David Moenning's Daily State of the Markets: 11/03

No Worries Just Yet

Good morning. Stocks fell again yesterday and the Dow registered its first five-day decline since June 2005. However, despite another day of disappointing news flow, the selling once again wound up being muted by the close. The day followed a now familiar pattern where traders sold stocks in the morning on less than encouraging news, but then the bulls simply refused to yield and prices recovered in the last hour.

It would appear that traders are willing to acknowledge that the economic data hasn�t been especially constructive lately, but yet they aren�t all that upset with the numbers right now. The central issue is the question of the soft landing for the economy. And while we got another round of sluggish economic data in the form of Nonfarm Productivity and Monthly Retail Sales figures, even the whiff of inflation contained in the Productivity report wasn�t enough to get the Bears really fired up.

Everybody knows that the pace of the economy is slowing and yesterday�s data provided additional confirmation. For starters, more than 60% of the retailers reporting monthly sales numbers missed the estimates to the downside. Sure, the department stores continued to do well with the notable exception of Wal-Mart, but this was not the happy retail picture the bulls were hoping for going into the holiday shopping season.

In addition, the report on worker productivity was an eye opener as productivity slowed to its lowest level since mid-1997 while Unit Labor Costs soared by the highest amount since late 1982! We can also rest assured that the increased wage pressure won�t be lost on the Fed. For example, Mr. Baseball aka Dallas Fed President Richard Fisher said yesterday that while inflation has likely peaked, the level of inflation remains too high. Thus, it would appear that yesterday�s report will keep the Fed�s tightening bias intact.

However, it is important to keep in mind that this situation isn�t exactly new. So while traders are not happy about the recent data, they don�t appear to be overly worried just yet.

Turning to this morning�s pre-market activity, all eyes are on the government�s monthly Employment Report, so let�s get right to it. Expectations were for an increase of 125,000 new jobs and an unemployment rate of 4.6%. We got a number of 92,000 for job growth which was a bit below expectations and a big surprise in the unemployment rate, which dropped to 4.4% and is the lowest since April 2001.

But, the big news in the report was the upward revisions to both August�s and September�s job numbers. September was revised from 51K to 148K while August went from 188K to 230K. Thus, the revisions added a whopping 139,000 jobs to the mix.

Bonds are sinking on the news as traders are immediately removing any ideas of a recession from prices. As a result, yields are jumping higher with the 10-year now quoted at 4.67%, which is up dramatically from yesterday�s close of 4.59%. Stocks are also moving higher as the report dispels concerns that the economy is moderating too quickly.

Running through the rest of the pre-game indicators, the major overseas markets are narrowly mixed this morning. Gold futures are pulling back and are quoted at $623.30 right now. Crude futures are bouncing a little this morning with the latest quote showing oil up $0.45 to $58.33. As we mentioned, interest rates are higher this morning with the 2-year currently quoted at 4.70% while the 10-yr is trading with a yield of 4.681% 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 25 points above fair value, the S&Ps are ahead by 3, and the NASDAQ is also sporting a advance of about 3 points at the moment.

Stocks �In Play� This Morning:

Medco Health (MHS) � Reported $0.71 vs. $0.69
Pharma Product Dev (PPDI) � Upgraded at BofA
Investment Technology Group (ITG) � Upgraded at Bear Stearns
Powerwave (PWAV) � Downgraded at CIBC Capital Markets
Credit Suisse (CS) � Upgraded at Citigroup
Tyson Foods (TSN) � Downgraded at Credit Suisse
JDS Uniphase (JDSU) � Upgraded at Deutsche Bank
Red Robin Gourmet Burgers (RRGB) � Downgraded at CIBC, Bear Stearns, BofA
Intersil (ISIL) � Upgraded at Goldman Sachs
Sunoco (SUN) � Upgraded at JP Morgan
Unilever � Upgraded at JP Morgan
Tesoro (TSO) � Downgraded at JP Morgan
Chico�s FAS (CHS) � Downgraded at Piper Jaffray
Western Digital (WDC) � Upgraded at Raymond James
Zimmer Holdings (ZMH) � Upgraded at Wachovia
Qualcomm (QCOM) � Downgraded at Oppenheimer

Long positions in stocks mentioned: GS, SUN, PWAV, ITG

** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com 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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