David Moenning's Daily State of the Markets: 05/14

Inflation, What Inflation?

Good morning. After a one-day hiatus, the bulls got back on track Friday. Our horned heroes took better than expected inflation numbers and combined them with weak economic data to come up with an argument that a Fed rate cut is back on the table for sometime this year.

Just after the PPI report was released on Friday; the bulls could be heard crowing about the idea that the only thing we have to fear about inflation is fear itself. The report showed that core inflation was unchanged again in April and that on an annual basis, the all-important core rate was down to just +1.5%.

Then when the Retail Sales came in weaker than expected, a steady chant of “Cut Rates Now” could be heard from the crowd. Sure, the punk sales data could be blamed on the weather, the calendar, and oil. However, the bulls were able to play both sides with this report as the argument of bad news is good news was bandied about.

The Dow recovered almost 75% of Thursday’s drop and is back to within just 37 points of the recent record high. And for a change, the Dow Industrials were actually an underperformer on the day as most of the other indices came in with gains in the 1.2% range on the day.

However, while the stock jocks were busy hitting the buy button early and often on all the Fed cut chatter, the boys in the bond pits weren’t biting. In fact, the yield on the 10-year bond actually wound up rising by a fair amount on Friday. Thus, one might conclude that those in the know with regard to all things economic decided that Friday’s data provided no real change to the economic outlook.

So, with the question of inflation and the state of the economy up in the air, we come into this week looking for more clues. The good news is we won’t have to wait too long for some more inflation data as the CPI report is scheduled to be released tomorrow morning before the bell. In addition, we’ll also get reports this week on the state of the housing market via Housing Starts and Building Permits. And finally, we’ll get more data on the overall economy in the form of the Leading Economic Indicators on Thursday.

Turning to this morning, there is no economic data scheduled for release before the bell today but we do have another round of M&A activity to review. The big news this morning is that Daimler Chrysler has reportedly come to terms with Cerebus Capital to sell the Chrysler Group for $7.4 Billion.

In addition, it is notable that the Hang Seng market soared +2.5% after it was announced that Chinese banks will be able to invest in overseas shares for the first time ever.

Running through the rest of the pre-game indicators, the major foreign markets are mixed. Gold futures are moving up this morning by $1.50 and are trading at $673.80. In the oil pits, crude futures are higher by $0.50 with the latest quote at $62.87. Interest rates are unchanged this morning with the yield on the 10-year currently trading at 4.67%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to modestly higher. The Dow futures are currently ahead by about 19 points; the S&P’s are a little more than 1 point ahead, while the NASDAQ looks to be almost 2 points above fair value at the moment

Stocks "In Play" This Morning:


News, Upgrades/Downgrades/Brokerage Research:

Daimler Chrysler (NYSE: DCX) – Announces sale of Chrysler Group to Cerebus for $7.4B
Cardinal Health (NYSE: CAH) – To acquire Viasys Healthcare
Teck Cominco (NYSE: TCK) – Downgraded at CIBC
Intel (NASDAQ: INTC) – Upgraded at Davenport
Freeport McMoRan (NYSE: FCX) – Top Pick at Goldman in Base Metals sector
Applied Materials (NASDAQ: AMAT) – Mentioned positively at Lehman
Alon USA Energy (NYSE: ALJ) – Upgraded at Lehman
Marathon Oil (NYSE: MRO) – Price Target increased at Morgan Stanley
Xcel Energy (NYSE: XEL) – Upgraded at RW Baird
Petsmart (NASDAQ: PETM) – Downgraded at Stifel

Mr. Moenning holds Long positions in stocks mentioned: GS, MRO, AMAT

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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