David Moenning's Daily State of the Markets: 06/01
Tweet
Share
E-mailGet Alerts PENN Hot Sheet
Join SI Premium – FREE
Follow the Bouncing Bond
I will have to admit that the stock market did not have my complete attention on Friday afternoon. Although it was the last day of the month, stocks didn't appear to be doing much of anything when I left with my daughter to scope out possible wedding reception sites. So, when I returned to the screens I was a bit surprised to see that the Dow had popped up more than 1% and that the NASDAQ had moved to a new cycle high.
Naturally, I was curious as the why the bulls had gone from zero to hero in a short period of time. A quick scan of the news yielded little so I initially assumed that it was some good old fashioned window dressing that had done the trick. Well, until I noticed the bond market, that is.
On Friday morning, we had opined that this market was all about the bonds. So, one look at the movement on the 10-year explained everything. While yields had been rising all week and the move was beginning to cause some consternation in the bull camp, on Friday, traders took the bonds the other way. The end result was a drop of nearly 21 basis points in the yield of the 10-year T-Note, which was a move of 5.6% and looked like quite a plunge on the chart.
With the yield on the 10-year having spiked from 3.11% to 3.67% in just 10 trading days, a pullback was certainly to be expected. And frankly, the question of whether the drop in rates can hold or go any farther is still up in the air. However, the sharp decline in rates helped ease some of the recent concerns surrounding the economic recovery, the mortgage market and its affect on housing as well as the government's ability to fund everything under the sun.
Although yields did drop back to 3.47% on the 10-year on Friday, the move had little to no effect on the dollar, which simply continued its recent plunge. In turn, the dollar's dive remained a tailwind for the reflation trade in materials and commodities.
It was also a positive on Friday that Citi (C) announced a $4 billion TALF-eligible credit-card-backed debt offering. While the credit markets remain far from "normal," this announcement shows that things do appear to be moving in the right direction.
Finally, in case you still think that the U.S. is the center of the universe; think again. Part of the positive sentiment on Friday had to do with upbeat economic data out of Japan and Germany. And remember, it is widely accepted that China will be the one to lead us out of this economic quagmire, so it is important to keep an eye open for the overseas data.
Turning to this morning, China's economic was positive overnight with its PMI finishing above 50 for the third straight month. You may recall that readings over 50 are indicative of economic expansion.
Here at home, Personal Income for April was up +0.5% which was much better than the estimates for a drop of -0.2%. On the other side of that coin, Personal Spending came in a tenth better than the consensus at -0.1%. On the inflation front, the PCE Deflator was in line at +0.4% and the PCE Core was also a tenth above expectations at +0.3%.
Running through the rest of the pre-game indicators, the major overseas markets are up strong across the board. Crude futures are moving up again with the latest quote showing oil trading higher by $1.49 at $67.80. On the interest rate front, we've got the yield on the 10-yr trading at 3.55%, while the yield on the 3-month T-Bill is trading at 0.12%. 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 110 points; the S&P's are up about 15 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks "In Play" This Morning:
Upgrades/Downgrades/Brokerage Research:
Penn National Gaming (Nasdaq: PENN) - Target increased at Barclays
American Express (NYSE: AXP) - Target increased at Barclays
Yahoo! (Nasdaq: YHOO) - Upgraded at Barclays
First Solar (Nasdaq: FSLR) - Estimates and target increased at Credit Suisse
Illinois Tool (NYSE: ITW) - Upgraded at Credit Suisse
Health Management Assoc (NYSE: HMA) - Upgraded at Deutsche Bank
Lifepoint Hospitals (Nasdaq: LPNT) - Upgraded at Deutsche Bank
Tenet Healthcare (NYSE: THC) - Upgraded at Deutsche Bank
Abercrombie & Fitch (NYSE: ANF) - Upgraded at Friedman Billings Ramsey
US Steel (NYSE: X) - Upgraded at Goldman
CB Richard Ellis (NYSE: CBG) - Upgraded at Goldman
Schnitzer Steel (Nasdaq: SCHN) - Downgraded at Goldman
Sara Lee (NYSE: SLE) - Downgraded at Goldman
Kohls (NYSE: KSS) - Upgraded at Thomas Weisel
Coventry Health Care (NYSE: CVH) - Downgraded at UBS
Telecom Italia (NYSE: TI) - Downgraded at UBS
Long positions in stocks mentioned: JPM, FSLR
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: http://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.
I will have to admit that the stock market did not have my complete attention on Friday afternoon. Although it was the last day of the month, stocks didn't appear to be doing much of anything when I left with my daughter to scope out possible wedding reception sites. So, when I returned to the screens I was a bit surprised to see that the Dow had popped up more than 1% and that the NASDAQ had moved to a new cycle high.
Naturally, I was curious as the why the bulls had gone from zero to hero in a short period of time. A quick scan of the news yielded little so I initially assumed that it was some good old fashioned window dressing that had done the trick. Well, until I noticed the bond market, that is.
On Friday morning, we had opined that this market was all about the bonds. So, one look at the movement on the 10-year explained everything. While yields had been rising all week and the move was beginning to cause some consternation in the bull camp, on Friday, traders took the bonds the other way. The end result was a drop of nearly 21 basis points in the yield of the 10-year T-Note, which was a move of 5.6% and looked like quite a plunge on the chart.
With the yield on the 10-year having spiked from 3.11% to 3.67% in just 10 trading days, a pullback was certainly to be expected. And frankly, the question of whether the drop in rates can hold or go any farther is still up in the air. However, the sharp decline in rates helped ease some of the recent concerns surrounding the economic recovery, the mortgage market and its affect on housing as well as the government's ability to fund everything under the sun.
Although yields did drop back to 3.47% on the 10-year on Friday, the move had little to no effect on the dollar, which simply continued its recent plunge. In turn, the dollar's dive remained a tailwind for the reflation trade in materials and commodities.
It was also a positive on Friday that Citi (C) announced a $4 billion TALF-eligible credit-card-backed debt offering. While the credit markets remain far from "normal," this announcement shows that things do appear to be moving in the right direction.
Finally, in case you still think that the U.S. is the center of the universe; think again. Part of the positive sentiment on Friday had to do with upbeat economic data out of Japan and Germany. And remember, it is widely accepted that China will be the one to lead us out of this economic quagmire, so it is important to keep an eye open for the overseas data.
Turning to this morning, China's economic was positive overnight with its PMI finishing above 50 for the third straight month. You may recall that readings over 50 are indicative of economic expansion.
Here at home, Personal Income for April was up +0.5% which was much better than the estimates for a drop of -0.2%. On the other side of that coin, Personal Spending came in a tenth better than the consensus at -0.1%. On the inflation front, the PCE Deflator was in line at +0.4% and the PCE Core was also a tenth above expectations at +0.3%.
Running through the rest of the pre-game indicators, the major overseas markets are up strong across the board. Crude futures are moving up again with the latest quote showing oil trading higher by $1.49 at $67.80. On the interest rate front, we've got the yield on the 10-yr trading at 3.55%, while the yield on the 3-month T-Bill is trading at 0.12%. 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 110 points; the S&P's are up about 15 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks "In Play" This Morning:
Upgrades/Downgrades/Brokerage Research:
Penn National Gaming (Nasdaq: PENN) - Target increased at Barclays
American Express (NYSE: AXP) - Target increased at Barclays
Yahoo! (Nasdaq: YHOO) - Upgraded at Barclays
First Solar (Nasdaq: FSLR) - Estimates and target increased at Credit Suisse
Illinois Tool (NYSE: ITW) - Upgraded at Credit Suisse
Health Management Assoc (NYSE: HMA) - Upgraded at Deutsche Bank
Lifepoint Hospitals (Nasdaq: LPNT) - Upgraded at Deutsche Bank
Tenet Healthcare (NYSE: THC) - Upgraded at Deutsche Bank
Abercrombie & Fitch (NYSE: ANF) - Upgraded at Friedman Billings Ramsey
US Steel (NYSE: X) - Upgraded at Goldman
CB Richard Ellis (NYSE: CBG) - Upgraded at Goldman
Schnitzer Steel (Nasdaq: SCHN) - Downgraded at Goldman
Sara Lee (NYSE: SLE) - Downgraded at Goldman
Kohls (NYSE: KSS) - Upgraded at Thomas Weisel
Coventry Health Care (NYSE: CVH) - Downgraded at UBS
Telecom Italia (NYSE: TI) - Downgraded at UBS
Long positions in stocks mentioned: JPM, FSLR
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: http://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
- Rubrik IPO: 5 key things to know
- Netflix's subscribers, TSMC, Tesla upside - what's moving markets
- Tenet Healthcare (THC) PT Raised to $126 at Deutsche Bank
Create E-mail Alert Related Categories
ContributorsRelated Entities
Credit Suisse, Deutsche Bank, UBS, Citi, Friedman, Billings, Ramsey, Barclays, Thomas Weisel Partners Group, David Moenning, Crude OilSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
