David Moenning's Daily State of the Markets: 12/17

All In

In response to the economies of the world effectively falling off of a cliff over the past three months, Ben Bernanke & Co. decided yesterday that it was time to go “all in” in their battle against recession and deflationary pressures.

Most everyone, including yours truly, was expecting the FOMC to cut the Fed Funds rate by 0.50% to 0.50% and then perhaps hint at the idea of “quantitative easing” via the purchase of bonds on the open market. The only problem with this plan was that a great many analysts felt the move would be more bark than bite. And then with only one 50 basis point arrow left in the quiver, the worry was that the Fed would run out of weapons before the fight was over.

However, by cutting the Fed Funds rate to zero-ish (actually the FOMC established a range of 0% to 0.25%), knocking the Discount Rate down by 75 basis points, and announcing they would “employ all available tools” to fight the good fight, the words “shock and awe” immediately came to mind in describing the latest Bernanke offensive.

What was truly unique about the Fed’s moves was the stated commitment to buy up agency paper, bonds, and mortgage backed securities until market rates improved. Thus, the phrase "don't fight the Fed" may take on an entirely new meaning here.

By displaying a willingness to throw everything including the kitchen sink at the specter of deflation, Bernanke made it clear that the FOMC will not let things go the way of Japan on his watch. And by announcing that the new target range for the Funds rate will be in effect “for some time,” the Fed removed any worry that they might try to raise rates prematurely.

In short, the mind boggling moves were designed to tell the world that the Fed is on the case and that it will do whatever it takes to win this battle. We can also say that the moves were designed to instill confidence in both corporate America and John Q. Public alike. And from where we sit, yesterday’s announcements went a long way in doing just that.

The Fed's moves definitely instilled some confidence in the stock market. Although there was some minor volatility along the way, the Dow moved up about 300 points from the time the FOMC statement was released and remained strong into the closing bell.

Yesterday's session also provided some positives from a technical standpoint. For starters, all three major indices moved through their 50-day moving averages, although the NASDAQ only did so by a couple of points. Next, breadth was stellar and the move occurred on increasing volume. And speaking of volume, up-volume swamped down-volume by a measure of almost 16-1.

Although the indices now have a zone of rather substantial overhead resistance to deal with, it is our humble opinion that yesterday’s action validated the concept of an improved market tone and that maybe, just maybe, there is some more upside ahead before the end of the year.

Turning to this morning, foreign markets are less enthusiastic about the Fed pulling out all the stops as Asian markets rose only modestly overnight and European Bourses are seeing red at the moment. Thus, it would appear that we’ll encounter a little profit taking at the open.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region. Crude futures are lower with the latest quote showing oil trading down $0.63 to $42.97. On the interest rate front, we’ve got the yield on the 10-yr currently plunging down to 2.17%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are now pointing to a down open. The Dow futures are currently off by about 110 points; the S&P’s are down about 11 points, while the NASDAQ looks to be about 20 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Conagra (NYSE: CAG) – Reported $0.43 vs. $0.38
General Mills (NYSE: GIS) – Reported $1.36 vs. $1.23
Joy Global (Nasdaq: JOYG) – Reported $1.11 vs. $1.08
Morgan Stanley (NYSE: MS) – Reported -$2.24. vs. -$0.24

News, Upgrades/Downgrades/Brokerage Research:

Intl Business Machines (NYSE: IBM) – Estimates reduced at BMO Capital
Teva Pharmaceutical (Nasdaq: TEVA) – Initiated Buy at Citi
General Electric (NYSE: GE) – Mentioned positively at Deutsche Bank
Marriott Intl (NYSE: MAR) – Downgraded at Deutsche Bank
Wyndham Worldwide (NYSE: WYN) – Downgraded at Deutsche Bank
Corning (NYSE: GLW) – Downgraded at JP Morgan
Costco Wholesale (Nasdaq: COST) – Target reduced at JP Morgan
Eagle Bulk Shipping (Nasdaq: EGLE) – Upgraded at Merrill
Genco Shipping (NYSE: GNK) – Upgraded at Merrill
Apple (Nasdaq: AAPL) – Downgraded at Oppenheimer
Kansas City Southern (NYSE: KSU) – Upgraded at UBS
Hertz Global (NYSE: HTZ) – Estimates reduced at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: COST

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.

You May Also Be Interested In

• Rubrik, Inc. (RBRK) IPO Opens at $38.60, Priced at $32
• IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition
• 10 analysts discuss Meta Platforms (META) stock after earnings selloff