David Moenning's Daily State of the Markets: 01/31
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True Colors?
Good morning. Stocks spent most of the day in waiting mode again yesterday. But instead of the bears ruling the day while the bulls were standing around waiting, the indices managed to put on a pretty decent show as stocks finished with modest gains � and probably displayed their true colors in the process.
While the popular press once again suggested that we were all waiting on the outcome of today�s Fed meeting, it is probably more accurate to say that traders were actually waiting on the slew of economic data that is scheduled for release from now until Friday.
Although it is always interesting to hear what Mr. Bernanke�s gang has to say, the Fed Funds futures currently predict that there is a 98% chance that no action will be taken by the FOMC at 2:15 p.m. today. But, that doesn�t mean there won�t be any action in the markets because we�ll get a peek at some important data today. For example, before the bell, we�ll hear ADP�s view on employment and get the government�s first guess at the GDP for the 4th quarter. Then at 10:00 a.m., we�ll get a report on manufacturing from the Chicago Purchasing Managers and a report on the state of the housing industry in terms of Construction Spending.
But before we get to the numbers, let�s take one last look at Tuesday�s action to make sure we stay up to speed on everything that is happening. On the earnings front, the reports were a mixed bag as Merck, Procter & Gamble, and 3M all offered up rather punk numbers. In terms of economic news, the report on Consumer Confidence was pretty much in line with expectations and didn�t move the markets. Next, there was a good deal of action over in the oil pits. Crude futures surged $2.96 in response to announced production cuts from OPEC and some winter weather on the horizon. The oil contract finished at $56.97. The bond pits were fairly quiet for a change as traders awaited further input. And finally, in company news, Motorola got a lot of attention from the fact that Carl Ichan wants a seat at the table to help the company spend the $12 billion in cash it has lying around.
While volume was indeed on the light side, we do have to recognize that the market tends to show its true colors whenever waiting on data. So, while everyone admits that stocks could pull back at any time for little or no reason, the bulls continue to retain possession of the ball for now.
Turning to this morning, as mentioned, there is some fresh data to review. First up, ADP reported that their survey of the employment market shows more jobs being created than expected. ADP says payrolls rose by 152,000 in January versus expectations for an increase of 140,000.
Next up is the Preliminary Report on Q4 GDP, which is the first of three attempts the government takes at the number. Analysts were looking for a headline number of 3.0% coupled with a modest uptick in inflation. But what we got, in sum, was a report that shows a stronger-than expected economy without any corresponding inflation.
Q4 GDP came in with an annualized gain of 3.5%, which was, as we mentioned, above consensus. In addition, the Personal Consumption component was also better than expected at 4.4% vs. 4.2%. And on the inflation side of the equation, the GDP Deflator (i.e. the cost of stuff) was in line with expectations at 1.5% while both the Core PCE and the Employment Cost Index were below expectations.
Both stocks and bond yields are moving up in response to the report. However, it is important to note that the bond market is reacting to the growth in the economy. Thus, if we can continue to get good growth in the economy without inflation heating up, the bulls may be able to stay happy for quite some time.
Running through the rest of the pre-game indicators, the foreign markets were lower across the board. In the oil pits, crude futures are a little lower so far with the latest quote showing the March contract off $0.42 to $56.55. Interest rates are a little higher this morning with the yield on the 10-year currently trading at 4.89%. And finally, with 45 minutes before the bell, stock futures in the U.S. are looking to open flat to lower. The Dow futures are currently hovering around breakeven; the S&P�s are 1.70 under water, while the NASDAQ looks to be about 3 points below fair value at the moment.
Stocks �In Play� This Morning:
Allstate (ALL) � Reported $1.93 vs. $1.84
Boeing (BA) � Reported $1.16 vs. $0.99
CBOT Holdings (BOT) � Reported $1.03 vs. $0.99
Estee Lauder (EL) � Reported $0.99 vs. $0.73
Ingersoll-Rand (IR) � Reported $0.76 vs. $0.73
Eli Lilly (LLY) � Reported $0.85 vs. $0.82
Sandisk (SNDK) � Reported $0.87 vs. $0.74
Time Warner (TWX) � Reported $0.22 vs. $0.22, Downgraded at Bear Stearns
O�Reilly Automotive (ORLY) � Upgraded at Credit Suisse
Dicks Sporting Goods (DKS) � Downgraded at Credit Suisse
Frontier Oil (FTO) � Upgraded at Credit Suisse
Tidewater (TDW) � Upgraded at Goldman Sachs
Juniper Networks (JNPR) � Downgraded at JMP Securities
CH Robinson (CHRW) � Upgraded at JP Morgan
Carnival (CCL) � Downgraded at Lehman
Echostar (DISH) � Upgraded at Morgan Stanley
Imperial Tobacco (ITY) � Downgraded at Morgan Stanley
Disclosure: Long positions is stocks mentioned: BSC, MS, GS, LEH, EL, BA, BOT, ITY
Note: All earnings reports compared to Reuters consensus estimates
** 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. Stocks spent most of the day in waiting mode again yesterday. But instead of the bears ruling the day while the bulls were standing around waiting, the indices managed to put on a pretty decent show as stocks finished with modest gains � and probably displayed their true colors in the process.
While the popular press once again suggested that we were all waiting on the outcome of today�s Fed meeting, it is probably more accurate to say that traders were actually waiting on the slew of economic data that is scheduled for release from now until Friday.
Although it is always interesting to hear what Mr. Bernanke�s gang has to say, the Fed Funds futures currently predict that there is a 98% chance that no action will be taken by the FOMC at 2:15 p.m. today. But, that doesn�t mean there won�t be any action in the markets because we�ll get a peek at some important data today. For example, before the bell, we�ll hear ADP�s view on employment and get the government�s first guess at the GDP for the 4th quarter. Then at 10:00 a.m., we�ll get a report on manufacturing from the Chicago Purchasing Managers and a report on the state of the housing industry in terms of Construction Spending.
But before we get to the numbers, let�s take one last look at Tuesday�s action to make sure we stay up to speed on everything that is happening. On the earnings front, the reports were a mixed bag as Merck, Procter & Gamble, and 3M all offered up rather punk numbers. In terms of economic news, the report on Consumer Confidence was pretty much in line with expectations and didn�t move the markets. Next, there was a good deal of action over in the oil pits. Crude futures surged $2.96 in response to announced production cuts from OPEC and some winter weather on the horizon. The oil contract finished at $56.97. The bond pits were fairly quiet for a change as traders awaited further input. And finally, in company news, Motorola got a lot of attention from the fact that Carl Ichan wants a seat at the table to help the company spend the $12 billion in cash it has lying around.
While volume was indeed on the light side, we do have to recognize that the market tends to show its true colors whenever waiting on data. So, while everyone admits that stocks could pull back at any time for little or no reason, the bulls continue to retain possession of the ball for now.
Turning to this morning, as mentioned, there is some fresh data to review. First up, ADP reported that their survey of the employment market shows more jobs being created than expected. ADP says payrolls rose by 152,000 in January versus expectations for an increase of 140,000.
Next up is the Preliminary Report on Q4 GDP, which is the first of three attempts the government takes at the number. Analysts were looking for a headline number of 3.0% coupled with a modest uptick in inflation. But what we got, in sum, was a report that shows a stronger-than expected economy without any corresponding inflation.
Q4 GDP came in with an annualized gain of 3.5%, which was, as we mentioned, above consensus. In addition, the Personal Consumption component was also better than expected at 4.4% vs. 4.2%. And on the inflation side of the equation, the GDP Deflator (i.e. the cost of stuff) was in line with expectations at 1.5% while both the Core PCE and the Employment Cost Index were below expectations.
Both stocks and bond yields are moving up in response to the report. However, it is important to note that the bond market is reacting to the growth in the economy. Thus, if we can continue to get good growth in the economy without inflation heating up, the bulls may be able to stay happy for quite some time.
Running through the rest of the pre-game indicators, the foreign markets were lower across the board. In the oil pits, crude futures are a little lower so far with the latest quote showing the March contract off $0.42 to $56.55. Interest rates are a little higher this morning with the yield on the 10-year currently trading at 4.89%. And finally, with 45 minutes before the bell, stock futures in the U.S. are looking to open flat to lower. The Dow futures are currently hovering around breakeven; the S&P�s are 1.70 under water, while the NASDAQ looks to be about 3 points below fair value at the moment.
Stocks �In Play� This Morning:
Allstate (ALL) � Reported $1.93 vs. $1.84
Boeing (BA) � Reported $1.16 vs. $0.99
CBOT Holdings (BOT) � Reported $1.03 vs. $0.99
Estee Lauder (EL) � Reported $0.99 vs. $0.73
Ingersoll-Rand (IR) � Reported $0.76 vs. $0.73
Eli Lilly (LLY) � Reported $0.85 vs. $0.82
Sandisk (SNDK) � Reported $0.87 vs. $0.74
Time Warner (TWX) � Reported $0.22 vs. $0.22, Downgraded at Bear Stearns
O�Reilly Automotive (ORLY) � Upgraded at Credit Suisse
Dicks Sporting Goods (DKS) � Downgraded at Credit Suisse
Frontier Oil (FTO) � Upgraded at Credit Suisse
Tidewater (TDW) � Upgraded at Goldman Sachs
Juniper Networks (JNPR) � Downgraded at JMP Securities
CH Robinson (CHRW) � Upgraded at JP Morgan
Carnival (CCL) � Downgraded at Lehman
Echostar (DISH) � Upgraded at Morgan Stanley
Imperial Tobacco (ITY) � Downgraded at Morgan Stanley
Disclosure: Long positions is stocks mentioned: BSC, MS, GS, LEH, EL, BA, BOT, ITY
Note: All earnings reports compared to Reuters consensus estimates
** 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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