David Moenning's Daily State of the Markets: 11/01
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The Cavalry's Last Ride?
As expected, the Bernanke cavalry rode to the rescue again yesterday afternoon with cuts in the Fed Funds and Discount Rates. And although the bulls partied in response, even the most ardent bulls can’t help but wonder if this might have been the cavalry’s last ride.
As just about everyone who’s ever clicked the buy button knows, it rarely pays to "fight the Fed." The thinking behind this age old maxim is that when they are in a rate reduction mode, the FOMC is usually trying to stimulate the economy. And since the stock market attempts to discount what will happen six months down the road, traders buy stocks because the lower rates are likely to improve the economy in the future. Therefore, savvy investors buy stocks whenever the Fed starts to cut rates in order to get a jump on the game.
Another Wall Street-ism warns that the fastest way to financial ruin is to use the words "but this time it’s different" when referencing a proven method of profit on the street. But, given the fact that Mr. Bernanke and Company’s intentions are to "forestall some of the adverse effects on the broader economy" going forward, I am probably not the only one wondering if this time it might indeed be different.
One obvious example of the point was yesterday’s GDP report, which showed that the economy was humming along at an impressive clip in the third quarter. In fact, the nation’s GDP growth of +3.9% was the best rate since the first quarter of 2006. And what’s more, the report's inflation component was actually below the expectations. Thus, other than oil’s rather remarkable increase of late, it is tough to argue that we need to be worried about inflation.
So, with the economy not showing any signs of faltering or succumbing to inflation, there appears to be little to no real reason for the Fed to continue to cut rates. Well, other than the expectations that economic growth will slow due to the “intensification of the housing correction."
It is pretty safe to assume then that Mr. Bernanke has taken preemptive action against future economic problems. The idea this time is to cut rates BEFORE things get really bad in the economy. So, unless and until things actually do get worse, we have to assume that each and every rate cut could be the last.
Turning to this morning, things don’t look quite so bright as Exxon Mobil (XOM) missed earnings and oil topped $96 overnight.
We’ve also got another batch of economic data to review, so let’s see what we've got. This morning’s numbers have to do with Personal Income and Spending and the government reported that Incomes for September increased by +0.4%, which was in line with expectations for a gain of +0.4%. On the other side of the equation, Personal Spending came in at +0.3% versus the estimates of +0.4%. And finally, the PCE Deflator, which is a measure of inflation, showed an increase of 2.4% over the last 12 months, which was dead on with expectations.
Running through the rest of the pre-game indicators; the overseas markets are mixed by region this morning. Crude futures are heading higher again today and the latest quote shows the December contract up $0.68 to $95.21. Interest rates are a little lower this morning with the 10-yr trading at a yield of 4.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 80 points; the S&Ps are down by about 10 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks "In Play" This Morning:
Yesterday’s Earnings After the Bell:
AON Corp (NYSE: AOC) – Reported $0.70 vs. $0.59
Avalon Bay (NYSE: AVB) – Reported $1.19 vs. $1.19
Allied Waste (NYSE: AW) – Reported $0.24 vs. $0.22
Crocs (Nasdaq: CROX) – Reported $0.66 vs. $0.63
JDS Uniphase (Nasdaq: JDSU) – Reported $0.08 vs. $0.06
Met Life (NYSE: MET) – Reported $1.52 vs. $1.40
Manitowoc (NYSE: MTW) – Reported $0.65 vs. $0.63
Oneok Inc (NYSE: OKE) – Reported $0.13 vs. $0.09
Prudential (NYSE: PRU) – Reported $1.88 vs. $1.69
Sunoco (NYSE: SUN) – Reported $1.81 vs. $2.13
Unum Group (NYSE: UNM) – Reported $0.52 vs. $0.51
Today’s Earnings Before the Bell:
AmerisourceBergen (NYSE: ABC) – Reported $0.63 vs. $0.64
Astrazeneca (NYSE: AZN) – Reported $0.90 vs. $0.93
Cameron Intl (NYSE: CAM) – Reported $1.14 vs. $1.09
CVS Caremark (NYSE: CVS) – Reported $0.46 vs. $0.44
Eastman Kodak (NYSE: EK) – Reported $0.43 vs. $0.24
NICOR (NYSE: GAS) – Reported $0.32 vs. $0.32
Intl Game Technology (NYSE: IGT) – Reported $0.38 vs. $0.38
Medco Health (NYSE: MHS) – Reported $0.88 vs. $0.79
NYMEX Holdings (NYSE: NMX) – Reported $0.66 vs. $0.64
Office Max (NYSE: OMX) – Reported $0.64 vs. $0.64
Sprint Nextel (NYSE: S) – Reported $0.23 vs. $0.22
Exxon Mobil (NYSE: XOM) – Reported $1.70 vs. $1.74
News, Upgrades/Downgrades/Brokerage Research:
Alcatel Lucent (NYSE: ALU) – Downgraded at BofA
MasterCard (NYSE: MA) – Downgraded at Bear Stearns
Telecom Italia (NYSE: TI) – Downgraded at Bear Stearns
China Life (NYSE: LFC) – Upgraded at Bear Stearns
Citigroup (NYSE: C) – Downgraded at CIBC
Bank of America (NYSE: BAC) – Downgraded at CIBC
Interactive Corp (Nasdaq: IACI) – Upgraded at Citi
Amylin Pharmaceuticals (Nasdaq:AMLN) – Downgraded at Lehman
UBS (NYSE: UBS) – Upgraded at Merrill Lynch
Garmin (Nasdaq: GRMN) – Downgraded at Merrill Lynch
Newmont Mining (NYSE: NEM) – Upgraded at RBC
Clorox (NYSE: CLX) – Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER, CAM
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.
As expected, the Bernanke cavalry rode to the rescue again yesterday afternoon with cuts in the Fed Funds and Discount Rates. And although the bulls partied in response, even the most ardent bulls can’t help but wonder if this might have been the cavalry’s last ride.
As just about everyone who’s ever clicked the buy button knows, it rarely pays to "fight the Fed." The thinking behind this age old maxim is that when they are in a rate reduction mode, the FOMC is usually trying to stimulate the economy. And since the stock market attempts to discount what will happen six months down the road, traders buy stocks because the lower rates are likely to improve the economy in the future. Therefore, savvy investors buy stocks whenever the Fed starts to cut rates in order to get a jump on the game.
Another Wall Street-ism warns that the fastest way to financial ruin is to use the words "but this time it’s different" when referencing a proven method of profit on the street. But, given the fact that Mr. Bernanke and Company’s intentions are to "forestall some of the adverse effects on the broader economy" going forward, I am probably not the only one wondering if this time it might indeed be different.
One obvious example of the point was yesterday’s GDP report, which showed that the economy was humming along at an impressive clip in the third quarter. In fact, the nation’s GDP growth of +3.9% was the best rate since the first quarter of 2006. And what’s more, the report's inflation component was actually below the expectations. Thus, other than oil’s rather remarkable increase of late, it is tough to argue that we need to be worried about inflation.
So, with the economy not showing any signs of faltering or succumbing to inflation, there appears to be little to no real reason for the Fed to continue to cut rates. Well, other than the expectations that economic growth will slow due to the “intensification of the housing correction."
It is pretty safe to assume then that Mr. Bernanke has taken preemptive action against future economic problems. The idea this time is to cut rates BEFORE things get really bad in the economy. So, unless and until things actually do get worse, we have to assume that each and every rate cut could be the last.
Turning to this morning, things don’t look quite so bright as Exxon Mobil (XOM) missed earnings and oil topped $96 overnight.
We’ve also got another batch of economic data to review, so let’s see what we've got. This morning’s numbers have to do with Personal Income and Spending and the government reported that Incomes for September increased by +0.4%, which was in line with expectations for a gain of +0.4%. On the other side of the equation, Personal Spending came in at +0.3% versus the estimates of +0.4%. And finally, the PCE Deflator, which is a measure of inflation, showed an increase of 2.4% over the last 12 months, which was dead on with expectations.
Running through the rest of the pre-game indicators; the overseas markets are mixed by region this morning. Crude futures are heading higher again today and the latest quote shows the December contract up $0.68 to $95.21. Interest rates are a little lower this morning with the 10-yr trading at a yield of 4.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 80 points; the S&Ps are down by about 10 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks "In Play" This Morning:
Yesterday’s Earnings After the Bell:
AON Corp (NYSE: AOC) – Reported $0.70 vs. $0.59
Avalon Bay (NYSE: AVB) – Reported $1.19 vs. $1.19
Allied Waste (NYSE: AW) – Reported $0.24 vs. $0.22
Crocs (Nasdaq: CROX) – Reported $0.66 vs. $0.63
JDS Uniphase (Nasdaq: JDSU) – Reported $0.08 vs. $0.06
Met Life (NYSE: MET) – Reported $1.52 vs. $1.40
Manitowoc (NYSE: MTW) – Reported $0.65 vs. $0.63
Oneok Inc (NYSE: OKE) – Reported $0.13 vs. $0.09
Prudential (NYSE: PRU) – Reported $1.88 vs. $1.69
Sunoco (NYSE: SUN) – Reported $1.81 vs. $2.13
Unum Group (NYSE: UNM) – Reported $0.52 vs. $0.51
Today’s Earnings Before the Bell:
AmerisourceBergen (NYSE: ABC) – Reported $0.63 vs. $0.64
Astrazeneca (NYSE: AZN) – Reported $0.90 vs. $0.93
Cameron Intl (NYSE: CAM) – Reported $1.14 vs. $1.09
CVS Caremark (NYSE: CVS) – Reported $0.46 vs. $0.44
Eastman Kodak (NYSE: EK) – Reported $0.43 vs. $0.24
NICOR (NYSE: GAS) – Reported $0.32 vs. $0.32
Intl Game Technology (NYSE: IGT) – Reported $0.38 vs. $0.38
Medco Health (NYSE: MHS) – Reported $0.88 vs. $0.79
NYMEX Holdings (NYSE: NMX) – Reported $0.66 vs. $0.64
Office Max (NYSE: OMX) – Reported $0.64 vs. $0.64
Sprint Nextel (NYSE: S) – Reported $0.23 vs. $0.22
Exxon Mobil (NYSE: XOM) – Reported $1.70 vs. $1.74
News, Upgrades/Downgrades/Brokerage Research:
Alcatel Lucent (NYSE: ALU) – Downgraded at BofA
MasterCard (NYSE: MA) – Downgraded at Bear Stearns
Telecom Italia (NYSE: TI) – Downgraded at Bear Stearns
China Life (NYSE: LFC) – Upgraded at Bear Stearns
Citigroup (NYSE: C) – Downgraded at CIBC
Bank of America (NYSE: BAC) – Downgraded at CIBC
Interactive Corp (Nasdaq: IACI) – Upgraded at Citi
Amylin Pharmaceuticals (Nasdaq:AMLN) – Downgraded at Lehman
UBS (NYSE: UBS) – Upgraded at Merrill Lynch
Garmin (Nasdaq: GRMN) – Downgraded at Merrill Lynch
Newmont Mining (NYSE: NEM) – Upgraded at RBC
Clorox (NYSE: CLX) – Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER, CAM
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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