David Moenning's Daily State of the Markets:

Not A Pretty Picture

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

Although the damage wasn’t significant, it really wasn’t a pretty picture on Wall Street during Friday’s session. In short, from the macroeconomic picture to earnings to crude to the financials story, the picture painted was less than appealing. And yet, somehow, the bulls managed to keep the game close.

For starters, the economic picture painted by the jobs report is getting ugly. The economy lost 51,000 jobs in July, which was actually better than expectations, but the trend is getting old as this was the seventh straight monthly decline in jobs. In addition, the unemployment rate jumped to 5.7% in July from 5.5%, which the most since March 2004, and was above the consensus for a reading of 5.6%. We must also note that the unemployment rate is up a full percentage point from where it was a year ago and is getting close to the high end of the Fed’s anticipated range (which was published just last month).

The earnings picture was also tough to look at on Friday as companies such as General Motors (GM), NYSE Euronext (NYX) and Sun Microsystems (JAVA) all managed to disappoint the street. The respective declines of -7.6%, -12.9%, and -12.3% weren’t disastrous, but did weigh on the sentiment a bit.

Next, although oil remains well off the recent highs of $147, the situation could get ugly here in a hurry thanks to the geopolitical picture in Iran. Crude got a boost when Israel’s Deputy Prime Minister said that Iran was on a path toward a “major breakthrough” in its nuclear program, which is, in the Deputy Prime Minister’s words is “unacceptable.”

And finally, while many are calling a bottom in the financials, one peek at a chart of the major banks and brokers makes it clear that this is not an appealing situation at the moment. Yes, it is a positive the Merrill (MER) was able to pick up a quick $8.5 billion in new capital last week. But, at the same time, they also gave us a look at what the market is for these CDO’s that no one really knows how to value. And in short, with Lehman (LEH) now looking to unload another $30 Billion, this picture isn’t likely get attractive anytime soon.

But through it all, the bulls managed to hang tough; only giving up 50 points or so, which, all things considered, wasn’t a bad showing.

Turning to this morning, although all eyes will be on the Fed tomorrow, we do have some economic data to start the week with. The government just reported that personal incomes rose by 0.1% in July, which was better than the expectations for a drop of -0.2%. On the spending side of the equation, it appears that the consumer just can’t stay away from the malls as spending rose by +0.6%, which was a tenth higher than the consensus. And finally, as one might have expected, the inflation numbers were a little hotter than expectations as the PCE Deflator rose by 0.3% in July and is up 4.1% over the past year – both of which were above analysts’ projections.

Running through the rest of the pre-game indicators; the major foreign markets are mixed with Asian markets down and European bourses hovering around breakeven. Crude futures are moving down with the latest quote showing oil trading lower by $1.24 to $123.56. Interest rates are up a bit this morning with the yield on the 10-yr currently trading at 3.97%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a relatively uneventful open. The Dow futures are currently off by about 20 points; the S&P’s are down about 3 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Church & Dwight (NYSE: CHD) – Reported $0.66 vs. $0.63
Cooper Tire (NYSE: CTB) – Reported -$0.17 vs. -$0.28
Dish Network (Nasdaq: DISH) – Reported $0.73 vs. $0.60
NICOR (NYSE: GAS) – Reported $0.64 vs. $0.28
Humana (NYSE: HUM) – Reported $1.24 vs. $1.18

News, Upgrades/Downgrades/Brokerage Research:

Oshkosh Corp (NYSE: OSK) – Downgraded at Credit Suisse
CONSOL Energy (NYSE: CNX) – Upgraded at Credit Suisse
Warner Music Group (NYSE: WMG) – Downgraded at Goldman
Parker Hannifin (NYSE: PH) – Upgraded at Goldman
Deere (NYSE: DE) – Downgraded at Goldman
XL Capital (NYSE: XL) – Added to Conviction Buy list at Goldman
Southern Copper (NYSE: PCU) – Upgraded at HSBC
Nortel Networks (NYSE: NT) – Downgraded at Jefferies
Moody's (NYSE: MCO) – Upgraded at Lehman
Boyd Gaming (NYSE: BYD) – Upgraded at Merrill
CEMEX (NYSE: CX) – Upgraded at Morgan Stanley
Oceaneering Intl (NYSE: OII) – Upgraded at Stanford Group
Gold Fields (NYSE: GFI) – Downgraded at UBS
Kindred Healthcare (NYSE: KND) – Upgraded at Wachovia

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

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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