David Moenning's Daily State of the Markets: 4/9

Hope or Desperation?

Although it was touch and go for a while, stocks finished in the green yesterday on the back of an M&A deal in the homebuilders, some upbeat earnings guidance out of the retail sector, news that some of the big insurance companies could be TARP’ed, and a jump in mortgage applications.

Most of the day though, the chatter was about the deal in which Pulte Homes (PHM) will acquire Centex (CTX) for $1.3 Billion in stock. For those detail hounds out there, the merger will create the largest US homebuilder in terms of revenues and a pool of cash totaling $3.4 Billion. Analysts saw the move as a sign that M&A activity was about to pick up in response to the values currently found out there in corporate America.

Traders were also encouraged by word that Pulte saw a nice pickup in terms of orders and traffic during the quarter. Thus, those seeing the glass as half-full could be heard arguing that this was yet another small piece of data pointing to what we can hope will be the beginnings of a turn in the housing market.

However, those on the other side of the aisle are suggesting that yesterday’s acquisition is nothing more than a move of desperation and an indication of how badly the sector has been beaten down. For Pulte, the move is about cutting costs while Centex appears to need the deal in order to survive one of the worst housing downturns in history.

So, is this deal about hope or desperation? The answer would appear to be: yes – it just depends on which side of the deal you are on. And the same type of question can be asked about the outlook for the overall market. Is there any hope that things will improve in the future or merely fear about how bad the economy will get before the turn comes?

Make no mistake about it, there WILL be a turn – things WILL get better in the economy. However, this does not mean that you can go back to your old buy-and-hope strategy. You see, in this type of environment, we will experience cycles of hope and cycles of fear and/or desperation. Thus, investors will need to know how to deal with BOTH in order to be successful.

Getting back to the market at hand, it would appear that after spending most of the past year dealing with a desperate situation, we have moved into the “hope” phase. This is a tricky phase due to the fact that in the early going, there are few if any signs that the turn everyone is hoping for is actually occurring.

However, this is the way the game is played. If you wait for proof that the turn has arrived, you will miss a great deal of the run. Yet, at the same time, we MUST recognize that the risk we run by being hopeful right now is that we could be early – or that the recovery might be delayed. But in any event, the market’s recent action tells us that hope is where it’s at; at least for now.

Turning to this morning, the big news so far the earnings preannouncement from Wells Fargo (WFC) who said Q1 earnings would come in around $0.55, which is more than double the Reuters estimate for $0.23.

On the economic front, the weekly Jobless Claims came in at 654K versus expectations for 660K. However, last week’s number was revised higher to 674K from 669K and Ongoing Claims hit another record at 5.84 million. Next, up Import Prices came in with an increase of +0.5%, which was below expectations for an increase of +0.9%. And finally, the February Trade deficit narrowed to $26 Billion versus estimates for $36 Billion.

Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading up $1.61 to $50.99. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.91%, while 3-month LIBOR is at 1.13% and the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 130 points; the S&P’s are up by about 16 points, while the NASDAQ looks to be about 23 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Pep Boys (NYSE: PBY) – Reported -$0.63 vs. -$0.32 Rev: $465.5M vs. $466.4M
Shaw Group (NYSE: SGR) – Reported $0.22 vs. $0.61 Rev: $1.67B vs. $1.73B

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Wells Fargo (NYSE: WFC) – Preannounced Q1 earnings to be ~$0.55 vs. $0.23
Universal Health Services (NYSE: UHS) – Upgraded at Credit Suisse
Hot Topic (Nasdaq: HOTT) – Target increased at Friedman Billings Ramsey
Centex (NYSE: CRX) – Downgraded at JMP Securities
Burlington Northern (NYSE: BNI) – Estimates reduced at JP Morgan
Norfolk Southern (NYSE: NSC) – Estimates reduced at JP Morgan
CSX Corp (NYSE: CSX) – Estimates reduced at JP Morgan
Union Pacific (NYSE: UNP) – Estimates reduced at JP Morgan
Pulte Home (NYSE: PHM) – Downgraded at JP Morgan
Mosaic (NYSE: MOS) – Downgraded at JP Morgan
Berkshire Hathaway (NYSE: BRK.A) – Long term debt issuer rating cut at Moody’s
RF Micro Devices (Nasdaq:�RFMD)�– Upgraded at UBS

March Same-Store Sales Comparisons (versus StreetAccount Estimates):

BJ’s Wholesale Club (NYSE: BJ): -0.1% vs. 0.9%
Costco (Nasdaq: COST): -5.0% vs. -1.7%
Dillard’s (NYSE: DDS): -19.0% vs. -10.0%
JC Penny (NYSE: JCP): -7.2% vs. -11.2%
Macy’s (NYSE: M): -9.2% vs. -8.2%
Aeropostale (NYSE: ARO): +3.0% vs. +3.0%
American Eagle (NYSE: AEO): -16% vs. -10.5%
Abercrombie & Fitch (NYSE: ANF): -34% vs. -24.3%
Kohls (NYSE: KSS): -4.3% vs. -5.1%
Limited Brands (NYSE: LTD): -9.0% vs. -11.8%
Target (NYSE: TGT): -6.3% vs. -7.1%
Walgreens (NYSE: WAG): +1.5% vs. -0.3%
Wal-Mart (NYSE: WMT): +1.4% vs. +2.9%; Guides Q1 earnings to high end of range

Disclosure: Mr. Moenning and/or related firms hold long positions in: WMT

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.TopStockPortfolios.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

• Ancora Sends Important Letter to Fellow Shareholders About Our Collective Opportunity to Transform and Turn Around Norfolk Southern (NSC)
• Ancora Sends Important Letter to Fellow Shareholders on Norfolk Southern (NSC) Turnaround Plan
• JMP Securities Starts Reddit (RDDT) at Market Outperform, 'a Young Platform With Multiple Growth Levers'