David Moenning's Daily State of the Markets: 06/06
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One Step Back
Good morning. Stocks took one step back yesterday in response to the continued rise in bond yields, Bernanke's comments, and a stronger than expected economic report. And while the damage wasn't substantial, it did serve as a reminder that the stock market is not a one-way street.
The indices initially moved lower in response to Fed Chairman Ben Bernanke's speech via satellite to an international monetary conference. Mr. Bernanke's comments weren't really new but did remind traders that the Fed remains data dependent and concerned about inflation.
The Fed Chairman made the usual comments about the economy rebounding from the speed bump it hit in the first quarter and the fact that core inflation remains elevated. He also reiterated that the housing market may be a drag on the economy for longer than expected. And while we've heard this all before, yesterday, the market took the comments to mean that the Fed is not poised to cut rates any time soon.
Taken alone, Bernanke's comments probably wouldn't have caused the market to budge. However, when taken in concert with the stronger than expected ISM Non-manufacturing report and the continued move up in bond yields, traders decided to take off the rose colored glasses - at least for a day or two.
The ISM Non-manufacturing report showed that the services sector of the economy is humming along right now. The index rose by 3.7 points to 59.7 in May, which was more than expected and the best level in more than a year. In addition, the Employment and New Orders indices also rose to their best levels since April 2006. But the bigger problem for the markets came from the Prices Paid Index, which came in higher than expected and reignited concerns about inflation.
All of the above was not lost on the boys in the bond pits as yields continued to march higher yesterday. The yield on the 10-year rose to 4.99% intraday and settled at 4.98%, which was a new high for the year. And with interest rates rising around the globe, this continues to be a situation that bears watching.
So with rates rising, the economy picking up, and Mr. Bernanke refusing to talk rate cuts, the stock market took one step back yesterday. Whether or not the decline will pick up steam remains to be seen, but the action does give the bears some hope.
Turning to this morning, the bears are continuing to make some noise in the early going on the rate front. As expected, the ECB raised rates by 0.25% to 4% even, and signaled that more increases might be on the way.
In addition, we've got some economic data to review before the bell. The Non-Farm Productivity numbers came in right in line with the consensus estimate for an increase of 1.0%. But, unfortunately, the Unit Labor Costs rose by 1.8%, which was much higher than expectations for an increase of 1.3% and triple the initial estimates of +0.6%. So with inflation and rate concerns remaining at the forefront today, it looks like the "step back" in stocks will continue.
Running through the rest of the pre-game indicators, the major foreign markets are lower across the board. Gold futures are moving down by $2.00 to $673.10. In the oil pits, crude futures are moving down a little with the latest quote at $65.48. Interest rates are moving up again this morning with the yield on the 10-year currently trading at 4.99%. And finally, with about an hour before the bell, stock futures in the U.S. are looking weak and are at session lows. The Dow futures are currently off by about 62 points; the S&P's are 7.30 underwater, while the NASDAQ looks to be 11 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:*
Countrywide Financial (NYSE: CFC) - Mentioned positively at Citigroup
Hess Corp (NYSE: HES) - Mentioned positively at Citigroup
Johnson Controls (NYSE: JCI) - Upgraded at Credit Suisse
Gilead Sciences (NASDAQ: GILD) - Downgraded at Credit Suisse
Goldcorp (NYSE: GG) - Upgraded at JP Morgan
Sepracor (NASDAQ: SEPR) - Downgraded at Merrill Lynch
Whole Foods (NASDAQ: WFMI) - Downgraded at Morgan Stanley
Moody's (NYSE: MCO) - Upgraded at Morgan Stanley
Motorola (NYSE: MOT) - Estimate reduced at Oppenheimer Holdings
Avaya (NYSE: AV) - Downgraded at Piper Jaffray
Mr. Moenning holds Long positions in stocks mentioned: CG, MER
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.
Good morning. Stocks took one step back yesterday in response to the continued rise in bond yields, Bernanke's comments, and a stronger than expected economic report. And while the damage wasn't substantial, it did serve as a reminder that the stock market is not a one-way street.
The indices initially moved lower in response to Fed Chairman Ben Bernanke's speech via satellite to an international monetary conference. Mr. Bernanke's comments weren't really new but did remind traders that the Fed remains data dependent and concerned about inflation.
The Fed Chairman made the usual comments about the economy rebounding from the speed bump it hit in the first quarter and the fact that core inflation remains elevated. He also reiterated that the housing market may be a drag on the economy for longer than expected. And while we've heard this all before, yesterday, the market took the comments to mean that the Fed is not poised to cut rates any time soon.
Taken alone, Bernanke's comments probably wouldn't have caused the market to budge. However, when taken in concert with the stronger than expected ISM Non-manufacturing report and the continued move up in bond yields, traders decided to take off the rose colored glasses - at least for a day or two.
The ISM Non-manufacturing report showed that the services sector of the economy is humming along right now. The index rose by 3.7 points to 59.7 in May, which was more than expected and the best level in more than a year. In addition, the Employment and New Orders indices also rose to their best levels since April 2006. But the bigger problem for the markets came from the Prices Paid Index, which came in higher than expected and reignited concerns about inflation.
All of the above was not lost on the boys in the bond pits as yields continued to march higher yesterday. The yield on the 10-year rose to 4.99% intraday and settled at 4.98%, which was a new high for the year. And with interest rates rising around the globe, this continues to be a situation that bears watching.
So with rates rising, the economy picking up, and Mr. Bernanke refusing to talk rate cuts, the stock market took one step back yesterday. Whether or not the decline will pick up steam remains to be seen, but the action does give the bears some hope.
Turning to this morning, the bears are continuing to make some noise in the early going on the rate front. As expected, the ECB raised rates by 0.25% to 4% even, and signaled that more increases might be on the way.
In addition, we've got some economic data to review before the bell. The Non-Farm Productivity numbers came in right in line with the consensus estimate for an increase of 1.0%. But, unfortunately, the Unit Labor Costs rose by 1.8%, which was much higher than expectations for an increase of 1.3% and triple the initial estimates of +0.6%. So with inflation and rate concerns remaining at the forefront today, it looks like the "step back" in stocks will continue.
Running through the rest of the pre-game indicators, the major foreign markets are lower across the board. Gold futures are moving down by $2.00 to $673.10. In the oil pits, crude futures are moving down a little with the latest quote at $65.48. Interest rates are moving up again this morning with the yield on the 10-year currently trading at 4.99%. And finally, with about an hour before the bell, stock futures in the U.S. are looking weak and are at session lows. The Dow futures are currently off by about 62 points; the S&P's are 7.30 underwater, while the NASDAQ looks to be 11 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:*
Countrywide Financial (NYSE: CFC) - Mentioned positively at Citigroup
Hess Corp (NYSE: HES) - Mentioned positively at Citigroup
Johnson Controls (NYSE: JCI) - Upgraded at Credit Suisse
Gilead Sciences (NASDAQ: GILD) - Downgraded at Credit Suisse
Goldcorp (NYSE: GG) - Upgraded at JP Morgan
Sepracor (NASDAQ: SEPR) - Downgraded at Merrill Lynch
Whole Foods (NASDAQ: WFMI) - Downgraded at Morgan Stanley
Moody's (NYSE: MCO) - Upgraded at Morgan Stanley
Motorola (NYSE: MOT) - Estimate reduced at Oppenheimer Holdings
Avaya (NYSE: AV) - Downgraded at Piper Jaffray
Mr. Moenning holds Long positions in stocks mentioned: CG, MER
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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