David Moenning's Daily State of the Markets: 3/19

March 19, 2008 10:25 AM EDT

Sighs of Relief

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

The bottom line to yesterday's pyrotechnics was that traders appeared to breathe a collective sigh of relief. There was relief that banks and brokers were still standing; relief that the Fed appears to have gotten a clue regarding the extent of the liquidity crisis and in turn, has regained considerable credibility; relief that the earnings from a couple of big brokerage names were somehow not only NOT a disaster, but actually better than expected; and relief that someone may finally be doing something to help the real estate market.

All those sighs, and maybe a little short-covering, helped the bulls power the Dow skyward to the tune of 420 points and away from the danger zone for now. It was the biggest gain in five years for many indices with the S&P 500 storming higher by a whopping +4.2%.

The keys to the blast were better than expected earnings from Lehman (LEH) and Goldman Sachs (GS), the Fed's latest rate cuts, and word that some of the restrictions were going to soon come off of Fannie (FNM) and Freddie (FRE).

Yesterday's Fed action wasn't exactly surprising, but it also didn’t disappoint. Sure, there was the normal knee jerk reaction to the 75 basis point reduction in rates when the market was looking for the full Monty, but the cumulative effect of the Fed’s recent efforts was not lost on investors yesterday. To review, in the last week alone, Ben Bernanke & Co. have introduced a brand new lending facility designed to get blood to the muscles that need it (the TSLF); they have utilized a loophole in their charter in order to allow Investment Banks and Brokerage firms to borrow directly from the Discount Window; they have expanded the type of securities they will accept as collateral – including some of that icky mortgage backed paper; they have cut the discount rate twice by a total of 1%; they have reduced the Fed Funds rate by 0.75%; and they've left the door open to more cuts if needed. Frankly, if that’s not acting in a decisive manner, I'm not sure what is.

Another big positive to yesterday's gains were reports of increasing momentum on plans to create a kind of backstop to the U.S. housing market. Part this involved talk that the government may reduce the excess capital requirements on Fannie Mae and Freddie Mac. Investors in Fannie Mae obviously like the idea as the stock soared 27%.

So, with stocks popping and the Fed, along with the folks in Washington, running around doing everything they can to help thwart further difficulties in banking, housing, and the economy, the question yesterday suddenly became: What’s not to like about the stock market?

Okay, we will admit that there are still some issues with the economy, the dollar, and inflation. But with stocks on a roll, it looks like the bulls might have their sights on the upper end of the trading range at a minimum. So, it would be fairly easy to argue that the glass may appear to be half-full for another 400 points or so.

Turning to this morning, we don't have any economic data to review before the bell today. On the news front, traders have another solid brokerage report from Morgan Stanley (MS) and a report that Fannie and Freddie have been cleared to buy up $200 billion more in mortgages on the plus side, but some new worries about liquidity and earnings across the pond on the negative side.

Running through the rest of the pre-game indicators; foreign markets are spilt by region with Asian markets up nicely and European markets down. Crude futures are moving down with the latest quote off $1.63 to $107.79. Interest rates are moving down with the 10-yr trading at a yield of 3.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a bit of a pullback at the open. The Dow futures are currently off by about 30 points; the S&Ps are down by about 4 points while the NASDAQ looks to be about 8 points below fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

General Mills (NYSE: GIS) – Reported $0.87 vs. $0.79
Morgan Stanley (NYSE: MS) – Reported $1.45 vs. $1.03

News, Upgrades/Downgrades/Brokerage Research:

Research In Motion (Nasdaq: RIMM) – Mentioned positively at Bank of America
Lehman Brothers (NYSE: LEH) – Bernstein says additional writedowns likely
AstraZeneca (NYSE: AZN) – Upgraded at HSBC
Monster Worldwide (Nasdaq: MNST) – Downgraded at JP Morgan
Lamar Advertising (Nasdaq: LAMR) – Downgraded at JP Morgan
Kraft (NYSE: KFT) – Downgraded at JP Morgan
Sara Lee (NYSE: SLE) – Downgraded at JP Morgan
Massey Energy (NYSE: MEE) – Upgraded at JP Morgan
Tyson Foods (NYSE: TSN) – Upgraded at JP Morgan
Home Depot (NYSE: HD) – Downgraded at Morgan Keegan

Mr. Moenning holds Long positions in stocks mentioned: none

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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• JPMorgan
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