David Moenning�s Daily State of the Markets 06/13
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Preparing For the Worst
Good morning. Much like the residents of the Florida coast, investors yesterday continued to prepare for the worst. While Floridians focused their attention on the path and strength of Alberto, it was the potential damage from the tough talking group at the FOMC that continued to weigh on the minds of worried investors.
Although the Bernanke Fed has promised to be more transparent, the bulls are likely wishing that they could get a day without some Fed governor talking about their discomfort. On Monday it was Cleveland Fed President Sandra Pianalto who felt obligated to inform us of her uneasiness relating to the level of core inflation. While she did say that inflation expectations remain �contained� in the long-term and that economic growth will slow to a sustainable pace, it was the line about core inflation exceeding her comfort zone that once again attracted investors� attention.
It is this constant reminder that the Fed wants to keep on truckin� that has kept the buyers on the sidelines. The thinking right now is simple: Why step up to the plate with buy orders when the Fed is planning to beat you upside the head with talk of inflation worries on a daily basis? And with the bulls staying far away from the buy button, the bears were able to have their way with the indices once again yesterday; turning Monday into yet another rout.
Based on the constant blather provided by Fed officials of late; it seems likely that the Fed has already decided to add one more step in their hike down the measured path. Thus, it would appear that the extra 0.1% in last month�s year-over-year Core rate of inflation was the data that the Fed has decided to focus on.
So with the FOMC meeting now 12 trading days away and expectations for at least one more rate hike intact, investors are clearly preparing for the worst case scenario. While the bond market has been as cool as a cucumber lately, stock traders have been busy discounting the nightmare of a Fed that doesn�t know when to say when and an economy that will suffer because of it.
The biggest question on the minds of investors right now may not have to do with the issue of what the Fed will do next, but rather how the economy will fare. Up until recently, investors have been confident in the fact that the economy has come through the 2-year rate hike campaign almost unscathed. But with the new guy talking tough at every turn, investors are forced to prepare for a less than cheery outcome.
Turning to this morning, the all important data on PPI and Retail Sales has just hit the wires, so let�s take a peek. In short, the numbers were pretty close to expectations, which may not provide any additional clarity as it relates to the Fed.
The headline PPI came in a full two tenths below expectations at +0.2%, which is certainly a positive, but the Core rate came in a tenth above the consensus at +0.3%. On a year-over-year basis, the Core rate was unchanged at +1.58% which is hardly suggestive of runaway inflation.
The Retail Sales numbers were also in-line with expectations. Retail Sales for May rose by +0.1% while the ex-auto number was reported at +0.5, which were both right on target with consensus estimates.
Stocks and bonds have both improved slightly on the news, but have not made any dramatic movements.
Running through the pre-game indicators, all of the major overseas markets were hit hard overnight by the worries relating to interest rates, inflation and economic growth. Japan fell more than -4% for its biggest decline in 2 years while Hong Kong sank by -2.5% and European markets are all down by about -2%. Gold and Oil futures are also down this morning on concerns over the health of the economy. Crude is currently trading down by $1.01 to $69.35 while Gold is losing almost $20 to $591.50. Interest rates are down a bit with the yield on the 2-year currently trading at 5.00% while the 10-yr is quoted at 4.96% right now. And finally, with about 45 before the bell, stock futures in the U.S. are down but improving. The Dow futures are currently off by 6 points; the S&Ps are down by 3.30, and the NASDAQ is sporting an decline of about 3 points.
Stocks �In Play� This Morning:
Nasdaq (NDAQ) � Initiated Buy at BofA
Sunoco (SUN) � Upgraded at BofA
Ericsson (ERICY) � Upgraded at ABN Amro
Nokia (NOK) � Upgraded at ABN Amro
Navteq (NVT) � Upgraded at UBS
Maverick Tube (MVK) � Acquired by TS
Affiliated Computer Services (ACS) � Announces $1B buyback
Wal-Mart (WMT) � Bernanke says allowing banking arm is risky
Synaptics (SYNA) � Mentioned positively at Bear Stearns
Intel (INTC) � Price target reduced at Prudential
Advanced Micro Devices (AMD) � Price target reduced at Prudential
Cisco (CSCO) � Citigroup recommends select Telco names including CSCO, SONS, FFIV, JDSU, and FDRY
Lattice Semi (LSCC) � Bear Stearns raises numbers
Goldman Sachs (GS) � Reports $4.78 vs. $4.28, Revenues $10.10B vs. $8.88B
Positions in stocks mentioned: SUN, ACS, GS, BSC
** 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.
Good morning. Much like the residents of the Florida coast, investors yesterday continued to prepare for the worst. While Floridians focused their attention on the path and strength of Alberto, it was the potential damage from the tough talking group at the FOMC that continued to weigh on the minds of worried investors.
Although the Bernanke Fed has promised to be more transparent, the bulls are likely wishing that they could get a day without some Fed governor talking about their discomfort. On Monday it was Cleveland Fed President Sandra Pianalto who felt obligated to inform us of her uneasiness relating to the level of core inflation. While she did say that inflation expectations remain �contained� in the long-term and that economic growth will slow to a sustainable pace, it was the line about core inflation exceeding her comfort zone that once again attracted investors� attention.
It is this constant reminder that the Fed wants to keep on truckin� that has kept the buyers on the sidelines. The thinking right now is simple: Why step up to the plate with buy orders when the Fed is planning to beat you upside the head with talk of inflation worries on a daily basis? And with the bulls staying far away from the buy button, the bears were able to have their way with the indices once again yesterday; turning Monday into yet another rout.
Based on the constant blather provided by Fed officials of late; it seems likely that the Fed has already decided to add one more step in their hike down the measured path. Thus, it would appear that the extra 0.1% in last month�s year-over-year Core rate of inflation was the data that the Fed has decided to focus on.
So with the FOMC meeting now 12 trading days away and expectations for at least one more rate hike intact, investors are clearly preparing for the worst case scenario. While the bond market has been as cool as a cucumber lately, stock traders have been busy discounting the nightmare of a Fed that doesn�t know when to say when and an economy that will suffer because of it.
The biggest question on the minds of investors right now may not have to do with the issue of what the Fed will do next, but rather how the economy will fare. Up until recently, investors have been confident in the fact that the economy has come through the 2-year rate hike campaign almost unscathed. But with the new guy talking tough at every turn, investors are forced to prepare for a less than cheery outcome.
Turning to this morning, the all important data on PPI and Retail Sales has just hit the wires, so let�s take a peek. In short, the numbers were pretty close to expectations, which may not provide any additional clarity as it relates to the Fed.
The headline PPI came in a full two tenths below expectations at +0.2%, which is certainly a positive, but the Core rate came in a tenth above the consensus at +0.3%. On a year-over-year basis, the Core rate was unchanged at +1.58% which is hardly suggestive of runaway inflation.
The Retail Sales numbers were also in-line with expectations. Retail Sales for May rose by +0.1% while the ex-auto number was reported at +0.5, which were both right on target with consensus estimates.
Stocks and bonds have both improved slightly on the news, but have not made any dramatic movements.
Running through the pre-game indicators, all of the major overseas markets were hit hard overnight by the worries relating to interest rates, inflation and economic growth. Japan fell more than -4% for its biggest decline in 2 years while Hong Kong sank by -2.5% and European markets are all down by about -2%. Gold and Oil futures are also down this morning on concerns over the health of the economy. Crude is currently trading down by $1.01 to $69.35 while Gold is losing almost $20 to $591.50. Interest rates are down a bit with the yield on the 2-year currently trading at 5.00% while the 10-yr is quoted at 4.96% right now. And finally, with about 45 before the bell, stock futures in the U.S. are down but improving. The Dow futures are currently off by 6 points; the S&Ps are down by 3.30, and the NASDAQ is sporting an decline of about 3 points.
Stocks �In Play� This Morning:
Nasdaq (NDAQ) � Initiated Buy at BofA
Sunoco (SUN) � Upgraded at BofA
Ericsson (ERICY) � Upgraded at ABN Amro
Nokia (NOK) � Upgraded at ABN Amro
Navteq (NVT) � Upgraded at UBS
Maverick Tube (MVK) � Acquired by TS
Affiliated Computer Services (ACS) � Announces $1B buyback
Wal-Mart (WMT) � Bernanke says allowing banking arm is risky
Synaptics (SYNA) � Mentioned positively at Bear Stearns
Intel (INTC) � Price target reduced at Prudential
Advanced Micro Devices (AMD) � Price target reduced at Prudential
Cisco (CSCO) � Citigroup recommends select Telco names including CSCO, SONS, FFIV, JDSU, and FDRY
Lattice Semi (LSCC) � Bear Stearns raises numbers
Goldman Sachs (GS) � Reports $4.78 vs. $4.28, Revenues $10.10B vs. $8.88B
Positions in stocks mentioned: SUN, ACS, GS, BSC
** 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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