David Moenning's Daily State of the Markets: 04/30

Still Hanging Around

Here’s a link to listen to an Audio Version of the report:

With all three major indices sitting right at important junctures from a chart standpoint, it is interesting to note that there isn’t much of a battle going on between our two teams right now. It’s as if both sides are content to just sit and watch for the time being, which is a little strange given the potential for either a celebrated breakout or the dreaded fakeout.

The bulls argument currently is that stocks are consolidating the recent gains and the fact that the indices remain in the upper regions of the range is a positive. And since the S&P is having one of its best months in five years, it is hard to argue with this logic.

The bears certainly have had their chances recently. Just yesterday we saw another dismal report on housing as 17 of 20 cities reported record year-over-year declines with price depreciation of more than -13%. Next, with home and stock prices falling and gasoline prices rising relentlessly, it looks like the consumer is starting to feel the pinch. It was reported yesterday that Consumer Confidence fell for the fourth straight month to its lowest level since March 2003. And while the report was actually a little better than expected, it is hard to get excited about the economy with the consumer down in the dumps.

But through it all, stocks have hung in there. Perhaps traders are simply waiting to see what the Fed has cooked up today or the numbers from this Friday’s employment report. Or maybe the bad news that we’re seeing right now is already baked into the cake. But in any event, stocks have been surprisingly calm of late.

There is also a sense that the government and the Fed are doing everything they can to turn the mortgage/credit mess around. For example, there was a report yesterday that the FDIC is putting the finishing touches on a legislative proposal that would allow the Treasury to loan money directly to homeowners. The idea is for borrowers to use the loans to pay down up to 20% of the principal owed on their mortgage and not be required to make payments for five years. And while we aren’t sure about the logic of the plan, you do have to give the government credit for trying.

Turning to this morning, the big event of the day is obviously the Fed meeting. It is expected that the FOMC will cut the Fed Funds rate by another 25 basis points. However, after that it gets interesting as there are several variations on what to expect from the statement accompanying the announcement at 2:15 pm eastern.

We’ve also got some economic news to report on this morning. ADP reported that the economy gained 10,000 jobs in April, which was far better than the consensus estimate for a drop of 60,000 jobs. In addition, the Q1 GDP report showed that the economy was a smidge better than economists estimated during the quarter as GDP increased by +0.6% versus the consensus estimates for an increase of +0.5%. The rest of the report showed that Personal Consumption was a little better than expected, the Price Index was strangely below expectations, the Core PCE was in line with projections, and the Employment Cost Index was a tenth below estimates, which is a big positive on the inflation front. So, all in all, the report did not paint the dismal picture that had been anticipated.

Running through the rest of the pre-game indicators; the foreign markets are lower across the board. Crude futures are moving up with the latest quote showing oil higher by $0.45 to $116.10. Interest rates are moving down as the yield on the 10-yr is currently trading at 3.80%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to an up open. The Dow futures are currently ahead by about 44 points; the S&P’s are up about 4 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

ACE Ltd (NYSE: ACE) – Reported $2.16 vs. $1.96
CB Richard Ellis (NYSE: CBG) – Reported $0.15 vs. $0.21
Express Scripts (Nasdaq: ESRX) – Reported $0.70 vs. $0.67
Flextronics (Nasdaq: FLEX) – Reported $0.26 vs. $0.23
Jones Lang LaSalle (NYSE: JLL) – Reported $0.09 vs. $0.70
Lincoln National (NYSE: LNC) – Reported $1.28 vs. $1.31
Overseas Shipholding (NYSE: OSG) – Reported $3.60 vs. $4.09
Panera Bread (Nasdaq: PNRA) – Reported $0.47 vs. $0.39

Today’s Earnings Before the Bell:

Cincinnati Bell (NYSE: CBB) – Reported $0.10 vs. $0.09
Chicago Bridge (NYSE: CBI) – Reported $0.43 vs. $0.54
Constellation Energy (NYSE: CEG) – Reported $0.95 vs. $1.25
Colgate Palmolive (NYSE: CL) – Reported $0.90 vs. $0.89
Cummins (NYSE: CMI) – Reported $0.97 vs. $0.89
Dean Foods (NYSE: DF) – Reported $0.23 vs. $0.18
General Motors (NYSE: GM) – Reported -$0.62 vs. -$1.67
Hess Corp (NYSE: HES) – Reported $2.34 vs. $2.00
Intl Paper (NYSE: IP) – Reported $0.41 vs. $0.51
Ingersoll-Rand (NYSE: IR) – Reported $0.77 vs. $0.73
Jones Apparel (NYSE: JNY) – Reported $0.37 vs. $0.36
Kraft (NYSE: KFT) – Reported $0.44 vs. $0.41
National Oilwell Varco (NYSE: NOV) – Reported $1.11 vs. $1.09
Office Max (NYSE: OMX) – Reported $0.68 vs. $0.69
Procter & Gamble (NYSE: PG) – Reported $0.82 vs. $0.81
Time Warner (NYSE: TWX) – Reported $0.22 vs. $0.23

News, Upgrades/Downgrades/Brokerage Research:

Rogers Communications (NYSE: RCI) – Upgraded at CIBC
Valero (NYSE: VLO) – Downgraded at Credit Suisse
BP PLC (NYSE: BP) – Upgraded at Credit Suisse
MasterCard (NYSE: MA) – Target increased at Deutsche Bank
US Steel (NYSE: X) – Estimates and target increased at Goldman
France Telecom (NYSE: FTE) – Upgraded at JP Morgan
MEMC Electronic Materials (NYSE: WFR) – Downgraded at JP Morgan
Blackstone Group (NYSE: BX) – Downgraded at Merrill Lynch
Archer Daniels Midland (NYSE: ADM) – Downgraded at Merrill Lynch
CBS Corp (NYSE: CBS) – Downgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: RCI, MA

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: [email protected]

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