David Moenning's Daily State of the Markets: 5/2

Who Needs Vigilance?

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

The excuse given for Wednesday's tank job following the announcement that the Fed was cutting rates for the seventh time since September was that Mr. Bernanke and Co. weren’t showing enough vigilance toward the evils of inflation. And while the inflation hawks may have a point in the big picture, it would appear to more sensible folks that the Fed might just have its hands full at the moment now trying to (1) keep the banking system from collapsing and (2) keeping the economy from heading straight into the toilet.

While we had very little proof, we felt that a more likely reason for the 150 point swing was that boys and their computers do like to have their fun on occasion. So, with the bond market in a tizzy, the sell programs seemed to swoop in and knock stocks straight down for about an hour.

Perhaps the best evidence, other than my finely honed gut feeling, that computers were to blame for Wednesday’s drop and not a lack of vigilance, was the action of the stock market on Thursday. During yesterday’s session it seemed nobody gave a hoot about vigilance and buying was the name of the game.

Maybe it was the monthly influx of cash to the market that helped get the bulls up on the dance floor. Maybe it was income tax refunds finding their way to brokerage accounts. Maybe it was the asset allocators returning to the fold. Maybe it was the realization that the Fed will soon move to the sidelines. Maybe it was the dollar pushing to a seven-week high. Maybe it was crude dropping to $112.52 on the June Contract. Maybe it was the increase in takeover deals that we’ve seen recently. Maybe it was Treasury Secretary Paulson joining the long list of who’s who that has declared the credit crisis to be nearing an end. Maybe it was comments from real estate mogul Sam Zell, who said that institutional investors are beginning to return to the market for commercial mortgage-backed securities. Or maybe it was word that Kuwait's head of Investment Authority was pounding the table about how cheap Citi (C) and Merrill (MER) are right now.

But regardless of the reason, the bulls were able to push the S&P 500 through the 1400 level yesterday for the first time since January 14th and the Dow managed to close above 13,000 for only the third time this year. What about the NASDAQ you ask? Well, a nice pop in the SOX (Philly Semiconductor index) helped move the four-letter ladened index above the top end of its trading range as well.

So, with the general feeling that the worst is behind us in the credit crisis and that the economy may not be as bad off as we thought, the bulls have been asking the question: What’s not to like? And while there are many big-picture responses to the question, most of which revolving around the topic of debt, it would appear that our heroes in horns are trying to make a break here.

Turning to this morning, we’ve got the Big Kahuna of economic data – the April Employment report – so let’s get to it. The Labor Dept. reported that non-farm payrolls fell by 20,000 in April, which was better than the estimates for a drop of 75,000. The Unemployment Rate also came in better than expected at 5.0% versus expectations for 5.2% and Average Hourly Earnings increased by 0.1%. Revisions to February and March were minimal. So, in sum, while this was the fourth consecutive month of job losses for the economy, we must keep in mind that the jobs report is a rearview mirror look at what has happened in the past. And since what happened in April wasn’t as bad as had been expected, naturally, stocks, the dollar, and bond yields are spiking on the news.

Running through the rest of the pre-game indicators; the foreign markets followed the U.S. higher overnight. Crude futures are moving up with the latest quote showing oil higher by $0.53 to $113.09. Interest rates are moving up as the yield on the 10-yr is currently trading at 3.85%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 120 points; the S&P’s are up about 15 points, while the NASDAQ looks to be about 17 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Affiliated Computer (NYSE: ACS) – Reported $0.91 vs. $0.87
Automated Data (NYSE: ADP) – Reported $0.77 vs. $0.75
Aon Corp (NYSE: AOC) – Reported $0.71 vs. $0.63
Chesapeake Energy (NYSE: CHK) – Reported $1.09 vs. $0.92
Callaway Golf (NYSE: ELY) – Reported $0.61 vs. $0.60
EOG Resources (NYSE: EOG) – Reported $1.89 vs. $1.64
Sun Microsystems (Nasdaq: JAVA) – Reported $0.00 vs. $0.18
MetLife (NYSE: MET) – Reported $1.52 vs. $1.48
Monster Worldwide (Nasdaq: MNST) – Reported $0.24 vs. $0.21
QLogic Corp (Nasdaq: QLGC) – Reported $0.28 vs. $0.22
Wynn Resorts (Nasdaq: WYNN) – Reported $0.69 vs. $0.71

Today’s Earnings Before the Bell:

Apartment Inv & Mgmt (NYSE: AIV) – Reported $0.72 vs. $0.70
American Tower (NYSE: AMT) – Reported $0.10 vs. $0.09
Borg Warner (NYSE: BWA) – Reported $0.75 vs. $0.66
Chevron (NYSE: CVX) – Reported $2.48 vs. $2.41
Viacom (NYSE: VIA.B) – Reported $0.44 vs. $0.41


News, Upgrades/Downgrades/Brokerage Research:

MGM Mirage (NYSE: MGM) – Estimates and target reduced at Bank of America
Gap Inc (NYSE: GPS) – Downgraded at Bank of America
Radio Shack (NYSE: RSH) – Upgraded at Bank of America
Sun Microsystems (Nasdaq: JAVA) – Downgraded at Bear Stearns
Murphy Oil (NYSE: MUR) – Downgraded at Bernstein
Nordstrom (NYSE: JWN) – Upgraded at Credit Suisse
Investment Technology Group (NYSE: ITG) – Downgraded at Deutsche Bank, Keefe Bruyette
Assurant (NYSE: AIZ) – Removed from Conviction Buy list at Goldman
Affiliated Computer (NYSE: ACS) – Upgraded at Jefferies
Imperial Oil (NYSE: IMO) – Downgraded at Merrill
Lehman (NYSE: LEH) – Estimates reduced at Merrill
Morgan Stanley (NYSE: MS) – Estimates reduced at Merrill
Jones Apparel (NYSE: JNY) – Upgraded at Merrill
St. Jude Medical (NYSE: STJ) – Downgraded at Wachovia
Pulte Home (NYSE: PHM) – Corp credit rating reduced at S&P
Ryland Group (NYSE: RYL) – Corp credit rating reduced at S&P

Mr. Moenning holds Long positions in stocks mentioned: AIZ

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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