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David Moenning's Daily State of the Markets: 2/8

February 8, 2008 9:47 AM EST
Is Bad News Priced In?

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

Although it wasn't exactly a cake walk, the bulls finally wound up winning a round yesterday. Despite another day of volatility, it appears that the positive factors outweighed the negatives for a change as investors might have felt that the bad news just might be priced into the market at this point.

The day began on a dour note and after three days of selling, which had knocked more than 540 points off the Dow, there didn’t appear to be much hope for a rebound. The problems included a disappointing earnings report from Cisco Systems (CSCO), one of the worst reports on monthly same-store sales in decades, and the usual problems with the Housing market.

Although Cisco Systems is known for its ability to beat their earnings estimates by a penny quarter after quarter, yesterday, we learned that the company couldn’t pull it off this time. And then John Chambers, in an uncharacteristic display of realism, actually had some uninspiring commentary on the outlook for the coming quarter.

Next up, although the weather was mentioned a time or two, same-store sales results for January were nothing short of dismal. The results came in below the consensus estimates and were the weakest since the sales index began being recorded, which was something like 36 years ago.

However, the bad news couldn't carry the day as there was actually some positive news on the credit market front for a change. First, JP Morgan’s Jamie Dimon said that he does not expect the subprime slime to spread to the commercial market’s mortgage-backed securities and that the firm will continue to underwrite subprime loans for the long-term.

Next, Reuters reported that Fannie Mae (FNM) and Freddie Mac (FRE) may see a reduction in their capital requirements soon. This would lead to more lending and with the increased limits on conforming mortgages, the argument can be made that the squeeze on lending standards could eventually ease up.

Finally, although the headlines out of the Central bankers of the world have been a bit hawkish over the last couple of days, yesterday, we got a hint of sanity from both our Fed and the ECB. First, Atlanta Fed President Dennis Lockhart said that the Fed’s focus is “religiously on the general economy, the real economy.” And then later in the day, the ECB’s Jean-Claude Trichet finally acknowledged that the European economies just might be intertwined with the United States. The statement was taken as a softening of Trichet’s recent stubborn stance on the idea of cutting rates.

Turning to this morning, yesterday’s positive vibe doesn’t seem to be carrying over so far. Although European markets were higher, it looks like we’re in for another down opening on Wall Street.

Running through the rest of the pre-game indicators; most Asian markets remain closed to celebrate the year of the Rat. The European markets are higher across the board this morning. Crude futures are higher with the latest quote up $0.76 to $88.87. Interest rates are moving lower with the 10-yr trading at a yield of 3.70% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off about 40 points; the S&Ps are down by about 6 points, while the NASDAQ looks to be about 2 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Aon Corp (NYSE: AOC) – Reported $0.69 vs. $0.67
Activision (Nasdaq: ATVI) – Reported $0.90 vs. $0.81
Allegheny Energy (NYSE: AYE) – Reported $0.46 vs. $0.48
BMC Software (NYSE: BMC) – Reported $0.57 vs. $0.50
Genworth Financial (NYSE: GNW) – Reported $0.71 vs. $0.68
Pitney Bowes (NYSE: PBI) – Reported $0.72 vs. $0.69

Today’s Earnings Before the Bell:

Apartment Inv (NYSE: AIV) – Reported $0.83 vs. $0.92
Coventry Health (NYSE: CVH) – Reported $1.18 vs. $1.18
Weyerhaeuser (NYSE: WY) – Reported $0.42 vs. $0.35

News, Upgrades/Downgrades/Brokerage Research:
Schlumberger (NYSE: SLB) – Mentioned positively in Barron’s
Mobile TeleSystems (NYSE: MBT) – Upgraded at Bear Stearns
Urban Outfitters (Nasdaq: URBN) – Upgraded at Bear Stearns
Limited Brands (NYSE: LTD) – Downgraded at Bear Stearns
Coca Cola (NYSE: KO) – Upgraded at Bear Stearns
Marathon Oil (NYSE: MRO) – Mentioned positively at Citi
Moody’s (NYSE: MCO) – Upgraded at Citi
New Zealand Telecom (NYSE: NZT) – Downgraded at Citi
CIGNA (NYSE: CI) – Added to Conviction Buy list at Goldman Sachs
WellPoint (NYSE: WLP) – Removed from Conviction Buy list at Goldman
Petsmart (Nasdaq: PETM) – Upgraded at Goldman Sachs
Cincinnati Bell (NYSE: CBB) – Downgraded at JP Morgan
BT Group (NYSE: BT) – Downgraded at Lehman
Prologis (NYSE: PLD) – Upgraded at Merrill Lynch
DeVry (NYSE: DV) – Upgraded at Morgan Stanley
AngloGold Ashanti (NYSE: AU) – Downgraded at UBS
Walgreens (NYSE: WAG) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: ATVI, MBT, KO, CI

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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