David Moenning's Daily State of the Markets: 11/04

Fully Discounted?

For the first time in what seems like an eternity, the stock market did next to nothing during the session yesterday as the intraday range of the Dow came in at a paltry 155 points. This despite some pretty glum economic data, new worries over Goldman Sachs (GS), and more carnage in the auto sector. Thus, the bulls can be heard crowing about the idea that the vicious decline seen in October has fully discounted all the bad news that is likely to come out.

As we highlighted in our weekend report, it does appear that the drop of 42.3% on the Dow over the past year and the 45.8% decline on the S&P 500 is enough to discount a typical recession. We pointed out if one looks back at history’s Bear Markets that were accompanied by a recession (but not a depression); the average decline came in at 42.52%. Thus, we can certainly see the bulls’ point that the market has discounted everything except the Great Depression.

While this is indeed a comfort from a long-term perspective, we also know full well that declines of this magnitude do NOT end quickly and that the ultimate Bear Market lows are usually tested a time or two before moving onward and upward for good. Thus, the short-term outlook is a bit of a question mark.

On the plus side, we’ve got the fact that the credit markets are coming to life again. We’ve got the fact that market tends to advance after a Presidential Election comes to a close. Then there is the positive historical tendency of the November-April period as well as the shift that is occurring from bonds to stocks in the asset allocation models. And finally, for those that have not been scared out of the market completely, there are some bargains to be had out there if you don’t have to worry about reporting performance over the next 30 – 60 days.

However, on the other side of the aisle, the bears argue that the credit crisis has permanently changed some things and as such, we shouldn’t expect to see much more than the typical countertrend rally in the near term. Our furry friends remind us that credit, which has been a major driver of growth in this decade, is more difficult to come by and in far less demand now as the new battle cry across America appears to be shifting from “put it on the card” to “debt kills.” And finally, the bears say that while no one wants to talk about a depression, the most recent economic data shows that the economy has come to a screeching halt over the last 45 days.

So, how does someone still in the game play it from here? The answer, with tongue firmly implanted in cheek is very carefully. And while our crystal ball is STILL in the shop, we wouldn’t be surprised to see stocks rally further in the near term before a surprise-induced retest commences. And although it seems hard to fathom that there is anything else out there that could surprise investors, this is traditionally the way the game is played.

Turning to this morning, we don’t have any economic data to review before the bell. But we will get a report on Factory Orders from September at 10:00 am and then we’ll hear what Dallas Fed President and baseball aficionado Richard Fisher has to say on the economy at 10:45 am.

Running through the rest of the pre-game indicators, the major overseas markets are up again across the board. Crude futures are rising with the latest quote showing oil trading higher by $1.09 to $65. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.94% while the yield on the 3-month T-Bill is at 0.49% and overnight LIBOR is at 0.38% which is down from yesterday’s rate of 0.39%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a nice open. The Dow futures are currently ahead by about 200 points; the S&P’s are up by about 25 points, while the NASDAQ looks to be about 29 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Automatic Data (NYSE: ADP) – Reported $0.54 vs. $0.50
Anadarko Petroleum (NYSE: APC) – Reported $1.62 vs. $1.46
Comstock Resources (NYSE: CRK) – Reported $1.20 vs. $1.00
EOG Resources (NYSE: EOG) – Reported $2.34 vs. $2.23
Herbalife (NYSE: HLF) – Reported $0.89 vs. $0.86
J2 Global Communications (Nasdaq: JCOM) – Reported $0.45 vs. $0.41
MasterCard (NYSE: MA) – Reported $2.47 vs. $2.22
Mohawk Inds (NYSE: MHK) – Reported $1.10 vs. $1.11
Pitney Bowes (NYSE: PBI) – Reported $0.67 vs. $0.70
Principal Financial (NYSE: PFG) – Reported $0.96 vs. $0.91
St. Mary Land & Exploration (NYSE: SM) – Reported $1.20 vs. $1.10
Viacom (NYSE: VIA.B) – Reported $0.55 vs. $0.55

Today’s Earnings Before the Bell:

Archer Daniels (NYSE: ADM) – Reported $1.63 vs. $0.69
Church & Dwight (NYSE: CHD) – Reported $0.73 vs. $0.69
Dean Foods (NYSE: DF) – Reported $0.28 vs. $0.31
Emerson (NYSE: EMR) – Reported $0.88 vs. $0.86
Jacobs Engineering (NYSE: JEC) – Reported $0.92 vs. $0.92
Myriad Genetics (Nasdaq: MYGN) – Reported $0.30 vs. $0.13
Cimarex (NYSE: XEC) – Reported $2.19 vs. $2.27

News, Upgrades/Downgrades/Brokerage Research:

Sun Microsystems (Nasdaq: JAVA) – Downgraded at Argus Research
JDS Uniphase (Nasdaq: JDSU) – Downgraded at Argus Research
Kroger (NYSE: KR) – Initiated Buy at Bank of America
Apple (AAPL) – Mentioned positively at Bernstein
Agrium (NYSE: AGU) – Upgraded at Citi
Terra Industries (NYSE: TRA) – Upgraded at Citi
CF Industries (NYSE: CF) – Upgraded at Citi
Mosaic (NYSE: MOS) – Target reduced at Citi
Potash (NYSE: POT) – Target reduced at Citi
Phillip Morris (NYSE: PM) – Upgraded at Credit Suisse
Principal Financial (NYSE: PFG) – Upgraded at Friedman Billings Ramsey
Valero (NYSE: VLO) – Downgraded at Goldman
Holly Corp (NYSE: HOC) – Downgraded at Goldman
Cal Dive Intl (NYSE: DVR) – Downgraded at JP Morgan
Analog Devices (NYSE: ADI) – Upgraded at Merrill
TreeHouse Foods (NYSE: THS) – Downgraded at Wachovia
T. Rowe Price (Nasdaq: TROW) – Downgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: MA, THS

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.

You May Also Be Interested In

• Citizens Financial Group (CFG) PT Raised to $39 at Argus
• Argus on ASML Inc. (ASML): 'Remaining cautious on 2024'
• Citi Upgrades Sirius XM Radio (SIRI) to Neutral, 'risk-reward is balanced at prevailing levels'