David Moenning's Daily State of the Markets: 12/27

On Target?

Here's a link to listen to an Audio Version of the report:

Although both volume and investor interest appeared to be on the light side, stocks actually finished surprisingly well on Wednesday. We say surprising because of the fact that the news flow on the day actually had a rather negative bent. And after an impressive Santa Claus rally over the past five or six sessions, one might have expected yesterday’s news to cause the bears to return en masse.

Speaking of the news, one of the key questions in the market right now has to do with the results from this year’s holiday shopping season. And although the returns and gift cards are still being totaled, reports from Target (TGT) and MasterCard (MA) yesterday talked of a holiday season that may have missed the mark.

First, Target reported that despite an increase in mall traffic during the week of December 22nd, their sales totals for the season looked to be lower than expected. Thus, the big retailer revised its December sales comps to a range of +/-1%, which was down significantly from the previous guidance for gains of +3-5%.

Next, it was MasterCard's turn to dampen the holiday spirit. The credit card company reported that holiday sales rose by +3.6% over last year, which at first glance appears to be simply on the lower end of the expectation range of 3.5% to 4.6%. However, since expenditures on gasoline increased by 27%, this meant that actual holiday spending looked to be up just 2.4% on the year.

Now toss in the Case/Shiller report that the prices of single-family homes fell -6.1% over the last twelve months and the fact that oil prices are climbing back toward $100 again and stocks could have easily wound up with triple digit losses.

But, perhaps it remains the season to be jolly. Or perhaps it was Warren Buffett’s decision to do a deal with the Pritzker family. Or maybe investors were encouraged by a sixth straight day of gains in tech over in four-letter-land. But any way you slice it, the fact that stocks didn’t go down on bad news has to be considered a positive.

Turning to this morning, we’ve got some economic data to review in the form of the Durable Goods report. The government just reported that sales of durable goods rose by just 0.1% in November, which was well below the consensus estimates for an increase of 2%. When you strip out transportation, the results were weak as well with the number actually falling -0.7% last month.

On the news front, while suicide bomber attacks are fairly common, there is sad news of an attack taking the life of Pakistan’s opposition leader Benzair Bhutto during a political rally this morning. The news the former leader’s death has suddenly created a more somber mood in the pre-market activity.

Running through the rest of the pre-game indicators; the overseas markets are split by region this morning with Asian markets off a bit and European bourses a little higher. Crude futures are off a little with the latest quote showing the February contract down by $0.16 to $95.81. Interest rates are lower so far with the 10-yr trading at a yield of 4.20% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 60 points; the S&Ps are down by about 7 points, while the NASDAQ looks to be about 8 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Citigroup (NYSE: C) – Estimates reduced at Goldman Sachs due to increased writedown expectations in Q4
Merrill Lynch (NYSE: MER) – Estimates reduced at Goldman Sachs due to increased writedown expectations in Q4
JP Morgan Chase (NYSE: JPM) – Estimates reduced at Goldman Sachs due to increased writedown expectations in Q4
Yahoo! (Nasdaq: YHOO) – Estimates and price target reduced at Jefferies
Oracle (Nasdaq: ORCL) – Named top pick of 2008 at Morgan Stanley
Hershey (NYSE: HSY) – Target increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: MA

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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