David Moenning�s Daily State of the Markets: 06/07

Unwelcome Developments

Good morning. With no economic news to guide a data dependent market, traders turned to the statements, comments, and speeches of any and all Fed officials for direction. But unfortunately for the bulls, that direction was once again down.

Although a late-afternoon rally helped thwart what appeared to be a second rout in as many days, stocks still had a rough outing yesterday. At issue is the idea that the Fed�s much anticipated pause now seems to be off the table.

In what appears to be a well orchestrated round of comments, Fed officials have been talking tough on inflation over the past few days. First it was Ben Bernanke, who may be trying to shed the nickname Gentle Ben before it sticks. Bernanke gave the market a double dose of difficulty on Monday as he said that an economic slowdown is under way and that core inflation is currently at or above the upper end of the Fed�s preferred range. The Fed chairman categorized the recent rise in core inflation as an �unwelcome development� and suggested that the Fed must remain vigilant to ensure that the current readings are not sustained.

Then yesterday morning it was St. Louis Fed President William Poole who warned that a slowing economy isn't enough to restrain inflation by itself. And in an interview with the Wall Street Journal, Poole said the Fed ought to maintain an "upside bias" in terms of interest rate policy. This took the wind out of the bulls� sails and set the stage for another drop in stock prices yesterday.

Next up, Fed Governor Susan Bies chimed in yesterday afternoon by saying that core inflation is running at a level that makes her "uncomfortable." She also said that the Fed is now in a period of transition and can no longer give the forward-looking guidance on rates that it has provided in the past. These comments sent stocks back to the low of the day as traders began to recognize a familiar inflation fighting refrain in the Fed�s comments.

Finally, late yesterday afternoon, Kansas City Fed President Thomas Hoenig provided a moderating view, which helped the markets recover from a triple digit decline. Mr. Hoening said that monetary policy was in the neutral range and inflation may taper off as economic growth slows.

So, while the indices finished strong, it is hard to ignore the fact that stocks are on the defensive at the moment. And until the bulls can get some more Goldilocks-like data on the economy or a couple reports showing that inflation is not a threat, it would appear that this difficult environment may stick around for a while.

Turning to this morning, stocks are benefiting from positive market action in Europe and perhaps a little follow through from yesterday afternoon�s rally. However, the key question is if the positive mood will be able to stick around.

Running through the rest of the pre-game indicators, overseas markets were lower in Asia, but stronger in Europe. Oil futures are moving down this morning and are currently trading down by $0.70 to $71.80. Interest rates are little changed as the curve continues to flatten this morning. The yield on the 2-year is currently trading at 5.00% while the 10-yr is quoted at 5.01% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a little higher. The Dow futures are currently up by 9 points; the S&Ps are ahead 1.60, while the NASDAQ is sporting a gain of about 3 points.

Stocks �In Play� This Morning:

Health Net (HNT) � Upgraded at Prudential
DuPont (DD) � Downgraded at Deutsche
Dow Chemical (DOW) � Downgraded at Deutsche
Advanced Micro Devices (AMD) � Target cut at ThinkEquity
Intel (INTC) � Target cut at ThinkEquity
Seagate Technology (STX) � Underweigh at Morgan Stanley
Affiliated Computer (ACS) � Target of suit of option grants
Panera Bread (PNRA) � Same Store Sales +3% vs. Street Account estimate of +4%
McGraw Hill (MHP) � Added to Morgan Stanley model portfolio
First Data (FDP) � Added to Morgan Stanley model portfolio
EMC Corp (EMC) � Removed from Morgan Stanley model portfolio
Kraft (KFT) � Downgraded at Prudential
Cisco Systems (CSCO) � BofA reiterates Buy rating
Xilinx (XLNX) � BofA says earnings tracking high end of range

Positions in stocks mentioned: ACS, CSCO


** 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

• Midday movers: Netflix, Super Micro fall; Paramount Global gains
• Midday movers: Goldman Sachs and Meta Platforms rise; Apple and Tesla fall
• Midday movers: Tesla, Blackstone, Las Vegas Sands fall; DR Horton rises