David Moenning's Daily State of the Markets: 01/03
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Gentlemen, Start Your Portfolios
Good Wednesday-but-it-still-feels-like-Monday morning. I don�t know about you, but I always enjoy the start of a new year. Regardless of how the previous year turned out (and it turned out pretty well, if I do say so myself), there�s just something about knowing that the race begins anew and that everyone is back at the starting line this morning. So, as the green flag is dropped on this year�s race, we�ll gun the engines and get ready to head into the first turn.
With the new year comes an opportunity for everyone to reassess their big-picture views and expectations for the market and to make the appropriate adjustments to their portfolios. And as I was reviewing my plethora of longer-term charts over the past couple of days, one chart stood out as something that might be an important �tell� for 2007.
In light of the fact that stocks have run an awfully long way without so much as a measly 3.5% pullback, it is easy to say that the markets are overdue for some corrective action. But since we haven�t seen anything along those lines, I began to wonder if the bulls could just keep racing higher. Therefore, I turned to my valuation charts and found that on a relative valuation basis, stocks are in a pound-the-table buy mode. In fact, if you compare the yield of the S&P 500 (earnings, dividend, and book value yields) both before and after inflation to that of competing interest rates, you find that stocks are more undervalued than at any time since 1965.
In addition, every major model we have such as Market Momentum, Monetary Conditions, Economic, Inflation, and Valuations, are all currently in a positive mode and pointing to solid annualized gains for stocks.
However, let�s remember that stock valuations, like trees, don�t grow directly to the sky and that there are some mega-picture risks such as debt and energy in play. Thus, we plan to keep an eye out for some sort of correction in the near term while giving the bulls the benefit of the doubt in the first month or so.
Turning back to the near-term, with the markets being closed for President Ford�s funeral yesterday, the U.S. finds itself playing a little catch up this morning. Overseas markets are broadly higher than where they closed the end of the year. For example, Hong Kong is up about 2.5%, France is 1.3% higher, Germany is up +1.2% and the FTSE has gained 1.7% since our markets were last open for trading.
Although the week has been shortened dramatically by a Wednesday start, traders will get a good deal of economic data to help them in their reallocations for the new year. This morning, the ADP Employment Report came in with a big surprise. ADP said that the economy lost 40,000 jobs last month, which was a far cry from the consensus expectation for a gain of 120,000. However, the markets have taken the number in stride since December is such a difficult month to game.
At 10:00 this morning, we�ll get the ISM Manufacturing report as well as the report on Construction Spending from November. And finally, we�ll get a peek at the latest Fed minutes later this afternoon.
Running through the rest of the pre-game indicators, the overseas markets are mixed this morning but higher from where we last visited. Gold futures are up a bit this morning with the last trade up $0.80 to $638.80. Crude futures moving lower this morning. The latest quote shows the February futures contract down $0.66 to $60.39. Interest rates are a down hard on the soft ADP data with the 10-year currently trading with a yield of 4.65%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to blast higher to start the new year. The Dow futures are currently ahead by 75 points; the S&Ps are about 7.50 points above breakeven, and the NASDAQ looks to be about 15 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Google (GOOG) � Top pick for 2007 at Piper Jaffray
DirecTV (DTV) � Downgraded at BofA
General Motors (GM) � Downgraded at BofA
Applebees (APPB) � Downgraded at BofA
Brinker Intl (EAT) � Downgraded at BofA
Ruby Tuesday (RI) � Downgraded at BofA
Kohls (KSS) � Downgraded at BofA
Merck (MRK) � Upgraded at Bear Stearns
CH Robinson (CHRW) � Upgraded at Bear Stearns
JB Hunt (JBHT) � Upgraded at Bear Stearns
UAL Corp (UAUA) � Upgraded at Calyon
Baidu (BIDU) � Upgraded at CIBC
Terex (TEX) � Downgraded at Citigroup
Tesoro (TSO) � Upgraded at Citigroup
Marsh & McLennan (MMC) � Upgraded at Citigroup
Goodyear Tire (GT) � Upgraded at Deutsche Bank
Sunoco (SUN) � Downgraded at Deutsche Bank
Applied Materials (AMAT) � Downgraded at Goldman Sachs
Advanced Micro Devices (AMD) � Downgraded at Goldman Sachs
Texas Instruments (TXN) � Upgraded at Goldman
Micron Technology (MU) � Upgraded at Goldman
Altria (MO) � Target increased at Lehman
Safeway (SWY) � Downgraded at Lehman
Home Depot (HD) � Upgraded at Raymond James
T Rowe Price (TROW) � Upgraded at UBS, Wachovia
Long positions in stocks mentioned: BSC, GS, AMAT, LEH, TEX
** 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 Wednesday-but-it-still-feels-like-Monday morning. I don�t know about you, but I always enjoy the start of a new year. Regardless of how the previous year turned out (and it turned out pretty well, if I do say so myself), there�s just something about knowing that the race begins anew and that everyone is back at the starting line this morning. So, as the green flag is dropped on this year�s race, we�ll gun the engines and get ready to head into the first turn.
With the new year comes an opportunity for everyone to reassess their big-picture views and expectations for the market and to make the appropriate adjustments to their portfolios. And as I was reviewing my plethora of longer-term charts over the past couple of days, one chart stood out as something that might be an important �tell� for 2007.
In light of the fact that stocks have run an awfully long way without so much as a measly 3.5% pullback, it is easy to say that the markets are overdue for some corrective action. But since we haven�t seen anything along those lines, I began to wonder if the bulls could just keep racing higher. Therefore, I turned to my valuation charts and found that on a relative valuation basis, stocks are in a pound-the-table buy mode. In fact, if you compare the yield of the S&P 500 (earnings, dividend, and book value yields) both before and after inflation to that of competing interest rates, you find that stocks are more undervalued than at any time since 1965.
In addition, every major model we have such as Market Momentum, Monetary Conditions, Economic, Inflation, and Valuations, are all currently in a positive mode and pointing to solid annualized gains for stocks.
However, let�s remember that stock valuations, like trees, don�t grow directly to the sky and that there are some mega-picture risks such as debt and energy in play. Thus, we plan to keep an eye out for some sort of correction in the near term while giving the bulls the benefit of the doubt in the first month or so.
Turning back to the near-term, with the markets being closed for President Ford�s funeral yesterday, the U.S. finds itself playing a little catch up this morning. Overseas markets are broadly higher than where they closed the end of the year. For example, Hong Kong is up about 2.5%, France is 1.3% higher, Germany is up +1.2% and the FTSE has gained 1.7% since our markets were last open for trading.
Although the week has been shortened dramatically by a Wednesday start, traders will get a good deal of economic data to help them in their reallocations for the new year. This morning, the ADP Employment Report came in with a big surprise. ADP said that the economy lost 40,000 jobs last month, which was a far cry from the consensus expectation for a gain of 120,000. However, the markets have taken the number in stride since December is such a difficult month to game.
At 10:00 this morning, we�ll get the ISM Manufacturing report as well as the report on Construction Spending from November. And finally, we�ll get a peek at the latest Fed minutes later this afternoon.
Running through the rest of the pre-game indicators, the overseas markets are mixed this morning but higher from where we last visited. Gold futures are up a bit this morning with the last trade up $0.80 to $638.80. Crude futures moving lower this morning. The latest quote shows the February futures contract down $0.66 to $60.39. Interest rates are a down hard on the soft ADP data with the 10-year currently trading with a yield of 4.65%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to blast higher to start the new year. The Dow futures are currently ahead by 75 points; the S&Ps are about 7.50 points above breakeven, and the NASDAQ looks to be about 15 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Google (GOOG) � Top pick for 2007 at Piper Jaffray
DirecTV (DTV) � Downgraded at BofA
General Motors (GM) � Downgraded at BofA
Applebees (APPB) � Downgraded at BofA
Brinker Intl (EAT) � Downgraded at BofA
Ruby Tuesday (RI) � Downgraded at BofA
Kohls (KSS) � Downgraded at BofA
Merck (MRK) � Upgraded at Bear Stearns
CH Robinson (CHRW) � Upgraded at Bear Stearns
JB Hunt (JBHT) � Upgraded at Bear Stearns
UAL Corp (UAUA) � Upgraded at Calyon
Baidu (BIDU) � Upgraded at CIBC
Terex (TEX) � Downgraded at Citigroup
Tesoro (TSO) � Upgraded at Citigroup
Marsh & McLennan (MMC) � Upgraded at Citigroup
Goodyear Tire (GT) � Upgraded at Deutsche Bank
Sunoco (SUN) � Downgraded at Deutsche Bank
Applied Materials (AMAT) � Downgraded at Goldman Sachs
Advanced Micro Devices (AMD) � Downgraded at Goldman Sachs
Texas Instruments (TXN) � Upgraded at Goldman
Micron Technology (MU) � Upgraded at Goldman
Altria (MO) � Target increased at Lehman
Safeway (SWY) � Downgraded at Lehman
Home Depot (HD) � Upgraded at Raymond James
T Rowe Price (TROW) � Upgraded at UBS, Wachovia
Long positions in stocks mentioned: BSC, GS, AMAT, LEH, TEX
** 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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