David Moenning's Daily State of the Markets: 08/16
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Less is Definitely More
Good morning. News of less inflation at the producer level sent stocks soaring on Tuesday. The lower-than-expected PPI report was definitely the catalyst to the Dow�s gain of 132 points, but a weaker report on manufacturing in the New York region didn�t hurt matters any. In short, the reports helped boost confidence in the idea that the Fed has made the right move and that Mr. Bernanke and friends might not need to lace up the hiking boots again any time soon.
Analysts had been looking for an increase of 0.4% in the headline PPI number, so the advance of just 0.1% was definitely a welcome surprise. What�s more, the Core Rate, which has been the focal point for the past year, actually fell -0.3%, when a gain of 0.2% had been expected. And on a year-over-year basis, the Core is at the lowest level since January. The decline in the core rate was the largest since last October and was the result of falling prices in cars, light trucks, and SUVs.
While the bulls focused squarely on the headlines, the PPI report DID suggest that there is still some inflation brewing at the core level. Prices of �intermediate goods� rose by 0.7% at the core level in July and have increased by 7.9% in the last year. In addition, the Empire State Manufacturing Report showed that price pressures remain high and that respondents indicated the cost of employee benefits and workers� compensation were employers� number one concerns right now. So while inflation remains contained at the wholesale level, any continued rise in the pipeline pressures bears watching.
Stocks blasted higher right out of the gate on the thinking that since the PPI numbers came in on such a positive note, it would be tough for today�s CPI to completely negate the move. Thus, for a change, the gain actually held up all the way to the close. The trend lately had been for the bulls to be rebuffed at every turn, so today�s solid move was an encouraging sign. As a result of the bulls� handiwork, the S&P appeared to break above the recent resistance zone on good, but not great, volume.
Unfortunately none of the other indices matched the S&P�s apparent breakout, but I guess there is still plenty of time for them to catch up if the move is for real. The real key to future movements is this morning�s CPI data, which will detail whether any inflation is creeping in at the consumer level.
Turning to this morning, once again, it�s all about the inflation data. The July CPI came in with an increase of 0.4%, which was on target with the expectations. The Core Rate also came in at the consensus level of +0.2%. On a year-over-year basis, the Core Rate ticked up a tenth to 2.7% and the headline CPI grew by 4.1%. This report failed to match the positive surprise from yesterday�s PPI stats; however, the Housing Starts may have provided the weakness that traders were looking for.
Stocks are once again moving higher in response to the news as the data continues to argue that the Fed did the right thing by pausing. And while we will have to sweat out several more months of data before anyone can suggest that we are out of the inflation woods, the trend is positive at the present time.
Running through the rest of the pre-game indicators, the overseas markets are mostly higher as Asia enjoyed solid results. Gold futures are moving a bit higher this morning and are currently exchanging hands at $638.80. Crude futures are trading a little lower at the moment and are off by $0.13 to $72.92 so far. Interest rates are lower again this morning following the economic data with the 2-year currently quoted at 4.91% while the 10-yr is testing the recent low yield of 4.89% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving higher. The Dow futures are currently ahead by 35, the S&Ps are up 5.10, and the NASDAQ is also sporting an increase of more than 9 points at the moment.
Stocks �In Play� This Morning:
Applied Materials (AMAT) � Reported $0.32 vs. $0.30
Qualcomm (QCOM) � Added to Focus List at Merrill Lynch
Allstate (ALL) � Mentioned cautiously in Barron�s
EGL Inc (EAGL) � Upgraded at HSBC
Expeditors Intl (EXPD � Upgraded at HSBC
ABN Amro (ABN) � Upgraded at ING
Lone Star Technologies (LSS) � Upgraded at Jefferies
Autodesk (ADSK) � Upgraded at Jefferies
Dynergy (DYN) � Upgraded at Lehman
Armor Holdings (AH) � Upgraded at Prudential
American Eagle Outfitters (AEOS) � Downgraded at Stifel Nicolaus
Shanda Interactive (SNDA) � Upgraded at Bear Stearns
Long positions in stocks mentioned: AMAT, MER, BSC
** 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. News of less inflation at the producer level sent stocks soaring on Tuesday. The lower-than-expected PPI report was definitely the catalyst to the Dow�s gain of 132 points, but a weaker report on manufacturing in the New York region didn�t hurt matters any. In short, the reports helped boost confidence in the idea that the Fed has made the right move and that Mr. Bernanke and friends might not need to lace up the hiking boots again any time soon.
Analysts had been looking for an increase of 0.4% in the headline PPI number, so the advance of just 0.1% was definitely a welcome surprise. What�s more, the Core Rate, which has been the focal point for the past year, actually fell -0.3%, when a gain of 0.2% had been expected. And on a year-over-year basis, the Core is at the lowest level since January. The decline in the core rate was the largest since last October and was the result of falling prices in cars, light trucks, and SUVs.
While the bulls focused squarely on the headlines, the PPI report DID suggest that there is still some inflation brewing at the core level. Prices of �intermediate goods� rose by 0.7% at the core level in July and have increased by 7.9% in the last year. In addition, the Empire State Manufacturing Report showed that price pressures remain high and that respondents indicated the cost of employee benefits and workers� compensation were employers� number one concerns right now. So while inflation remains contained at the wholesale level, any continued rise in the pipeline pressures bears watching.
Stocks blasted higher right out of the gate on the thinking that since the PPI numbers came in on such a positive note, it would be tough for today�s CPI to completely negate the move. Thus, for a change, the gain actually held up all the way to the close. The trend lately had been for the bulls to be rebuffed at every turn, so today�s solid move was an encouraging sign. As a result of the bulls� handiwork, the S&P appeared to break above the recent resistance zone on good, but not great, volume.
Unfortunately none of the other indices matched the S&P�s apparent breakout, but I guess there is still plenty of time for them to catch up if the move is for real. The real key to future movements is this morning�s CPI data, which will detail whether any inflation is creeping in at the consumer level.
Turning to this morning, once again, it�s all about the inflation data. The July CPI came in with an increase of 0.4%, which was on target with the expectations. The Core Rate also came in at the consensus level of +0.2%. On a year-over-year basis, the Core Rate ticked up a tenth to 2.7% and the headline CPI grew by 4.1%. This report failed to match the positive surprise from yesterday�s PPI stats; however, the Housing Starts may have provided the weakness that traders were looking for.
Stocks are once again moving higher in response to the news as the data continues to argue that the Fed did the right thing by pausing. And while we will have to sweat out several more months of data before anyone can suggest that we are out of the inflation woods, the trend is positive at the present time.
Running through the rest of the pre-game indicators, the overseas markets are mostly higher as Asia enjoyed solid results. Gold futures are moving a bit higher this morning and are currently exchanging hands at $638.80. Crude futures are trading a little lower at the moment and are off by $0.13 to $72.92 so far. Interest rates are lower again this morning following the economic data with the 2-year currently quoted at 4.91% while the 10-yr is testing the recent low yield of 4.89% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving higher. The Dow futures are currently ahead by 35, the S&Ps are up 5.10, and the NASDAQ is also sporting an increase of more than 9 points at the moment.
Stocks �In Play� This Morning:
Applied Materials (AMAT) � Reported $0.32 vs. $0.30
Qualcomm (QCOM) � Added to Focus List at Merrill Lynch
Allstate (ALL) � Mentioned cautiously in Barron�s
EGL Inc (EAGL) � Upgraded at HSBC
Expeditors Intl (EXPD � Upgraded at HSBC
ABN Amro (ABN) � Upgraded at ING
Lone Star Technologies (LSS) � Upgraded at Jefferies
Autodesk (ADSK) � Upgraded at Jefferies
Dynergy (DYN) � Upgraded at Lehman
Armor Holdings (AH) � Upgraded at Prudential
American Eagle Outfitters (AEOS) � Downgraded at Stifel Nicolaus
Shanda Interactive (SNDA) � Upgraded at Bear Stearns
Long positions in stocks mentioned: AMAT, MER, BSC
** 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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