David Moenning�s Daily State of the Markets: 05/10
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Closing In
Good morning and welcome to Fed Day #16. The blue chips made a surprisingly strong move yesterday during what most expected to be a �wait and see� type of day. With the much anticipated Fed meeting on tap for today, most analysts expected little movement in stock prices. But instead, the Dow marched higher by 55 points on the back of an upgrade at GM and is now rapidly closing in on new all-time highs.
However, the end result was not as encouraging over in four-letter-land as Dell�s reduced guidance definitely put a damper on tech�s old guard. And while the Dow was enjoying solid gains, the NASDAQ wound up with a loss of almost 7 points. The S&P 500 Index, which includes both big movers, finished smack in the middle with an almost flat-line result.
Traders obviously spent much of the day waiting on the Fed. But it would appear that they were also doing some market math relating to earnings versus stock prices. In short, it is becoming apparent that earnings are continuing to grow at a higher rate than stock prices. An article in IBD yesterday showed that S&P 500 earnings have increased by 48% since the beginning of 2004, while the S&P 500 index has managed to climb just 19%. And with almost 80% of the earnings for the current quarter now in, analysts are projecting an increase of 14% for the first quarter. Then when you toss in the fact that 67% of the companies reporting so far have topped estimates and that earnings are expected to grow at an 11% clip in the current quarter, its little wonder that investors are siding with the bulls these days.
Another interesting aspect of yesterday�s action took place in the gold pits. With the rhetoric in and out of Iran beginning to escalate once again, the Dollar continued to dive and gold prices rose. The yellow metal finished the day by spiking $21.60 higher to close at $701.50, which was the first close above $700 since October 1980 (my first year in the biz).
Oil also responded to Secretary of State Rice�s quick dismissal of Iran�s offer to chat about alternatives to sanctions and military intervention, and moved back above $70. Iranian officials complained that Rice�s lack of interest in considering their offer would promote bad feelings toward the U.S. and their allies (is this news?), which put some of the risk premium back into crude. Oil futures finished the day at $70.90.
So while the Dow and Gold prices are clearly closing in on record highs, the real story of the day right now remains the Fed. Mr. Bernanke and company are expected to announce the sixteenth straight rate increase today, which will take the Fed Funds rate back up to 5%. The question, as usual, is what the FOMC statement accompanying the announcement will hold and what to expect from Bernanke & Co. at the June meeting.
The current consensus expects the Fed to talk about pausing the rate hike campaign this afternoon in an effort to reflect on the impact of the previous sixteen rate increases. We expect to hear a shift in the emphasis from the Fed removing excess accommodation to a Fed that wants to be �data dependent� going forward. So, whatever your plans for the day may be, it would be good idea to find a T.V. at 2:15 pm EDT.
Turning to this morning, there is no economic news scheduled for release before the bell once again, although we will get a report on the government�s budget at 2:00 pm.
Running through the rest of the pre-game indicators, overseas markets were lower in Asia on continued deterioration of the greenback while European bourses are hovering around breakeven. Oil futures are little changed at the moment and are currently trading down $0.07 to $70.32. Natural Gas is trading lower by $0.03 to $6.55. Gold is pulling back this morning as there were surely some sellers at $700. Gold futures are currently quoted down -$2.20 to $699.30. Interest rates are showing little movement with the 2-year currently trading at 4.95% and the 10-yr is at 5.12%. And finally, with an hour before the bell, stock futures in the U.S. are doing next to nothing. The Dow futures about 2 points below fair value, the S&Ps are also just under fair value, while the NASDAQ futures are sporting a loss of about 3 points.
Stocks �In Play� This Morning:
Cisco (CSCO) � Reported $0.29 vs $0.26, Revenues $7.32B vs. $7.16B
Chevron (CVX) � Barron�s notes curious insider selling
Baidu (BIDU)� Reported $0.16 vs $0.12, Revenues $16.9M vs. $15.4M, Guides higher
Corning (GLW) � Restating financials for 2003-2005, No earnings impact expected
Mylan Labs (MYL) � Reported $0.27 vs $0.24, Revenues $315M vs. $308.9M
Countrywide Financial (CFC) � Upgraded at Morgan Stanley
Daimler Chrysler (DCX) � Upgraded at Deutsche
Lazard (LAZ) � Upgraded at JP Morgan
Lifepoint Hospitals (LPNT) � Upgraded at Deutsche
Metlife (MET) � Upgraded at Lehman
Magna Intl (MGA) � Upgraded at UBS
Petsmart (PETM) � Upgraded at Deutsche
Sapient (SAPE) � Downgraded at RBC
US Bancorp (USB) � Upgraded at UBS
Yum Brands (YUM) � Upgraded at BofA
UnitedHealth (UNH) � Mentioned positively at Citigroup
Disclosure: Long positions in stocks mentioned: CSCO, LEH, JPM, MER
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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.
Good morning and welcome to Fed Day #16. The blue chips made a surprisingly strong move yesterday during what most expected to be a �wait and see� type of day. With the much anticipated Fed meeting on tap for today, most analysts expected little movement in stock prices. But instead, the Dow marched higher by 55 points on the back of an upgrade at GM and is now rapidly closing in on new all-time highs.
However, the end result was not as encouraging over in four-letter-land as Dell�s reduced guidance definitely put a damper on tech�s old guard. And while the Dow was enjoying solid gains, the NASDAQ wound up with a loss of almost 7 points. The S&P 500 Index, which includes both big movers, finished smack in the middle with an almost flat-line result.
Traders obviously spent much of the day waiting on the Fed. But it would appear that they were also doing some market math relating to earnings versus stock prices. In short, it is becoming apparent that earnings are continuing to grow at a higher rate than stock prices. An article in IBD yesterday showed that S&P 500 earnings have increased by 48% since the beginning of 2004, while the S&P 500 index has managed to climb just 19%. And with almost 80% of the earnings for the current quarter now in, analysts are projecting an increase of 14% for the first quarter. Then when you toss in the fact that 67% of the companies reporting so far have topped estimates and that earnings are expected to grow at an 11% clip in the current quarter, its little wonder that investors are siding with the bulls these days.
Another interesting aspect of yesterday�s action took place in the gold pits. With the rhetoric in and out of Iran beginning to escalate once again, the Dollar continued to dive and gold prices rose. The yellow metal finished the day by spiking $21.60 higher to close at $701.50, which was the first close above $700 since October 1980 (my first year in the biz).
Oil also responded to Secretary of State Rice�s quick dismissal of Iran�s offer to chat about alternatives to sanctions and military intervention, and moved back above $70. Iranian officials complained that Rice�s lack of interest in considering their offer would promote bad feelings toward the U.S. and their allies (is this news?), which put some of the risk premium back into crude. Oil futures finished the day at $70.90.
So while the Dow and Gold prices are clearly closing in on record highs, the real story of the day right now remains the Fed. Mr. Bernanke and company are expected to announce the sixteenth straight rate increase today, which will take the Fed Funds rate back up to 5%. The question, as usual, is what the FOMC statement accompanying the announcement will hold and what to expect from Bernanke & Co. at the June meeting.
The current consensus expects the Fed to talk about pausing the rate hike campaign this afternoon in an effort to reflect on the impact of the previous sixteen rate increases. We expect to hear a shift in the emphasis from the Fed removing excess accommodation to a Fed that wants to be �data dependent� going forward. So, whatever your plans for the day may be, it would be good idea to find a T.V. at 2:15 pm EDT.
Turning to this morning, there is no economic news scheduled for release before the bell once again, although we will get a report on the government�s budget at 2:00 pm.
Running through the rest of the pre-game indicators, overseas markets were lower in Asia on continued deterioration of the greenback while European bourses are hovering around breakeven. Oil futures are little changed at the moment and are currently trading down $0.07 to $70.32. Natural Gas is trading lower by $0.03 to $6.55. Gold is pulling back this morning as there were surely some sellers at $700. Gold futures are currently quoted down -$2.20 to $699.30. Interest rates are showing little movement with the 2-year currently trading at 4.95% and the 10-yr is at 5.12%. And finally, with an hour before the bell, stock futures in the U.S. are doing next to nothing. The Dow futures about 2 points below fair value, the S&Ps are also just under fair value, while the NASDAQ futures are sporting a loss of about 3 points.
Stocks �In Play� This Morning:
Cisco (CSCO) � Reported $0.29 vs $0.26, Revenues $7.32B vs. $7.16B
Chevron (CVX) � Barron�s notes curious insider selling
Baidu (BIDU)� Reported $0.16 vs $0.12, Revenues $16.9M vs. $15.4M, Guides higher
Corning (GLW) � Restating financials for 2003-2005, No earnings impact expected
Mylan Labs (MYL) � Reported $0.27 vs $0.24, Revenues $315M vs. $308.9M
Countrywide Financial (CFC) � Upgraded at Morgan Stanley
Daimler Chrysler (DCX) � Upgraded at Deutsche
Lazard (LAZ) � Upgraded at JP Morgan
Lifepoint Hospitals (LPNT) � Upgraded at Deutsche
Metlife (MET) � Upgraded at Lehman
Magna Intl (MGA) � Upgraded at UBS
Petsmart (PETM) � Upgraded at Deutsche
Sapient (SAPE) � Downgraded at RBC
US Bancorp (USB) � Upgraded at UBS
Yum Brands (YUM) � Upgraded at BofA
UnitedHealth (UNH) � Mentioned positively at Citigroup
Disclosure: Long positions in stocks mentioned: CSCO, LEH, JPM, MER
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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