David Moenning's Daily State of the Markets: 08/08

Just Enough

Although the expectations were high, Ben Bernanke said just enough yesterday to keep the bulls placated and just enough to for stocks to rise for a second straight session. Our heroes in horns had been looking for the Fed to acknowledge the credit market situation and perhaps even hint that they stand ready to come to the rescue if needed. And to be sure, there was no outward admission that there is a big problem in subprime. However, the simple fact that the credit markets were mentioned in the statement was enough for traders to recognize that help is available if things get ugly.

The bottom line is that the subprime issue is not altering the Fed's thinking in any significant way at this time. The FOMC said yesterday that their primary concern remains that inflation will fail to moderate over time as they are expecting. Although the Fed statement pointed out that core inflation has "improved modestly," it has not "convincingly demonstrated" that the improvement will be sustained. The discussion of inflation is really nothing new, especially after yesterday's Nonfarm Productivity report showed Unit Labor Costs rising more than expected.

However, the Fed received a solid round of applause from traders for acknowledging that "downside risks to [economic] growth have increased somewhat" and that credit conditions for "some households and businesses" are tighter.

The key here is that traders wanted to know that Gentle Ben was paying attention to the problem in the credit market. Traders needed to be reassured that the Fed would take action if the situation deteriorates further. And the one simple statement acknowledging the problem spoke volumes to Fed Watchers.

Finally, the Fed's big finish came from the usual statement that the FOMC expects the economy to continue to expand at a moderate pace over the coming quarters. And this time, they even explained why, citing solid employment and income growth and a "robust global economy."

In short, yesterday's Fed statement kept the hope of a Goldilocks economy alive and calmed some nerves. However, this does not necessarily mean that everything is hunky dory in either the credit or stock market. It is pretty safe to say that we will need some time to go by where the situation doesn't deteriorate for traders to conclude that the worst is behind us.

Turning to this morning, Cisco Systems (NASDAQ: CSCO) is helping the bulls step lively in the early going. To absolutely no one's surprise, the company beat earnings estimates by a penny. But, more importantly, they increased revenue guidance and said all the right things on the conference call. This has led to an upgrade at Bear Stearns, a Price Target increase at UBS, and a warm and fuzzy feeling over in four-letter-land.

Running through the rest of the pre-game indicators, foreign markets have embraced the Fed statement and are higher across the board. In the oil pits, crude futures are moving down a smidge with the latest quote off $0.16 to $72.26. Interest rates are higher this morning with the yield on the 10-year currently trading at 4.82%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open at the present time. The Dow futures are currently ahead by 49 points; the S&P's are higher by about 7 points, while the NASDAQ looks to be about 12 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Cisco Systems (NASDAQ: CSCO) - Reported $0.36 vs. $0.35, Raised Guidance
Fluor Corp (NYSE: FLR) - Reported $1.05 vs. $0.95
Harris Corp (NYSE: HRS) - Reported $0.71 vs. $0.69


Today's Earnings Before the Bell:

Barr Labs (NYSE: BRL) - Reported $0.84 vs. $0.72
Hansen Natural (NASDAQ: HANS) - Reported $0.43 vs. $0.37
Lamar Advertising (NASDAQ: LAMR) - Reported $0.19 vs. $0.20
Sprint Nextel (NYSE: S) - Reported $0.25 vs. $0.22

News, Upgrades/Downgrades/Brokerage Research:*

Cisco Systems (NASDAQ: CSCO) - Upgraded at Bear Stearns, Target increased at UBS
AEGON (NYSE: AEG) - Downgraded at Bear Stearns
Dicks Sporting Goods (NYSE: DKS) - Downgraded at Citi
Celgene (NASDAQ: CELG) - Upgraded at Cowen
Omnivision Technologies (NASDAQ: OVTI) - Upgraded at JP Morgan
Jones Apparel (NYSE: JNY) - Downgraded at Merrill Lynch
Harris Corp (NYSE: HRS) - Upgraded at Oppenheimer
Genworth Financial (NYSE: GNW) - Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: CSCO, FLR

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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