David Moenning's Daily State of the Markets: 2/26
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Reassurance Received
It isn't often we can label an across the board decline of -1% in the stock market as a good thing, but after yesterday morning’s flirtation with disaster, that’s exactly what we’re going to call it. Stocks initially opened lower on the back of yet another disappointing report on the housing market and the usual chatter about bank nationalization. However, once Ben Bernanke started talking again, things turned around.
In his second day of Congressional testimony, the Fed Chairman first reiterated his view that the economy should recover in 2010 if things go according to plan. Then after that, he cemented the idea that nationalization of the banks was off the table with the statement that the government does not plan "anything like" nationalization, which would wipe out the shareholders. Bernanke went on to suggest that there may also be some benefit to reviving the uptick rule.
So, with the guy in charge of the economy effectively patting the country on the head in a reassuring manner by saying that (1) things will be better within a year, (2) bank stocks won’t suddenly be erased, and (3) that the shorts may have a tougher go of it going forward, well, suddenly things looked a little brighter.
However, what really got stocks moving to the upside yesterday afternoon was the 2:00 pm release of the details surrounding the stress tests and the CAP (Capital Assistance Program). Perhaps the biggest relief to the markets was the realization that the so-called stress tests were not going to pass-fail exams, but rather an assessment of whether or not the banks will likely need additional capital.
The tests will explore the financial soundness of the banks under both a “baseline” and “adverse” scenario. The idea here is to try and figure out just how much money a bank might need and when. So, if regulators determine that a 10% unemployment rate and another -22% decline in housing prices (the assumptions in the “adverse scenario”) is going to be a problem for the bank, the CAP will be there to provide the needed capital.
How does this help, you ask? Well, for starters, it removes uncertainty. At this stage of the game, banks are simply unable to raise capital from any source. Therefore, unless the government provides access to capital, we could see an awful lot of insolvent banks if the “adverse scenario” unfolds. However, with the Treasury standing ready to provide the right kind of capital, the banks can feel more comfortable about being able to remain in business.
The clarity provided on the stress tests and the details of the capital being provided by the CAP caused the bulls to regain some confidence and the shorts to run for cover. And with 30 minutes before the close, the screens actually sported a nice shade green. However, as has been the case lately, once President Obama began talking about his meeting with Treasury in general terms without so much as a hint of detail, stocks sold off into the close.
Turning to this morning, orders for durable goods in January fell by -5.2%, which was significantly lower than the estimates for a decline of -2.5%. When you strip out transportation, the results were a little more in line at -2.5% versus -2.1%. In addition, initial jobless claims once again came in higher than had been expected at 677,000. And continuing claims broke the 5 million mark at 5.025M, which again, was higher than the consensus.
Running through the rest of the pre-game indicators, the major foreign markets are split by region with Asia down and Europe up. Crude futures are up a bit with the latest quote showing oil trading higher by $0.57 to $43.07. On the interest rate front, we’ve got the yield on the 10-yr currently flirting with 3% at 2.98%, while overnight LIBOR is at 0.28% and the yield on the 3-month T-Bill is trading at 0.29%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 50 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 5 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Avis Budget Group (NYSE: CAR) – Reported -$1.08 vs. -$0.30
Caribou Coffee (Nasdaq: CBOU) – Reported $0.07 vs. -$0.04
Salesforce.com (NYSE: CRM) – Reported $0.11* vs. $0.18
California Water (NYSE: CWT) – Reported $0.35 vs. $0.39
Express Scripts (Nasdaq: ESRX) – Reported $0.83 vs. $0.83
Flowserve (NYSE: FLS) – Reported $2.03 vs. $1.92
Genco Shipping (NYSE: GNK) – Reported $1.55 vs. $1.54
Granite Construction (NYSE: GVA) – Reported $0.84 vs. $0.56
Mantech Intl (Nasdaq: MANT) – Reported $0.69 vs. $0.69
Psychiatric Solutions (Nasdaq: PSYS) – Reported $0.44 vs. $0.54
Tenaris (NYSE: TS) – Reported $1.01 vs. $0.99
Today’s Earnings Before the Bell:
American Tower (NYSE: AMT) – Reported $0.20 vs. $0.14
Boyd Gaming (NYSE: BYD) – Reported $0.13 vs. $0.14
Dynegy (NYSE: DYN) – Reported -$0.01 vs. -$0.02
Frontline (NYSE: FRO) – Reported $1.03 vs. $1.08
General Motors (NYSE: GM) – Reported -$9.65 vs. -$7.40
Iron Mountain (NYSE: IRM) – Reported $0.01 vs. $0.17
King Pharmaceuticals (NYSE: KG) – Reported $0.24 vs. $0.23
Lamar Advertising (Nasdaq: LAMR) – Reported -$0.08 vs. -$0.07
NASDAQ OMX Group (Nasdaq: NDAQ) – Reported $0.53 vs. $0.51
NII Holdings (Nasdaq: NIHD) – Reported $0.05 vs. $0.38
Rowan Companies (NYSE: RDC) – Reported $1.28 vs. $1.10
Sears Holdings (Nasdaq: SHLD) – Reported $2.94 vs. $2.68
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Avalon Bay (NYSE: AVB) – Upgraded at Bank of America Merrill
Clean Harbors (NYSE: CLH) – Downgraded at Bank of America Merrill
Aeropostale (NYSE: ARO) – Upgraded at Barclays
Tenet Healthcare (NYSE: THC) – Downgraded at Citi
Terra Industries (NYSE: TRA) – Removed from Conviction Buy list at Goldman
Agrium (NYSE: AGU) – Target increased at Goldman
Quicksilver Resources (NYSE: KWK) – Downgraded at Jefferies
Centerpoint Energy (NYSE: CNP) – Upgraded at Jefferies
Dollar Tree (Nasdaq: DLTR) – Upgraded at JP Morgan, UBS
Smithfield Foods (NYSE: SFD) – Upgraded at JP Morgan
American Express (NYSE: AXP) – Long-term and short-term ratings on review at Moody’s
Monsanto (NYSE: MON) – Mentioned positively at Morgan Stanley
Spirit Aerosystems (NYSE: SPR) – Downgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: none
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.TopStockPortfolios.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.
It isn't often we can label an across the board decline of -1% in the stock market as a good thing, but after yesterday morning’s flirtation with disaster, that’s exactly what we’re going to call it. Stocks initially opened lower on the back of yet another disappointing report on the housing market and the usual chatter about bank nationalization. However, once Ben Bernanke started talking again, things turned around.
In his second day of Congressional testimony, the Fed Chairman first reiterated his view that the economy should recover in 2010 if things go according to plan. Then after that, he cemented the idea that nationalization of the banks was off the table with the statement that the government does not plan "anything like" nationalization, which would wipe out the shareholders. Bernanke went on to suggest that there may also be some benefit to reviving the uptick rule.
So, with the guy in charge of the economy effectively patting the country on the head in a reassuring manner by saying that (1) things will be better within a year, (2) bank stocks won’t suddenly be erased, and (3) that the shorts may have a tougher go of it going forward, well, suddenly things looked a little brighter.
However, what really got stocks moving to the upside yesterday afternoon was the 2:00 pm release of the details surrounding the stress tests and the CAP (Capital Assistance Program). Perhaps the biggest relief to the markets was the realization that the so-called stress tests were not going to pass-fail exams, but rather an assessment of whether or not the banks will likely need additional capital.
The tests will explore the financial soundness of the banks under both a “baseline” and “adverse” scenario. The idea here is to try and figure out just how much money a bank might need and when. So, if regulators determine that a 10% unemployment rate and another -22% decline in housing prices (the assumptions in the “adverse scenario”) is going to be a problem for the bank, the CAP will be there to provide the needed capital.
How does this help, you ask? Well, for starters, it removes uncertainty. At this stage of the game, banks are simply unable to raise capital from any source. Therefore, unless the government provides access to capital, we could see an awful lot of insolvent banks if the “adverse scenario” unfolds. However, with the Treasury standing ready to provide the right kind of capital, the banks can feel more comfortable about being able to remain in business.
The clarity provided on the stress tests and the details of the capital being provided by the CAP caused the bulls to regain some confidence and the shorts to run for cover. And with 30 minutes before the close, the screens actually sported a nice shade green. However, as has been the case lately, once President Obama began talking about his meeting with Treasury in general terms without so much as a hint of detail, stocks sold off into the close.
Turning to this morning, orders for durable goods in January fell by -5.2%, which was significantly lower than the estimates for a decline of -2.5%. When you strip out transportation, the results were a little more in line at -2.5% versus -2.1%. In addition, initial jobless claims once again came in higher than had been expected at 677,000. And continuing claims broke the 5 million mark at 5.025M, which again, was higher than the consensus.
Running through the rest of the pre-game indicators, the major foreign markets are split by region with Asia down and Europe up. Crude futures are up a bit with the latest quote showing oil trading higher by $0.57 to $43.07. On the interest rate front, we’ve got the yield on the 10-yr currently flirting with 3% at 2.98%, while overnight LIBOR is at 0.28% and the yield on the 3-month T-Bill is trading at 0.29%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 50 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 5 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Avis Budget Group (NYSE: CAR) – Reported -$1.08 vs. -$0.30
Caribou Coffee (Nasdaq: CBOU) – Reported $0.07 vs. -$0.04
Salesforce.com (NYSE: CRM) – Reported $0.11* vs. $0.18
California Water (NYSE: CWT) – Reported $0.35 vs. $0.39
Express Scripts (Nasdaq: ESRX) – Reported $0.83 vs. $0.83
Flowserve (NYSE: FLS) – Reported $2.03 vs. $1.92
Genco Shipping (NYSE: GNK) – Reported $1.55 vs. $1.54
Granite Construction (NYSE: GVA) – Reported $0.84 vs. $0.56
Mantech Intl (Nasdaq: MANT) – Reported $0.69 vs. $0.69
Psychiatric Solutions (Nasdaq: PSYS) – Reported $0.44 vs. $0.54
Tenaris (NYSE: TS) – Reported $1.01 vs. $0.99
Today’s Earnings Before the Bell:
American Tower (NYSE: AMT) – Reported $0.20 vs. $0.14
Boyd Gaming (NYSE: BYD) – Reported $0.13 vs. $0.14
Dynegy (NYSE: DYN) – Reported -$0.01 vs. -$0.02
Frontline (NYSE: FRO) – Reported $1.03 vs. $1.08
General Motors (NYSE: GM) – Reported -$9.65 vs. -$7.40
Iron Mountain (NYSE: IRM) – Reported $0.01 vs. $0.17
King Pharmaceuticals (NYSE: KG) – Reported $0.24 vs. $0.23
Lamar Advertising (Nasdaq: LAMR) – Reported -$0.08 vs. -$0.07
NASDAQ OMX Group (Nasdaq: NDAQ) – Reported $0.53 vs. $0.51
NII Holdings (Nasdaq: NIHD) – Reported $0.05 vs. $0.38
Rowan Companies (NYSE: RDC) – Reported $1.28 vs. $1.10
Sears Holdings (Nasdaq: SHLD) – Reported $2.94 vs. $2.68
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Avalon Bay (NYSE: AVB) – Upgraded at Bank of America Merrill
Clean Harbors (NYSE: CLH) – Downgraded at Bank of America Merrill
Aeropostale (NYSE: ARO) – Upgraded at Barclays
Tenet Healthcare (NYSE: THC) – Downgraded at Citi
Terra Industries (NYSE: TRA) – Removed from Conviction Buy list at Goldman
Agrium (NYSE: AGU) – Target increased at Goldman
Quicksilver Resources (NYSE: KWK) – Downgraded at Jefferies
Centerpoint Energy (NYSE: CNP) – Upgraded at Jefferies
Dollar Tree (Nasdaq: DLTR) – Upgraded at JP Morgan, UBS
Smithfield Foods (NYSE: SFD) – Upgraded at JP Morgan
American Express (NYSE: AXP) – Long-term and short-term ratings on review at Moody’s
Monsanto (NYSE: MON) – Mentioned positively at Morgan Stanley
Spirit Aerosystems (NYSE: SPR) – Downgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: none
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.TopStockPortfolios.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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