David Moenning's Daily State of the Markets: 1/23

Painful Reality, But...

Yesterday’s stock market session served as a painful reminder that investors may have a long road ahead of them on the way to a meaningful recovery. In short, the cold hard reality is that there are virtually no signs of improvement in either the economy or earnings at this stage of the game and the feeling is that things may get worse before they get better.

Mr. Softie, better known as a little company called Microsoft (MSFT), got things started off on the wrong foot when they inexplicably decided to release their earnings before the bell instead of after the close. And if there is one thing we know about the stock market, it is that traders do NOT like surprises. So, here’s a note to CEO’s everywhere; if you are going to surprise the market, do it with good news instead of bad.

However, this was most certainly not the case with Microsoft. Cutting to the chase, the company missed earnings, initiated job cuts, and announced that they would not provide earnings guidance for the rest of their fiscal year because they are “not immune to the effects of the economy.” None of the above met with traders’ approval and the stock nosedived -11.7% to the lowest level in almost 11 years.

Yesterday’s economic data was also not exactly a bowl of cherries. A new batch of unemployed pushed the weekly Jobless Claims to a 26-year high. And before anyone argues that the job market is a lagging indicator, let’s recognize that Corporate America is just starting down the reduction-in-force road. Thus, the trend of job cuts isn’t likely to end anytime soon.

Next up, the news from the housing market was simply horrendous yesterday. Just about the time you think things can’t get any worse in this arena – they just do. Building Permits slid for the sixth straight month, this time by 10.7% to a record low annual rate of 549,000 and are down 50% from year ago levels. Not surprisingly, the Housing Starts numbers were also abysmal as starts fell 15.5% to a record low. And in short, until the President’s stimulus bill is passed, the housing market isn’t likely to see much in the way of improvement.

The painful economic reality wasn’t limited to the United States yesterday as China’s GDP fell to 6.8% in the fourth quarter from 9% in the third quarter. And while a 6.8% growth rate certainly isn’t bad, it is commonly accepted that China needs to grow at 8% in order to avoid unrest. And speaking of China, did anyone notice Timothy Geithner’s remarks yesterday accusing China of manipulating their currency? In short, this sounded like an initial volley and is definitely something to watch going forward.

With all of that said however, it was modestly encouraging that the bulls were able once again to hold the line at the all-important 817 level on the S&P 500. For the fourth time in the last five days, the major indices flirted with their respective lines in the sand and so far at least, have not succumbed to another leg down. So, if you are looking for a “tell” as to which way things go next, simply watch for a break in one direction or the other of the recent little trading range.

Turning to this morning, we don’t have any economic data to look at and the earnings calendar is rather light today. Looking at the pre-market, the mood remains downbeat and it appears that traders are intent on testing the low end of the ranges for a fourth straight day.

Running through the rest of the pre-game indicators, the major foreign markets followed Wall Street’s lead and are lower across the board. Crude futures are lower with the latest quote showing oil trading down by $1.13 to $42.54. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.60%, while overnight LIBOR jumped again to 0.24%, and the yield on the 3-month T-Bill is at 0.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a rough open. The Dow futures are currently off by about 210 points; the S&P’s are down by about 22 points, while the NASDAQ looks to be about 15 points below fair value at the moment.


Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Advanced Micro Devices (NYSE: AMD) – Reported -$0.68 vs. -$0.58
Canadian Natl Railway (NYSE: CNI) – Reported $1.12 vs. $0.99
Capital One (NYSE: COF) – Reported -$1.59 vs. $0.28

Federated Investors (NYSE: FII) – Reported $0.51 vs. $0.51
Google (Nasdaq: GOOG) – Reported $5.10 vs. $4.95
Intuitive Surgical (Nasdaq: ISRG) – Reported $1.27 vs. $1.27
MEMC Electronic Materials (NYSE: WFR) – Reported $0.65 vs. $0.61

Today’s Earnings Before the Bell:

General Electric (NYSE: GE) – Reported $0.36 vs. $0.37 (First Call)
Harley Davidson (NYSE: HOG) – Reported $0.34 vs. $0.57
Schlumberger (NYSE: SLB) – Reported $1.03 vs. $1.04
Xerox (NYSE: XRX) – Reported $0.30 vs. $0.33


Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Merck (NYSE: MRK) – Upgraded at Bank of America Merrill Lynch
Amgen (Nasdaq: AMGN) – Mentioned cautiously at Bernstein
CME Group (NYSE: CME) – Downgraded at Bernstein
Southwest Air (NYSE: LUV) – Downgraded at Calyon
Visa (NYSE: V) – Initiated Hold at Citi
MasterCard (NYSE: MA) – Initiated Sell at Citi
Louisiana Pacific (NYSE: LPX) – Downgraded at CIBC World Markets
Exco Resources (NYSE: XCO) – Upgraded and added to Conviction Buy list at Goldman
AK Steel (NYSE: AKS) – Removed from Conviction Buy list at Goldman
Sigma Aldrich (SIAL) – Downgraded at Goldman
Rio Tinto (NYSE: RTP) – Downgraded at ING
BHP Billiton (NYSE: BHP) – Upgraded at ING
Huntington Bancshares (Nasdaq: HBAN) – Rating placed on review at Moody’s
Illumina (Nasdaq: ILMN) – Upgraded at Morgan Stanley
Petro Brasileiro (NYSE: PBR) – Downgraded at Morgan Stanley
Capital One (NYSE: COF) – Outlook cut to negative at S&P
ITT Educational Services (NYSE: ESI) – Target increased at UBS
Expeditors Intl (EXPD) – Upgraded at UBS

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

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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