David Moenning�s Daily State of the Market 07/10
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Upon Further Review
Good morning. At first glance, Friday�s jobs report had a very Goldilocks-like look to it and the numbers seemed to argue in favor of a Fed pause. Initially, stocks and bonds both rallied in response and it looked like the bulls were going to make a move.
However, upon further review, there was a hint of wage pressure in the report, which is unlikely to go unnoticed by the FOMC. While new job growth fell short of expectations (121,000 vs. expectations of 200,000) for the third consecutive month, average hourly earnings jumped 0.5%, which was above the consensus for an increase of 0.3%. And on a year-over-year basis, hourly earnings were up 3.9%, which was the most in 5 years. In addition, the average workweek came in higher than expected and the factory workweek rose to its highest level since mid-2000. And finally, average weekly earnings were up 4.5%, which was the most since February 1998.
So, in short, while the jobs number appeared to be a positive, the higher than expected wage data caused concern about the potential for inflation. But taken by itself, the Employment Report probably wasn�t enough to induce a drop of -134 points on the DJIA. No, the bears had some help from a couple other places on Friday.
With everyone expecting another solid earnings season, two high profile earnings warnings may have caught the bulls with their guard down. Unfortunately, both Advanced Microdevices (AMD) and 3M (MMM) came out with earnings warnings. 3M said that while they still see top line Q2 earnings per share in the projected range, after taking into account extraordinary items, the numbers were likely to be below prior guidance. But the real problem was the fact that the company failed to provide new guidance numbers. This was not greeted with smiles as 3M finished the day down -8.7%, which accounted for almost 60 points of the Dow�s 134 point decline.
The upside to the earnings warnings is the fact that Friday marked the unofficial end of preannouncement season. Thus, the bulls are quick to point out that all the bad news may be out already. And given that we haven�t seen a rash of downside adjustments lately, the bulls just may have a point here.
The bears also got some help from their pals in the oil pits. By mid-day, crude futures reached a new intraday record at $75.87 on the back of an increase in gasoline demand and the ongoing geopolitical issues. However, crude actually finished the day down -$1.06 at $74.08 as the weekly supply data on natural gas came in better than expected and traders took profits ahead of the weekend.
In sum, investors are forced to walk an economic/interest rate tightrope right now and the take on Friday�s data caused the bulls to lose their balance. However, the bulls argue that the strength of the upcoming earnings season, which gets started with Alcoa�s report today after the close, will provide a safety net for prices. We shall see.
Turning to this morning, there is no economic news before the bell, but optimism toward earnings season and another spate of merger news has traders feeling pretty good about stocks right now.
Running through the rest of the pre-game indicators, overseas markets were higher in Asia, but are slightly lower in Europe right now. Gold is moving a little lower this morning and is currently off by $9.50 to $625.30 at the moment. Oil is also moving a bit lower this morning with the August crude contract trading down by $0.49 to $73.60 right now. Interest rates are moving up a bit this morning with the 2-year currently trading at 5.19% while the 10-yr is quoted at 5.15% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading higher. The Dow futures are currently ahead by 44 points; the S&Ps are up by 4.70, and the NASDAQ is sporting a gain of about 5 points.
Stocks �In Play� This Morning:
Intel (INTC) � Mentioned negatively in Barron�s
Total (TOT) � Mentioned positively in Barron�s
Schlumberger (SLB) � Mentioned positively in Barron�s, Morgan Stanley raises target
Tesoro (TSO) � Downgraded at Deutsche
RF Microdevices (RFMD) � Price target reduced at Piper
Intl Business Machines (IBM) � UBS lowers estimates and price target
Yahoo (YHOO) � Upgraded at Susquehanna
Google (GOOG) � Estimates increased at Piper Jaffray
Bank of America (BAC) � Added to buy list at Goldman Sachs
Morgan Stanley (MS) � Added to buy list at Goldman Sachs
WCI Communities (WCI) � Downgraded at Credit Suisse
Armor Holdings (AH) � Upgraded at Goldman Sachs
Cameron Intl (CAM) � Upgraded at Morgan Stanley
Harmony Gold (HMY) � Downgraded at UBS
Qwest (Q) � Upgraded at Raymond James
Positions in stocks mentioned: GS, SLB, IBM, Q
** 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.
Good morning. At first glance, Friday�s jobs report had a very Goldilocks-like look to it and the numbers seemed to argue in favor of a Fed pause. Initially, stocks and bonds both rallied in response and it looked like the bulls were going to make a move.
However, upon further review, there was a hint of wage pressure in the report, which is unlikely to go unnoticed by the FOMC. While new job growth fell short of expectations (121,000 vs. expectations of 200,000) for the third consecutive month, average hourly earnings jumped 0.5%, which was above the consensus for an increase of 0.3%. And on a year-over-year basis, hourly earnings were up 3.9%, which was the most in 5 years. In addition, the average workweek came in higher than expected and the factory workweek rose to its highest level since mid-2000. And finally, average weekly earnings were up 4.5%, which was the most since February 1998.
So, in short, while the jobs number appeared to be a positive, the higher than expected wage data caused concern about the potential for inflation. But taken by itself, the Employment Report probably wasn�t enough to induce a drop of -134 points on the DJIA. No, the bears had some help from a couple other places on Friday.
With everyone expecting another solid earnings season, two high profile earnings warnings may have caught the bulls with their guard down. Unfortunately, both Advanced Microdevices (AMD) and 3M (MMM) came out with earnings warnings. 3M said that while they still see top line Q2 earnings per share in the projected range, after taking into account extraordinary items, the numbers were likely to be below prior guidance. But the real problem was the fact that the company failed to provide new guidance numbers. This was not greeted with smiles as 3M finished the day down -8.7%, which accounted for almost 60 points of the Dow�s 134 point decline.
The upside to the earnings warnings is the fact that Friday marked the unofficial end of preannouncement season. Thus, the bulls are quick to point out that all the bad news may be out already. And given that we haven�t seen a rash of downside adjustments lately, the bulls just may have a point here.
The bears also got some help from their pals in the oil pits. By mid-day, crude futures reached a new intraday record at $75.87 on the back of an increase in gasoline demand and the ongoing geopolitical issues. However, crude actually finished the day down -$1.06 at $74.08 as the weekly supply data on natural gas came in better than expected and traders took profits ahead of the weekend.
In sum, investors are forced to walk an economic/interest rate tightrope right now and the take on Friday�s data caused the bulls to lose their balance. However, the bulls argue that the strength of the upcoming earnings season, which gets started with Alcoa�s report today after the close, will provide a safety net for prices. We shall see.
Turning to this morning, there is no economic news before the bell, but optimism toward earnings season and another spate of merger news has traders feeling pretty good about stocks right now.
Running through the rest of the pre-game indicators, overseas markets were higher in Asia, but are slightly lower in Europe right now. Gold is moving a little lower this morning and is currently off by $9.50 to $625.30 at the moment. Oil is also moving a bit lower this morning with the August crude contract trading down by $0.49 to $73.60 right now. Interest rates are moving up a bit this morning with the 2-year currently trading at 5.19% while the 10-yr is quoted at 5.15% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading higher. The Dow futures are currently ahead by 44 points; the S&Ps are up by 4.70, and the NASDAQ is sporting a gain of about 5 points.
Stocks �In Play� This Morning:
Intel (INTC) � Mentioned negatively in Barron�s
Total (TOT) � Mentioned positively in Barron�s
Schlumberger (SLB) � Mentioned positively in Barron�s, Morgan Stanley raises target
Tesoro (TSO) � Downgraded at Deutsche
RF Microdevices (RFMD) � Price target reduced at Piper
Intl Business Machines (IBM) � UBS lowers estimates and price target
Yahoo (YHOO) � Upgraded at Susquehanna
Google (GOOG) � Estimates increased at Piper Jaffray
Bank of America (BAC) � Added to buy list at Goldman Sachs
Morgan Stanley (MS) � Added to buy list at Goldman Sachs
WCI Communities (WCI) � Downgraded at Credit Suisse
Armor Holdings (AH) � Upgraded at Goldman Sachs
Cameron Intl (CAM) � Upgraded at Morgan Stanley
Harmony Gold (HMY) � Downgraded at UBS
Qwest (Q) � Upgraded at Raymond James
Positions in stocks mentioned: GS, SLB, IBM, Q
** 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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