David Moenning's Daily State of the Markets: 4/14

April 14, 2008 9:49 AM EDT

GE: Indicator or Outlier?

Here's a link to listen to an Audio Version of the report: http://PlayAudioMessage.com/play.asp?m=496904&f=PFURUR&ps=13&c=FFFFFF&pm=2&h=25

If you happened to have the TV on during Friday’s session, there was one news story that was impossible to avoid – the earnings miss from GE. And by the end of the day, I’m guessing that most investors were sick and tired of hearing every Tom, Dick, and Harry’s opinions on this issue.

So, why then is the story in the title of this morning’s missive? Because, in short, GE isn’t supposed to miss - ever. This is a broadly diversified company that normally thrives during tough times. This is a company that investors are accustomed to depending on. And this is a company that doesn’t give us nasty surprises. Well, until Friday, anyway.

The problem isn’t so much that the company missed by $0.07 or even that it guided the next quarter lower. No, the problem is that on March 12th, the company’s CEO reaffirmed estimates and said that everything was on track for a dandy quarter. Mr. Immelt said that GE had no exposure to losses from CDO's and that its AAA credit rating allows it to “invest, while others pull back.”

But then, just three weeks later, one of the bluest of the blue chips misses badly and blames its problems on difficulties in the financial markets during the last two weeks of March. And while this story may be hard to swallow at first, we should remember that the period in question did contain an unprecedented disruption in the credit markets. And lest we forget, this is the same disruption that caused Bear Stearns to go from “everything’s fine” on a Wednesday to accepting a sale price of $2 on Sunday.

The question, of course, is if GE’s difficulties were simply a matter of not being able to get some real estate deals done by the end of the quarter due to the troubles in the credit markets or something worse? And this, in and of itself caused investors to move to high alert status with regard to the outlook for the upcoming earnings parade. After all, if GE can miss, what other bad news is lurking out there?

It also didn’t help matters Friday that the University of Michigan reported that the U.S. consumer’s outlook went into the tank this month. The preliminary reading of the U of M’s Consumer Sentiment Index for April showed a plunge of 6.3 points to 63.2, which was the most pessimistic reading since March 1982!

So, given the big surprise from GE, the overbought condition of the market, and word that the consumer is not at all happy, it was little surprise that the Dow got whacked for 256 on Friday.

Turning to this morning, unfortunately, the bad news continues to flow. Wachovia (WB) hit the trifecta this morning by reporting a quarterly loss that was worse than expectations, cutting its dividend, and announcing that it needed to raise $7B in new capital.

On the economic front, the government reported that Retail Sales in the U.S. increased by +0.2%, which was actually above expectations for an increase of +0.1%. And when you strip out auto sales, the results were spot on with expectations for an increase of 0.1%.

Running through the rest of the pre-game indicators; the foreign markets are down across the board. Crude futures are moving up again with the latest quote showing oil higher by $0.89 to $111.03. Interest rates are moving down with the 10-yr trading at a yield of 3.45% so far. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 30 points; the S&P’s are down about 5 points, while the NASDAQ looks to be about 12 points below fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Fastenal (Nasdaq: FAST) – Reported $1.70 vs. $1.66
Wachovia (NYSE: WB) – Reported ($0.14) vs. $0.48

News, Upgrades/Downgrades/Brokerage Research:

Circuit City (NYSE: CC) – Blockbuster offers to acquire CC
Petsmart (Nasdaq: PETM) – Upgraded at Bank of America
General Electric (NYSE: GE) – Downgraded at Bear Stearns, Oppenheimer
Celgene (Nasdaq: CELG) – Estimates increased at Bernstein
Cardinal Health (NYSE: CAH) – Removed from Conviction Buy list at Goldman
Brown Forman (NYSE: BF.B) – Downgraded at HSBC
Eaton Vance (NYSE: EV) – Upgraded at JP Morgan
ABB Ltd (NYSE: ABB) – Downgraded at Lehman
Fastenal (Nasdaq: FAST) – Downgraded at Piper Jaffray


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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Related Entities

• Goldman Sachs Conviction Buy List
• Piper Jaffray
• JPMorgan
• Bear Stearns
• Wachovia
• Banc of America

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