David Moenning's Daily State of the Markets: 11/02
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Is Bad News Bad Again?
This morning’s all-important Employment report is expected to show that the economy created 85,000 new jobs during the month of October. However, the real question of the day isn’t about the number of new jobs created, the unemployment rate, the hours worked during the week, or even the average hourly earnings. No, the big question on investors’ minds this morning is if bad economic news is suddenly bad for the stock market again and vice versa.
At least part of yesterday's trash job in the stock market had to do with the sudden realization that the Fed has probably provided as much emergency liquidity as it is going to provide in response to the credit crisis. Even the bulls will have to admit that a rate cut on the same day that the economy showed its best growth rate in 2 years was a little strange. So in short, investors are now assuming that the Fed told us on Wednesday that any further adjustments to interest rates will be in response to the economic data and not just because the market demands it.
So, with traders suddenly feeling abandoned by the Fed, the bad news swirling around Citigroup’s (C) dividend was, well, bad news. Up until the Fed announcement on Wednesday, the bulls had been able to shrug off any and all bad news relating to the economy and the credit crisis as simply more ammunition for the Fed to continue to cut rates. But with the Fed on hold, the game was suddenly very different.
And just like that, bad news was bad news again. So with a rumor floating around that Citi’s dividend was now at risk and new concerns arising that the credit crisis is not only not contained, but in fact spreading, everyone headed for the sell button yesterday.
The bulls point out that the combination of the elimination of the uptick rule and the proliferation of hedge funds makes these “whoosh” down days easier to accomplish and stomach. The thinking is that nobody in their right mind is going to step in front of a speeding train. Therefore, whenever the bears get their game on, the best solution is to simply stand aside and let our furry friends do their thing until the closing bell rings.
However, the other side of the aisle says that the jig is up and that the credit crisis is about to come home to roost. The primary argument the bears are using these days is that at some point in time, banks and brokerage firms are going to have to price all of those fancy derivatives that have no buyers and when they do, the red ink is really going to flow. And in light of the fact that much of the recent rally has been based on the assumption that we have seen the worst of the subprime mess and the ensuing credit crisis, you've got to admit that the bears may have a point here.
Turning to this morning, we’ve got the mother of all economic data to deal via the October Employment report so let’s see what we’ve got. The Labor Dept. reported that the economy created 116,000 new jobs in October, which was well above the consensus estimates for an increase of 85,000 new jobs. Revisions have been interesting of late, so we should probably note that the September total was revised a bit lower. But the big news is that the new jobs number was strong, which appears to be good news for both the economy as well as the stock market in the early going.
Running through the rest of the pre-game indicators; the overseas markets are lower across the board this morning in response to Wall Street’s ugly close yesterday. Crude futures are heading higher today and the latest quote shows the December contract up $0.86 to $94.35. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.39% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 50 points; the S&Ps are up by about 6 points, while the NASDAQ looks to be about 16 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Affiliated Computer Services (NYSE: ACS) – Reported $0.77 vs. $0.84
CBS Corp (NYSE: CBS) – Reported $0.48 vs. $0.44
Electronic Arts (Nasdaq: ERTS) – Reported $0.27 vs. $0.20
Las Vegas Sands (NYSE: LVS) – Reported $0.12 vs. $0.31
Oceaneering Intl (NYSE: OII) – Reported $0.96 vs. $0.85
SBA Communications (Nasdaq: SBAC) – Reported ($0.17) vs. ($0.12)
Verisign (Nasdaq: VRSN) – Reported $0.27 vs. $0.27
Today’s Earnings Before the Bell:
Cigna (NYSE: CI) – Reported $1.14 vs. $0.93
Duke Energy (NYSE: DUK) – Reported $0.48 vs. $0.39
Electronic Data Systems (NYSE: EDS) – Reported $0.42 vs. $0.41
International Paper (NYSE: IP) – Reported $0.57 vs. $0.57
NYSE Euronext (NYSE: NYX) – Reported $0.76 vs. $0.72
OM Group (NYSE: OMG) – Reported $1.30 vs. $1.17
Viacom (NYSE: VIA.B) – Reported $0.65 vs. $0.60
News, Upgrades/Downgrades/Brokerage Research:
eBay (Nasdaq: EBAY) – Downgraded at Bear Stearns
Vitesse Semiconductor (Nasdaq: VTSS) – Upgraded at CIBC
Coca Cola Enterprises (NYSE: CCE) – Upgraded at Citi
Pepsi Bottling Group (NYSE: PBG) – Downgraded at Citi
Deere & Co (NYSE: DE) – Target increased at Citi
Marathon Oil (NYSE: MRO) – Upgraded at Credit Suisse
Energizer (NYSE: ENR) – Upgraded at Deutsche Bank
Sprint Nextel (NYSE: S) – Upgraded at Deutsche Bank, Target reduced at UBS
Celanese (NYSE: CE) – Added to Conviction Buy list at Goldman
Warner Music Group (NYSE: WMG) – Downgraded at Merrill
Manitowoc (NYSE: MTW) – Target increased at UBS
YUM Brands (NYSE: YUM) – Downgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER ,DE, MRO
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.
This morning’s all-important Employment report is expected to show that the economy created 85,000 new jobs during the month of October. However, the real question of the day isn’t about the number of new jobs created, the unemployment rate, the hours worked during the week, or even the average hourly earnings. No, the big question on investors’ minds this morning is if bad economic news is suddenly bad for the stock market again and vice versa.
At least part of yesterday's trash job in the stock market had to do with the sudden realization that the Fed has probably provided as much emergency liquidity as it is going to provide in response to the credit crisis. Even the bulls will have to admit that a rate cut on the same day that the economy showed its best growth rate in 2 years was a little strange. So in short, investors are now assuming that the Fed told us on Wednesday that any further adjustments to interest rates will be in response to the economic data and not just because the market demands it.
So, with traders suddenly feeling abandoned by the Fed, the bad news swirling around Citigroup’s (C) dividend was, well, bad news. Up until the Fed announcement on Wednesday, the bulls had been able to shrug off any and all bad news relating to the economy and the credit crisis as simply more ammunition for the Fed to continue to cut rates. But with the Fed on hold, the game was suddenly very different.
And just like that, bad news was bad news again. So with a rumor floating around that Citi’s dividend was now at risk and new concerns arising that the credit crisis is not only not contained, but in fact spreading, everyone headed for the sell button yesterday.
The bulls point out that the combination of the elimination of the uptick rule and the proliferation of hedge funds makes these “whoosh” down days easier to accomplish and stomach. The thinking is that nobody in their right mind is going to step in front of a speeding train. Therefore, whenever the bears get their game on, the best solution is to simply stand aside and let our furry friends do their thing until the closing bell rings.
However, the other side of the aisle says that the jig is up and that the credit crisis is about to come home to roost. The primary argument the bears are using these days is that at some point in time, banks and brokerage firms are going to have to price all of those fancy derivatives that have no buyers and when they do, the red ink is really going to flow. And in light of the fact that much of the recent rally has been based on the assumption that we have seen the worst of the subprime mess and the ensuing credit crisis, you've got to admit that the bears may have a point here.
Turning to this morning, we’ve got the mother of all economic data to deal via the October Employment report so let’s see what we’ve got. The Labor Dept. reported that the economy created 116,000 new jobs in October, which was well above the consensus estimates for an increase of 85,000 new jobs. Revisions have been interesting of late, so we should probably note that the September total was revised a bit lower. But the big news is that the new jobs number was strong, which appears to be good news for both the economy as well as the stock market in the early going.
Running through the rest of the pre-game indicators; the overseas markets are lower across the board this morning in response to Wall Street’s ugly close yesterday. Crude futures are heading higher today and the latest quote shows the December contract up $0.86 to $94.35. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.39% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 50 points; the S&Ps are up by about 6 points, while the NASDAQ looks to be about 16 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Affiliated Computer Services (NYSE: ACS) – Reported $0.77 vs. $0.84
CBS Corp (NYSE: CBS) – Reported $0.48 vs. $0.44
Electronic Arts (Nasdaq: ERTS) – Reported $0.27 vs. $0.20
Las Vegas Sands (NYSE: LVS) – Reported $0.12 vs. $0.31
Oceaneering Intl (NYSE: OII) – Reported $0.96 vs. $0.85
SBA Communications (Nasdaq: SBAC) – Reported ($0.17) vs. ($0.12)
Verisign (Nasdaq: VRSN) – Reported $0.27 vs. $0.27
Today’s Earnings Before the Bell:
Cigna (NYSE: CI) – Reported $1.14 vs. $0.93
Duke Energy (NYSE: DUK) – Reported $0.48 vs. $0.39
Electronic Data Systems (NYSE: EDS) – Reported $0.42 vs. $0.41
International Paper (NYSE: IP) – Reported $0.57 vs. $0.57
NYSE Euronext (NYSE: NYX) – Reported $0.76 vs. $0.72
OM Group (NYSE: OMG) – Reported $1.30 vs. $1.17
Viacom (NYSE: VIA.B) – Reported $0.65 vs. $0.60
News, Upgrades/Downgrades/Brokerage Research:
eBay (Nasdaq: EBAY) – Downgraded at Bear Stearns
Vitesse Semiconductor (Nasdaq: VTSS) – Upgraded at CIBC
Coca Cola Enterprises (NYSE: CCE) – Upgraded at Citi
Pepsi Bottling Group (NYSE: PBG) – Downgraded at Citi
Deere & Co (NYSE: DE) – Target increased at Citi
Marathon Oil (NYSE: MRO) – Upgraded at Credit Suisse
Energizer (NYSE: ENR) – Upgraded at Deutsche Bank
Sprint Nextel (NYSE: S) – Upgraded at Deutsche Bank, Target reduced at UBS
Celanese (NYSE: CE) – Added to Conviction Buy list at Goldman
Warner Music Group (NYSE: WMG) – Downgraded at Merrill
Manitowoc (NYSE: MTW) – Target increased at UBS
YUM Brands (NYSE: YUM) – Downgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER ,DE, MRO
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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