David Moenning's Daily State of the Markets: 12/05
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Labor Pains
After lunch yesterday, I realized how nice it was that the market was actually doing very little. Sure, the Dow was fluctuating back and forth 100 points or so, but there didn’t appear to be any major violence happening for a change. So, as a colleague had opined earlier in the day, maybe we had turned the corner after all, because the market was holding up fairly well in the face of another big batch of bad news.
Speaking of bad news, there was a plethora of it yesterday. Same-store sales numbers from the nation’s retailers were simply abysmal as sales fell by 2.7%, which was the weakest showing in nearly 40 years. And in the fun-with-numbers category, if you took Wal-Mart (WMT) out of the equation, sales would have plunged by -7.5% for the month.
But the fun definitely didn’t stop there so let’s quickly run through the data. Initial Unemployment Claims, while a bit better than expected, remained above the key 500,000 level for the fourth straight week. The Monster Employment Index fell 7 points in November as online help-wanted ads fell in all 28 cities surveyed. The Business Roundtable CEO Outlook index plunged 63 points to just 16.5. Doing the math, we see that 30,000 layoffs had been announced in the last 24 hours. The ECB cut interest rates by 75 bps, which was the biggest rate cut in its history as even Jean-Claude Trichet acknowledged the weakness in Europe. Then the Bank of England cut its official bank rate by 100 bps, to the lowest level since the bank was established – in 1694!
But the real drama of the day went to the CEO’s of the now not-so Big Three automakers as they attempted once again to convince our elected officials in Washington that they deserved $30 billion or so to make it through 2009. In what can only be described as a case of the pot calling the kettle ‘black,’ the committee got the CEO’s to admit that some mistakes had been made in the auto industry. And although everyone assumes they will get the money eventually, we couldn’t shake the feeling that using a chapter or two in the bankruptcy code just might be the best thing for all involved.
Next, with bad news in abundant supply and Ben Bernanke calling for help on the issue of the 2.25 million foreclosures he’s projecting, one of the biggest stories of the day was the action in the bond market. You see, with the entire globe struggling mightily from an economic standpoint and the Fed making noise about buying up Treasuries to get rates to go the right direction, the ongoing plunge in interest rates has been mind boggling.
While we understand the reasons that have investors scrambling for the safety of Treasuries, the yields afforded to the buyers these days are becoming a little skimpy. If you want to lend money to the Gov’t for 3 months via a T-Bill, your return will be 0.01%. Should you wish to buy a 2-year T-Note, you can expect a yield of 0.83%. Going out 10 years, the yield soars to 2.57%. And if you want to hand your money to the Government for 30 years, you will be rewarded with a yield of 3.03%.
But through all the doom and gloom on the economic front, it seemed that stocks wanted to hang in there. However, as the end of the day drew near, so did the big bad employment report. And the bottom line is with the whisper numbers for this morning’s report increasing by the hour, fear began to mount that reality may actually be worse than the current expectations.
So once again, the buyers stood aside and stocks dove into the close. But since there was no real damage done on the charts, we’ll have to say that while it wasn’t much fun in the end, the session really wasn’t half bad.
Turning to this morning, it’s all about the jobs report as analysts are trying to get a handle on just how deep this recession is going to be. The Bureau of Labor Statistics reported that Non-Farm Payrolls fell by a stunning 533,000 jobs in November, which was much worse than the expectations for a drop of 335,000. In addition, October's totals were revised lower as the economy shed an additional 80,000 jobs over the initial report. The Unemployment Rate rose to 6.7%, which was a bit better than expectations for an increase to 6.8%, but still well above last month's reading of 6.5%. This brings the total jobs lost for the year to 1.8 million.
Running through the rest of the pre-game indicators, the major overseas markets are mixed with Hong Kong higher and Europe lower. Crude futures are down again with the latest quote showing oil trading lower by $0.95 to $42.72 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.52%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.28%, which is down from yesterday’s 0.52%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 155 points; the S&P’s are down about 21 points, while the NASDAQ looks to be about 23 points below fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Brown Forman (NYSE: BF.B) – Reported $0.94 vs. $0.93
Big Lots (NYSE: BIG) – Reported $0.15 vs. $0.14
News, Upgrades/Downgrades/Brokerage Research:
Burger King Holdings (NYSE: BKC) – Initiated Buy at Citi
McDonalds (NYSE: MCD) – Initiated Hold at Citi
Leap Wireless (LEAP) – Upgraded at Goldman
Family Dollar Stores (NYSE: FDO) – Added to Focus List at JP Morgan
Bank of America (NYSE: BAC) – Target reduced at Ladenburg, Thalmann, Estimates reduced at UBS
RF Microdevices (Nasdaq: RFMD) – Downgraded at Merrill
Goldman Sachs (NYSE: GS) – Estimates reduced at Morgan Stanley
Intel (Nasdaq: INTC) – Estimates and target reduced at UBS
Safeway (NYSE: SWY) – Upgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: FDO
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.
After lunch yesterday, I realized how nice it was that the market was actually doing very little. Sure, the Dow was fluctuating back and forth 100 points or so, but there didn’t appear to be any major violence happening for a change. So, as a colleague had opined earlier in the day, maybe we had turned the corner after all, because the market was holding up fairly well in the face of another big batch of bad news.
Speaking of bad news, there was a plethora of it yesterday. Same-store sales numbers from the nation’s retailers were simply abysmal as sales fell by 2.7%, which was the weakest showing in nearly 40 years. And in the fun-with-numbers category, if you took Wal-Mart (WMT) out of the equation, sales would have plunged by -7.5% for the month.
But the fun definitely didn’t stop there so let’s quickly run through the data. Initial Unemployment Claims, while a bit better than expected, remained above the key 500,000 level for the fourth straight week. The Monster Employment Index fell 7 points in November as online help-wanted ads fell in all 28 cities surveyed. The Business Roundtable CEO Outlook index plunged 63 points to just 16.5. Doing the math, we see that 30,000 layoffs had been announced in the last 24 hours. The ECB cut interest rates by 75 bps, which was the biggest rate cut in its history as even Jean-Claude Trichet acknowledged the weakness in Europe. Then the Bank of England cut its official bank rate by 100 bps, to the lowest level since the bank was established – in 1694!
But the real drama of the day went to the CEO’s of the now not-so Big Three automakers as they attempted once again to convince our elected officials in Washington that they deserved $30 billion or so to make it through 2009. In what can only be described as a case of the pot calling the kettle ‘black,’ the committee got the CEO’s to admit that some mistakes had been made in the auto industry. And although everyone assumes they will get the money eventually, we couldn’t shake the feeling that using a chapter or two in the bankruptcy code just might be the best thing for all involved.
Next, with bad news in abundant supply and Ben Bernanke calling for help on the issue of the 2.25 million foreclosures he’s projecting, one of the biggest stories of the day was the action in the bond market. You see, with the entire globe struggling mightily from an economic standpoint and the Fed making noise about buying up Treasuries to get rates to go the right direction, the ongoing plunge in interest rates has been mind boggling.
While we understand the reasons that have investors scrambling for the safety of Treasuries, the yields afforded to the buyers these days are becoming a little skimpy. If you want to lend money to the Gov’t for 3 months via a T-Bill, your return will be 0.01%. Should you wish to buy a 2-year T-Note, you can expect a yield of 0.83%. Going out 10 years, the yield soars to 2.57%. And if you want to hand your money to the Government for 30 years, you will be rewarded with a yield of 3.03%.
But through all the doom and gloom on the economic front, it seemed that stocks wanted to hang in there. However, as the end of the day drew near, so did the big bad employment report. And the bottom line is with the whisper numbers for this morning’s report increasing by the hour, fear began to mount that reality may actually be worse than the current expectations.
So once again, the buyers stood aside and stocks dove into the close. But since there was no real damage done on the charts, we’ll have to say that while it wasn’t much fun in the end, the session really wasn’t half bad.
Turning to this morning, it’s all about the jobs report as analysts are trying to get a handle on just how deep this recession is going to be. The Bureau of Labor Statistics reported that Non-Farm Payrolls fell by a stunning 533,000 jobs in November, which was much worse than the expectations for a drop of 335,000. In addition, October's totals were revised lower as the economy shed an additional 80,000 jobs over the initial report. The Unemployment Rate rose to 6.7%, which was a bit better than expectations for an increase to 6.8%, but still well above last month's reading of 6.5%. This brings the total jobs lost for the year to 1.8 million.
Running through the rest of the pre-game indicators, the major overseas markets are mixed with Hong Kong higher and Europe lower. Crude futures are down again with the latest quote showing oil trading lower by $0.95 to $42.72 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.52%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.28%, which is down from yesterday’s 0.52%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 155 points; the S&P’s are down about 21 points, while the NASDAQ looks to be about 23 points below fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Brown Forman (NYSE: BF.B) – Reported $0.94 vs. $0.93
Big Lots (NYSE: BIG) – Reported $0.15 vs. $0.14
News, Upgrades/Downgrades/Brokerage Research:
Burger King Holdings (NYSE: BKC) – Initiated Buy at Citi
McDonalds (NYSE: MCD) – Initiated Hold at Citi
Leap Wireless (LEAP) – Upgraded at Goldman
Family Dollar Stores (NYSE: FDO) – Added to Focus List at JP Morgan
Bank of America (NYSE: BAC) – Target reduced at Ladenburg, Thalmann, Estimates reduced at UBS
RF Microdevices (Nasdaq: RFMD) – Downgraded at Merrill
Goldman Sachs (NYSE: GS) – Estimates reduced at Morgan Stanley
Intel (Nasdaq: INTC) – Estimates and target reduced at UBS
Safeway (NYSE: SWY) – Upgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: FDO
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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