David Moenning's Daily State of the Markets: 08/31

Help On the Way?

Stocks spent the majority of Thursday muddling around as most traders are anxiously awaiting Ben Bernanke’s speech from Jackson Hole scheduled for this morning at 10:00 am. In short, analysts will be listening closely for any hints that the Fed is ready to cut rates on or before the September 18th FOMC meeting.

So, with those traders still in town waiting on Bernanke and just about everybody else already on their way to Labor Day weekend plans, the market wasn’t exactly a hotbed of activity yesterday. A negative tone was set early as Lehman Brothers reduced estimates for Bear Stearns (NYSE: BSC), Goldman Sachs (NYSE:GS), and Merrill Lynch (NYSE:MER) and cited the credit market dislocation as the reason. This move followed Merrill’s decision to downgrade Bear, Lehman, and Citigroup (NYSE:C) earlier in the week based on concerns over debt market exposure.

The bulls tried to stay upbeat after the Commerce Department reported that GDP rose 4% in the second quarter, which was the fastest pace in more than a year. However, Freddie Mac’s (NYSE:FRE) report showing a 45% plunge in profits for the second quarter and comments that it expects the housing slump to last another 18 months, coupled with Merrill’s downgrade of Wal-Mart (NYSE:WMT), made it tough to stay upbeat.

However, help may be on the way in the form of a Fed rate cut and some assistance from Big Brother. After the market close yesterday, President Bush announced he will unveil initiatives today designed to help people with adjustable-rate subprime mortgages keep their homes. Unnamed sources also report that the President will ask a task force to come up with reforms to ensure that this situation doesn’t happen again. The President’s statement is scheduled for this morning at 11:10 am eastern.

The Washington Post is saying this morning that measures would include letting people refinance the mortgages using FHA guaranteed loans if they cannot meet the new mortgage payments once their adjustable-rate loans resets. It is said that more than 2 million Americans could potentially lose their homes as their ARM’s reset to significantly higher rates within the next 12 months.

Looking at the markets this morning, so far at least, traders appear to like the idea of a government bailout for homeowners and a Fed bailout for the financial system. Stocks around the globe soared on the news and the futures in the U.S. are sporting handsome gains in the early going.

We've also got some economic data to review in the form of the Personal Income and Spending report. While the data is from July and before the credit crisis really got rolling, the government reported that Personal Incomes rose by +0.5%, which was above expectations for an increase of +0.3%; Personal Spending came in at +0.4% versus consensus expectations for +0.3%; and the PCE Deflator (an inflation measure) was actually below the estimates with a gain of just +0.1% in July and +1.9% over the last 12 months.

Running through the rest of the pre-game indicators, the overseas markets are significantly higher across the board this morning. Crude futures are up by $0.62 with the latest quote at $73.98. Interest rates are a higher as the 10-yr is trading with a yield of 4.54% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to up strong. The Dow futures are currently ahead by about 125 points; the S&Ps are up by almost 17 points, and the NASDAQ looks to be about 23 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Sears Holdings (Nasdaq: SHLD) – Downgraded at Bear Stearns
Qlogic (Nasdaq: QLGC) – Upgraded at Citi
Rockwell Automation (NYSE:ROK) – Added to Top Picks list at Friedman Billings
JP Morgan (NYSE: JPM) – Mentioned positively at Morgan Stanley
Bank of New York Mellon (NYSE: BK) – Mentioned positively at Morgan Stanley
PNC Financial (NYSE: PNC) – Mentioned positively at Morgan Stanley
Cache Inc (Nasdaq: CACH) – Upgraded at Piper
FactSet (NYSE: FDS) – Target lowered at BofA

Mr. Moenning holds Long positions in stocks mentioned: 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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