David Moenning's Daily State of the Markets: 03/29

Bernanke Taketh Away

Good morning. The big story to Wednesday’s market was once again Ben Bernanke’s view of the economy, inflation, housing, and interest rates. While last week's FOMC statement left many believing that the Fed may be looking to cut rates in the near term, the Fed Chairman reminded investors and Congress's Joint Economic Committee yesterday that inflation remains the primary focus.

While Gentle Ben didn’t exactly break any new ground with his testimony; he did make it clear that the FOMC has not changed its view that the core rate of inflation remains uncomfortably high. But as usual, he did soften this statement by suggesting that the level of inflation should moderate over time.

On the economic front, Mr. Bernanke again reiterated that the Fed expects the economy to expand at a moderate pace in the coming quarters. The Fed Chairman sounded fairly upbeat with regard to the current difficulties in the mortgage market by saying that weakness in the housing sector and parts of the manufacturing sector has not spilled over into other sectors of the economy. He went on to reassure investors that the impact of subprime mortgages “seems likely to be contained.”

However, Mr. Bernanke clearly disappointed those looking for a rate cut sooner rather than later. While we aren’t exactly sure where this crowd got the idea that the Fed is ready to cut rates in the short-term, the Fed Chairman said, "I do want to emphasize we have not shifted away from an inflation bias."

This was all the bears needed to do their thing and despite a couple of efforts to reverse the downward course during the day, stocks finished to the downside. The Dow registered a third straight decline while the NASDAQ and S&P 500 rung up a second straight day of losses.

Turning to this morning, the government’s final revision to GDP for the 4th quarter was actually a bit of a surprise. The growth rate of the economy for the fourth quarter of 2006 was reported to be 2.5%, which was higher than the projections for 2.2%. The rest of the report was pretty much in line with expectations with Personal Consumption coming in at 4.2% and the Prices Index at 1.7%. This would seem to be an indication that the growth rate of the economy is better than anticipated and that inflation did not heat up any further.

Looking at the markets, the mood is much improved this morning as overseas markets are higher and so far at least, the U.S. is looking to follow suit and open higher.

Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Gold futures are lower this morning with the last trade off $4.10 to $663.70. Crude futures are moving higher again this morning with the latest quote shows the May futures contract up $0.16 to $64.24. Interest rates are a smidge higher today as the yield on the 10-year currently stands at 4.63%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open to the upside. The Dow futures are currently ahead by about 80 points; the S&Ps are almost 10 points above board, and the NASDAQ looks to be about 11 points ahead of fair value at the moment.

Stocks "In Play" This Morning:

US Steel (NYSE: X) – Will purchase LSS at $67.50, a 39% premium to yesterday's close
AG Edwards (NYSE: AGE) – Reported $1.44 vs. $1.06
CVS Caremark (NYSE: CVS) – Upgraded at BofA
RF Microdevices (Nasdaq: RFMD) – Downgraded at Jefferies
Freeport McMoRan (NYSE: FCX) – Upgraded at JP Morgan
MEMC Electronic Materials (NYSE: WFR) – Estimates increased at RBC
UnitedHealth Group (NYSE: UNH) – Downgraded at UBS
Sealed Air (NYSE: SEE) – Downgraded at Wachovia
Pactiv (NYSE: PTV) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: WFR

Note: All earnings reports compared to Reuter’s 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.

You May Also Be Interested In

• After-Hours Movers: AMAT, DLO, GLOB, YSS, ETON
• After-Hours Movers: CRWV, NBIS, SMCI, LITE, CAVA, HRB
• After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS