this problem is just about over and would much rather hear that companies have “kitchen sinked” their reports instead of ‘fessing up to a few billion in losses here and there. However, it is becoming quite clear that the markets will not be rid of the subprime mess for some time and therefore, investors may have a tough time calling a bottom in stock prices.
Another big problem investors had with the Citigroup report yesterday had to do with all-important U.S. consumer. While it was Citigroup’s worst quarter in history and the $9.8 billion loss was staggering, it was actually the CEO's comments on the consumer that hit the stock market squarely between the eyes. Citi said that it saw deterioration in consumer credit on a monthly basis during the fourth quarter. And this, coupled with the report from the Commerce Department which showed that Retail Sales in 2007 were the weakest in five years, caused investors to jump to the conclusion that a recession is close at hand.
So, given that we are seeing a decisive shift in investor attitudes toward the expectation of a recession as well as the feeling that the Fed is not only behind the curve but no longer in control, it is not exactly surprising to see short-term investors leaning hard on the sell button on a daily basis.
What the bulls need right now is some evidence that the economy is not falling off of a cliff and that outside of real estate and banks, corporate America is continuing to fare pretty darned well. But with the S&P 500 having broken down through the sideways range of the last six months and now flirting with the lows seen last March, it may be hard to convince traders’ to look to the bright side.
Turning to this morning, we've got another inflation report to sift through, so let’s get to it. The government reported that the Consumer Price Index rose by +0.3% in December, which was a tenth above expectations for an increase of +0.2%. When you strip out food and energy, the Core rate saw an increase of +0.2%, which was spot-on with analyst expectations. On an annual basis, the CPI rose by 4.1% in 2007 and the Core increased by 2.4%, which were both in line with the consensus estimates.
On the news front, Intel's (Nasdaq: INTC) earnings report after the close caused a fair amount of angst around the globe about a slowdown and China’s announcement that they increased the reserve ratio didn’t help the Asian markets. And in the pre-market here in the U.S., the fact that the CPI report didn’t contain any good news has caused traders to return to the sell side.
Running through the rest of the pre-game indicators; the overseas markets are down significantly across the board. Crude futures are lower so far with the latest quote showing the February contract down by $0.94 to $90.96. Interest rates are falling with the 10-yr trading at a yield of 3.67% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower down again. The Dow futures are currently off by about 75 points; the S&Ps are down by about 12, 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:
Intel (Nasdaq: INTC) – Reported $0.405 vs. $0.40
Today's Earnings Before the Bell:
JP Morgan (NYSE: JPM) – Reported $0.86 vs. $0.91
Wells Fargo (NYSE: WFC) – Reported $0.41 vs. $0.39
News, Upgrades/Downgrades/Brokerage Research:
FMC Corp (NYSE: FMC) – Upgraded at Bank of America
Boston Scientific (NYSE: BSX) – Upgraded at Bank of America
ING Group (NYSE: ING) – Downgraded at Bear Stearns
Temple Inland (NYSE: TIN) – Upgraded at Citi
Affiliated Computer Services (NYSE: ACS) – Upgraded at Credit Suisse
AK Steel (NYSE: AKS) – Upgraded at Goldman Sachs
Astrazeneca (NYSE: AZN) – Upgraded at Goldman Sachs
Deutsche Telecom (NYSE: DT) – Downgraded at JP Morgan
Diageo (NYSE: DEO) – Upgraded at Lehman
Kindred Healthcare (NYSE: KND) – Upgraded at Lehman
Intel (Nasdaq: INTC) – Upgraded at Morgan Stanley, Target reduced at UBS
Broadcom (Nasdaq: BRCM) – Target at UBS
Coca Cola (NYSE: KO) – Target increased at UBS
Estee Lauder (NYSE: EL) – Upgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: KO
Note: All earnings reports compared to Reuter’s consensus estimates
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: Linkwww.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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