David Moenning's Daily State of the Markets: 04/17

Worries? What Worries?

Good morning. The bulls made a bit of a statement yesterday. Their primary point amidst the flurry of buy orders was simple; the worries that caused the nasty pullback at the end of February appear to have been overblown.

With the Dow moving up to a triple digit gain, the NYSE powering to a third straight record high, and the S&P motoring to a new-cycle high, it became obvious that the worries over the subprime decline have been set aside. It is obvious that the worries about a slowing economy have been put in perspective. And it is obvious that investors liked the numbers from Citigroup and Wachovia yesterday.

Prior to yesterday’s earnings numbers, traders were more than a little concerned that given all the problems in the subprime mortgage market, there might be some unexpected red ink lurking in Citigroup’s numbers. But, much the chagrin of the bears, there was none to be found in the earnings reports of both Citi and Wachovia. And while there are an awful lot of earnings reports yet to sift through in the financial sector, the preliminary results were definitely encouraging.

It also didn’t hurt that the end of the weekend brought another Merger Monday and that the consumer appears unfazed by recent geopolitical events. Stocks advanced broadly and it looks like the ball is back in the hands of the bulls for the time being.

Turning to this morning, we’ve got a fresh batch of earnings reports and some economic data to sift through before the opening bell rings, so let’s get to it.

The government reported that the Consumer Price Index for March increased by +0.6%, which was right at the consensus estimates. When you strip out food and energy, the all-important Core rate was reported at +0.1%, which was lower than the +0.2% analysts had been anticipating. On a year-over-year basis, the headline CPI stands at +2.8%, which was in line with expectations, while the Core rate is at 2.5%, which again, is a bit better than expected.

We also got some new data on the housing market this morning. For the month of March, Housing Starts were reported up +0.8% at 1.52 million units, which was better than expectations for a drop of 2% to 1.495 million units. Permits also came in a bit better than expectations.

So, based on this morning’s numbers, the worries about inflation, the housing market, and the economy seem to be overblown and stock futures have reacted positively in the early going.

Running through the rest of the pre-game indicators, the major foreign markets were mostly lower before this morning’s inflation data. A surge in inflation in the UK is causing some concern in both the equity and currency markets across the pond. Gold futures are down this morning and are trading off by $1.20 to $693.30. In the oil pits, crude futures are up another $0.42 with the latest quote at $64.03. Interest rates are moving lower in response to the positive Core CPI data this morning as the yield on the 10-year is currently trading at 4.71%. And finally, with about an hour before the bell, stock futures in the U.S. are have turned from red to green. The Dow futures are currently ahead by 23 points; the S&P’s are a about 3 points above board, while the NASDAQ looks to be about 3 points ahead of fair value at the moment

Stocks “In Play” This Morning:

EMC Corp (NYSE: EMC) – Reported $0.14 vs. $0.13
Coca Cola (NYSE: KO) – Reported $0.56 vs. $0.53
Dow Jones (NYSE: DJ) – Reported $0.24 vs. $0.19
Johnson & Johnson (NYSE: JNJ) – Reported $1.16 vs. $1.04
Mellon Financial (NYSE: MEL) – Reported $0.61 vs. $0.58
Northern Trust (Nasdaq: NTRS) – Reported $0.84 vs. $0.79
State Street (NYSE: STT) – Reported $0.93 vs. $0.91
TD Ameritrade (Nasdaq: AMTD) – Reported $0.23 vs. $0.24
US Bancorp (NYSE: USB) – Reported $0.63 vs. $0.65
Quest Diagnostics (NYSE: DGX) – Downgraded at BofA
China Petroleum & Chemical (NYSE: SNP) – Downgraded at Citigroup
DirecTV Group (NYSE: DTV) – Upgraded at Cowen
Echostar (Nasdaq: DISH) – Upgraded at Cowen
Borland Software (Nasdaq: BORL) – Upgraded at JP Morgan
Costco (Nasdaq: COST) – Upgraded at Piper Jaffray
Checkfree (Nasdaq: CKFR) – Downgraded at Piper Jaffray
Sprint Nextel (NYSE: S) – Downgraded at Raymond James
Burlington Northern (NYSE: BNI) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: none

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.

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