David Moenning's Daily State of the Markets: 12/04
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Second Thoughts?
Good Monday morning and welcome back to the game. For some time now, the markets have viewed any economic news that suggested a slowing economy as a modest positive because it meant the Fed was unlikely to return to the hiking trail. However, with Friday�s ISM report falling to a level which is indicative of a contracting manufacturing sector, traders may now be having second thoughts.
The economy was once again the story of the day and the ISM report garnered the majority of the attention. The Manufacturing Index unexpectedly fell to 49.5 when a reading of 51.5 had been the consensus estimate. What is significant here is that for the first time since April 2003, the index wound up under 50, which suggests that the manufacturing sector is now contracting instead of growing.
In addition, the Prices Paid component of the report, which is an indication of inflation, came in above expectations. Now toss in another gain in oil prices (crude closed at $63.50) and comments from Chicago�s Fed Grinch Michael Moskow, who said in no uncertain terms that he believes more rate hikes are necessary, and you�ve got the makings for a selloff in stocks.
And a selloff is exactly what we got following the ISM report. Despite the fact that a reading of 49.5 has corresponded to a gain in GDP of +2.4% per year, which is pretty much in line with most economist�s projections these days, traders decided that bad news is suddenly bad again.
Logic suggests that this type of data is an indication that the much sought after soft landing is now upon us and as such, it doesn�t make much sense to sell stocks. After all, why sell when the data says you are getting exactly what you had hoped for?
Perhaps this is the reason that stocks recovered so strongly in the final hour of trading. Despite the rise in crude and an ongoing decline in the greenback, stocks rallied from a deficit of -105 points to finish with a modest loss of just 27 points.
So where does this leave us? While one session does not a trend make, the message from Friday would appear to be that weak economic data is fine UNLESS the data is too weak. Thus, it looks like a Goldilocks economy continues to be the objective.
Turning to this morning, the markets are fairly quiet so far. We�ve got the usual Monday morning takeover chatter as Station Casinos has received a bid to be taken private by its management team. But other than that it looks like traders may be waiting on more economic data. We�ll get Pending Home Sales this morning at 10:00 am, but the big guns will come later this week in the form of Tuesday�s Productivity report and Friday�s always-big Employment Report.
Running through the rest of the pre-game indicators, the major overseas markets are also doing very little today. Gold futures are a little higher this morning and are quoted at $650.70 right now. Crude futures are falling this morning after a strong rally recently and the latest quote shows the January contract off $0.55 to $62.88. Interest rates are moving up a as the battle over the 4.50% level is ongoing. The 10-yr is trading with a yield of 4.45% right now. And finally, with an hour before the bell, stock futures in the U.S. are looking mixed. The Dow futures are currently off by 2 points, the S&Ps are a fraction above breakeven, and the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Station Casinos (STN) � Receives buyout offer from management group
Agere Systems (AGR) � To be acquired by LSI Logic
Federated Dept Stores (FD) � Mentioned positively in Barron�s
Tellabs (TLAB) � Barron�s mentions as bounce candidate, Also BSX, WFMI
Taiwan Semiconductor (TSM) � Upgraded at Bear Stearns
Wachovia (WB) � Upgraded at Keefe, Bruyette, Woods, Mentioned positively at Bernstein
Cooper Industries (CBE) � Upgraded at CIBC Capital Mkts
MBIA (MBI) � Downgraded at Citigroup
Danaher Corp (DHR) � Downgraded at Citigroup
Schwab (SCHW) � Credit Suisse starts coverage at Outperform
Vodafone (VOD) � Credit Suisse starts coverage at Outperform
Nasdaq Stock Market (NDAQ) � Mentioned positively at Friedman Billings
Istar Financial (SFI) � Added to Conviction Buy list at Goldman Sachs
Bank of America (BAC) � Downgraded at Keefe, Bruyette, Woods
Nokia (NOK) � Downgraded at Prudential
Principal Financial Group (PFG) � Upgraded at Wachovia
Long positions in stocks mentioned: BSC, GS, MS, LEH
** 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 Monday morning and welcome back to the game. For some time now, the markets have viewed any economic news that suggested a slowing economy as a modest positive because it meant the Fed was unlikely to return to the hiking trail. However, with Friday�s ISM report falling to a level which is indicative of a contracting manufacturing sector, traders may now be having second thoughts.
The economy was once again the story of the day and the ISM report garnered the majority of the attention. The Manufacturing Index unexpectedly fell to 49.5 when a reading of 51.5 had been the consensus estimate. What is significant here is that for the first time since April 2003, the index wound up under 50, which suggests that the manufacturing sector is now contracting instead of growing.
In addition, the Prices Paid component of the report, which is an indication of inflation, came in above expectations. Now toss in another gain in oil prices (crude closed at $63.50) and comments from Chicago�s Fed Grinch Michael Moskow, who said in no uncertain terms that he believes more rate hikes are necessary, and you�ve got the makings for a selloff in stocks.
And a selloff is exactly what we got following the ISM report. Despite the fact that a reading of 49.5 has corresponded to a gain in GDP of +2.4% per year, which is pretty much in line with most economist�s projections these days, traders decided that bad news is suddenly bad again.
Logic suggests that this type of data is an indication that the much sought after soft landing is now upon us and as such, it doesn�t make much sense to sell stocks. After all, why sell when the data says you are getting exactly what you had hoped for?
Perhaps this is the reason that stocks recovered so strongly in the final hour of trading. Despite the rise in crude and an ongoing decline in the greenback, stocks rallied from a deficit of -105 points to finish with a modest loss of just 27 points.
So where does this leave us? While one session does not a trend make, the message from Friday would appear to be that weak economic data is fine UNLESS the data is too weak. Thus, it looks like a Goldilocks economy continues to be the objective.
Turning to this morning, the markets are fairly quiet so far. We�ve got the usual Monday morning takeover chatter as Station Casinos has received a bid to be taken private by its management team. But other than that it looks like traders may be waiting on more economic data. We�ll get Pending Home Sales this morning at 10:00 am, but the big guns will come later this week in the form of Tuesday�s Productivity report and Friday�s always-big Employment Report.
Running through the rest of the pre-game indicators, the major overseas markets are also doing very little today. Gold futures are a little higher this morning and are quoted at $650.70 right now. Crude futures are falling this morning after a strong rally recently and the latest quote shows the January contract off $0.55 to $62.88. Interest rates are moving up a as the battle over the 4.50% level is ongoing. The 10-yr is trading with a yield of 4.45% right now. And finally, with an hour before the bell, stock futures in the U.S. are looking mixed. The Dow futures are currently off by 2 points, the S&Ps are a fraction above breakeven, and the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Station Casinos (STN) � Receives buyout offer from management group
Agere Systems (AGR) � To be acquired by LSI Logic
Federated Dept Stores (FD) � Mentioned positively in Barron�s
Tellabs (TLAB) � Barron�s mentions as bounce candidate, Also BSX, WFMI
Taiwan Semiconductor (TSM) � Upgraded at Bear Stearns
Wachovia (WB) � Upgraded at Keefe, Bruyette, Woods, Mentioned positively at Bernstein
Cooper Industries (CBE) � Upgraded at CIBC Capital Mkts
MBIA (MBI) � Downgraded at Citigroup
Danaher Corp (DHR) � Downgraded at Citigroup
Schwab (SCHW) � Credit Suisse starts coverage at Outperform
Vodafone (VOD) � Credit Suisse starts coverage at Outperform
Nasdaq Stock Market (NDAQ) � Mentioned positively at Friedman Billings
Istar Financial (SFI) � Added to Conviction Buy list at Goldman Sachs
Bank of America (BAC) � Downgraded at Keefe, Bruyette, Woods
Nokia (NOK) � Downgraded at Prudential
Principal Financial Group (PFG) � Upgraded at Wachovia
Long positions in stocks mentioned: BSC, GS, MS, LEH
** 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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