David Moenning's Daily State of the Markets: 05/31

Victory At Last

Good morning. After almost two weeks of trying, the bulls finally pushed the S&P 500 to a new record high yesterday. I know that I have mentioned this a time or two recently, but it still boggles the mind that it has been 7 years, 2 months, and 1 week since the last record close for the S&P. And with the S&P 500, the DJIA, the NYSE, the Russell 2000, as well as the S&P Small Cap and Mid Cap indices all closing at new all-time highs yesterday, it leaves only the NASDAQ Composite with some work to do in order to dig its way out of the losses from the Bubble Bear. But, with the NASDAQ needing
2,456 points, or 94.7% from here to recover, it is worth noting that it just might take another Bull market or two before anyone can celebrate a record close in four-letter-land.

As the session began yesterday, it was probably safe to say that there were not many investors betting on it being a champagne and confetti day. China's Shanghai Index had tanked more than -6% on an increase in stock transaction taxes and as a result, most other markets were seeing red by 9:30 eastern. However, after the recent China-based scares proved to be fruitless for the bears, this time, the bulls took the Shanghai swoon in stride and stocks opened only modestly lower.

While it was reassuring to see our market refuse to go along with the red ink flowing in the global markets, what really got the bulls running yesterday was the release of the minutes from the Fed's May 9th meeting. In short, the FOMC minutes indicated that Fed members were indeed concerned about the downside risks to the economy.

The Fed mentioned that "recent developments were seen as supporting the Committee's view that maintaining the current target rate was likely to foster moderate economic growth and a gradual ebbing in core inflation." The Fed also reiterated that core inflation remained somewhat elevated, which wasn't exactly breaking news. However, the comment that the New Home Sales data suggested that the adjustment in the housing market would likely last longer than previously thought, was music to the bulls' ears.

While this may not exactly sound like positive stuff, traders heard two things from the minutes. First, they heard that there is indeed a chance that the Fed will cut rates this year in order to offset the drag the housing market is having on the economy. This gives traders confidence that Mr. Bernanke and Co. is on the case and won't let the economy slip into recession. And second, it would appear that Goldilocks is alive and well. And since Goldie has been the leader of the bull camp for quite some time, buyers once again followed her lead yesterday.

Turning to this morning, the rest of the globe seems to have followed Wall Street higher overnight. And with another batch of merger deals announced this morning, the bulls appear to be looking good at the moment.

We've also got some economic data to review as the government has taken another shot at the first quarter's economic results. GDP for Q1 came in at +0.6% this morning, which was lighter than expectations and down from +the first guess of +1.3%. But more importantly, the Prices Index was in line with expectations and the Core PCE was right on target with analyst estimates.

Running through the rest of the pre-game indicators, the major foreign markets are higher across board. Gold futures are moving up by $4.20 to $663.50. In the oil pits, crude futures are lower by $0.29 with the latest quote at $63.20. Interest rates are moving a little lower this morning with the yield on the 10-year currently trading at 4.87%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to move up a bit at the open. The Dow futures are currently up by about 22 points; the S&P's are 3 points ahead, while the NASDAQ looks to be 6 points above fair value at the moment.


Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:
Novell (NASDAQ: NOVL) - Reported $0.03 vs. $0.01

Today's Earnings Before the Bell:
Big Lots (NYSE: BIG) - Reported $0.24 vs. $0.20
Ciena (NASDAQ: CIEN) - Reported $0.26 vs. $0.25
Costco (NASDAQ: COST) - Reported $0.56 vs. $0.56
Heinz (NYSE: HNZ) - Reported $0.55 vs. $0.55
Sears Holdings (NASDAQ: SHLD) - Reported $1.40 vs. $1.22
Tiffany's (NYSE: TIF) - Reported $0.36 vs. $0.35

News, Upgrades/Downgrades/Brokerage Research:*

EMC Corp (NYSE: EMC) - Upgraded at Bear Stearns
Motorola (NYSE: MOT) - Estimates reduced at Bernstein
Merrill Lynch (NYSE: MER) - Mentioned positively at Bernstein
Opsware I(NASDAQ: OPSW) - Upgraded at Deutsche Bank
Genzyme (NASDAQ: GENZ) - Upgraded at Goldman Sachs
Yahoo! (NASDAQ: YHOO) - Upgraded at JP Morgan
Avalon Bay (NYSE: AVB) - Upgraded at Lehman
Apartment Inv Mgmt (NYSE: AIV) - Downgraded at Lehman
Janus Capital (NYSE: JNS) - Downgraded at Merrill
Red Hat (NYSE: RHT) - Upgraded at RW Baird
Cummins (NYSE: CMI) - Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: GS, MER, CMI

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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