David Moenning�s Daily State of the Markets: 10/27
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Broken Record
Good morning and a happy Friday to all. Our first line summary of the prior day�s market action is beginning to sound like a broken record as the Dow continues to break records day after day. However, this time around, there was some record breaking going on in indices other than the DJIA. And while it isn�t quite the same as closing at fresh all-time highs, the bulls are all-too happy to crow about the new 52-week highs seen in the S&P 500, the NASDAQ, and the NYSE indexes.
The bulls got plenty of assistance yesterday in their quest for a fourth straight record close. Oil dropped a dollar, interest rates were in decline, the economic data was supportive, earnings were helpful, and apparently there are still money managers out there looking to hop on the bandwagon before their fiscal year-ends.
Even Alan Greenspan gave the bulls a boost by suggesting that the economy�s growth rate for the fourth quarter looks �reasonably good.� The former Fed Chairman went on to say that most of the housing negatives �are likely behind us.� So, with the data suggesting that the soft landing scenario is on track, it looks like Goldilocks is alive and well, which is something that isn�t lost on stock traders.
But for right now, anyway, the game seems to be all about earnings. And since today�s theme is about records being broken, we should point out that the mark for consecutive quarters of earnings growth above 10% is at risk. Analysts had been looking for a gain of 13% in the 500 stocks that make up the S&P this quarter. But with 75% of the companies beating their estimates so far, it now looks like S&P earnings growth will come in at something closer to 17%!
Thus, at least part of the reason the bulls have met little or no resistance lately stems from the concept of stock prices needing to be adjusted, or �corrected� higher to reflect the better than expected earnings.
But while this is clearly �all good,� the reality is that stock don�t go straight up forever. Therefore, once the momentum crowd gets done piling on, we will need to be on the lookout for a potentially stiff pullback.
Turning to this morning, we have some economic news to digest in the way of the third quarter�s GDP report. Analysts were expecting a slowdown from the 2nd quarter pace of 2.6%, but the pullback to 1.6% was definitely a surprise. The Price Deflator (inflation) also came in well below expectations at 1.8%, which seems to support the Fed�s theory that moderating growth will also reduce inflation pressures.
In looking at the bright side, slower than expected growth and moderating inflation will likely put a Fed ease back on the table, or, at the very least, remove any talk of more rate hikes in the near future. However, the bears will argue that sub-2% growth suggests that the slowdown may be more pronounced than had been expected and could potentially impact profits.
In looking at the pre-market activity, stocks are lower in the early going, but the news has actually had little impact. It would appear that stocks are poised for a pullback, but the bears haven�t been able to do much of anything with their opportunities lately.
Running through the rest of the pre-game indicators, the major overseas markets are modestly lower this morning. Gold futures are moving down a little and are quoted at $597 right now. Crude futures are once again little changed; with the latest quote showing oil up $0.06 to $60.42. Interest rates are moving lower this morning with the 2-year currently quoted at 4.76% while the 10-yr is trading with a yield of 4.68% right now. And finally, with an hour before the bell, stock futures in the U.S. are heading a bit lower. The Dow futures are currently 37 points below fair value, the S&Ps are off 4.60, and the NASDAQ is sporting a loss of about 9 points at the moment.
Stocks �In Play� This Morning:
Chubb (CB) � Reported $1.37 vs. $1.22
Chevron (CVX) � Reported $2.29 vs. $2.04
Genworth Financial (GNW) � Reported $0.66 vs. $0.72
Sun Microsystems (SUNW) � Reported -$0.01 vs. -$0.04
Microsoft (MSFT) � Reported $0.35 vs. $0.31
McAffe (MFE) � Reported $0.36 vs. $0.30, Upgraded at RBC
National Oilwell Varco (NOV) � Reported $1.00 vs. $0.96
Dell (DELL) � Mentioned positively in Barron�s
Astrazeneca (AZN) � Upgraded at Bear Stearns
Norfolk Southern (NSC) � Downgraded at Citigroup
Medimmune (MEDI) � Upgraded at Citigroup
Apache (APA) � Downgraded at Credit Suisse
Yum Brands (YUM) � Downgraded at Goldman Sachs
McDonalds (MCD) � Removed from Buy List at Goldman Sachs
GlaxoSmithKline (GSK) � Downgraded at Merrill Lynch
Intl Game Technology (IGT) � Upgraded at Morgan Stanley
Schwab (SCHW) � Upgraded at Prudential
Black & Decker (BDK) � Downgraded at UBS
Long positions in stocks mentioned: AZN, NOV, MER, MS, IGT, SCHW
** 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 and a happy Friday to all. Our first line summary of the prior day�s market action is beginning to sound like a broken record as the Dow continues to break records day after day. However, this time around, there was some record breaking going on in indices other than the DJIA. And while it isn�t quite the same as closing at fresh all-time highs, the bulls are all-too happy to crow about the new 52-week highs seen in the S&P 500, the NASDAQ, and the NYSE indexes.
The bulls got plenty of assistance yesterday in their quest for a fourth straight record close. Oil dropped a dollar, interest rates were in decline, the economic data was supportive, earnings were helpful, and apparently there are still money managers out there looking to hop on the bandwagon before their fiscal year-ends.
Even Alan Greenspan gave the bulls a boost by suggesting that the economy�s growth rate for the fourth quarter looks �reasonably good.� The former Fed Chairman went on to say that most of the housing negatives �are likely behind us.� So, with the data suggesting that the soft landing scenario is on track, it looks like Goldilocks is alive and well, which is something that isn�t lost on stock traders.
But for right now, anyway, the game seems to be all about earnings. And since today�s theme is about records being broken, we should point out that the mark for consecutive quarters of earnings growth above 10% is at risk. Analysts had been looking for a gain of 13% in the 500 stocks that make up the S&P this quarter. But with 75% of the companies beating their estimates so far, it now looks like S&P earnings growth will come in at something closer to 17%!
Thus, at least part of the reason the bulls have met little or no resistance lately stems from the concept of stock prices needing to be adjusted, or �corrected� higher to reflect the better than expected earnings.
But while this is clearly �all good,� the reality is that stock don�t go straight up forever. Therefore, once the momentum crowd gets done piling on, we will need to be on the lookout for a potentially stiff pullback.
Turning to this morning, we have some economic news to digest in the way of the third quarter�s GDP report. Analysts were expecting a slowdown from the 2nd quarter pace of 2.6%, but the pullback to 1.6% was definitely a surprise. The Price Deflator (inflation) also came in well below expectations at 1.8%, which seems to support the Fed�s theory that moderating growth will also reduce inflation pressures.
In looking at the bright side, slower than expected growth and moderating inflation will likely put a Fed ease back on the table, or, at the very least, remove any talk of more rate hikes in the near future. However, the bears will argue that sub-2% growth suggests that the slowdown may be more pronounced than had been expected and could potentially impact profits.
In looking at the pre-market activity, stocks are lower in the early going, but the news has actually had little impact. It would appear that stocks are poised for a pullback, but the bears haven�t been able to do much of anything with their opportunities lately.
Running through the rest of the pre-game indicators, the major overseas markets are modestly lower this morning. Gold futures are moving down a little and are quoted at $597 right now. Crude futures are once again little changed; with the latest quote showing oil up $0.06 to $60.42. Interest rates are moving lower this morning with the 2-year currently quoted at 4.76% while the 10-yr is trading with a yield of 4.68% right now. And finally, with an hour before the bell, stock futures in the U.S. are heading a bit lower. The Dow futures are currently 37 points below fair value, the S&Ps are off 4.60, and the NASDAQ is sporting a loss of about 9 points at the moment.
Stocks �In Play� This Morning:
Chubb (CB) � Reported $1.37 vs. $1.22
Chevron (CVX) � Reported $2.29 vs. $2.04
Genworth Financial (GNW) � Reported $0.66 vs. $0.72
Sun Microsystems (SUNW) � Reported -$0.01 vs. -$0.04
Microsoft (MSFT) � Reported $0.35 vs. $0.31
McAffe (MFE) � Reported $0.36 vs. $0.30, Upgraded at RBC
National Oilwell Varco (NOV) � Reported $1.00 vs. $0.96
Dell (DELL) � Mentioned positively in Barron�s
Astrazeneca (AZN) � Upgraded at Bear Stearns
Norfolk Southern (NSC) � Downgraded at Citigroup
Medimmune (MEDI) � Upgraded at Citigroup
Apache (APA) � Downgraded at Credit Suisse
Yum Brands (YUM) � Downgraded at Goldman Sachs
McDonalds (MCD) � Removed from Buy List at Goldman Sachs
GlaxoSmithKline (GSK) � Downgraded at Merrill Lynch
Intl Game Technology (IGT) � Upgraded at Morgan Stanley
Schwab (SCHW) � Upgraded at Prudential
Black & Decker (BDK) � Downgraded at UBS
Long positions in stocks mentioned: AZN, NOV, MER, MS, IGT, SCHW
** 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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