David Moenning's Daily State of the Markets:
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Cool to the Core
Its days like yesterday that make the average investor scratch their heads and throw up their hands in frustration. Just last week Mr. Bernanke told everyone that the Fed was concerned about the potential for inflation to increase. And just 24 hours earlier, the minutes from the January 31 FOMC meeting made it clear that the Fed was going to be more �data dependent� in their plans for monetary policy and that they would be focusing specifically on the inflation data. So what happened when the CPI came in hotter than expected yesterday morning? Instead of tanking on the �bad news,� stocks celebrated, of course.
Here�s the deal. The +0.7% rise in CPI was indeed much higher than the anticipated increase of +0.5%. And on a year-over-year basis, the report showed that headline CPI accelerated to 4.0%, which would appear to be a cause for concern. But, let�s remember that stocks discount the future and generally speaking, toss aside things that are widely �known.� And since everybody knows that the increase in energy costs have been the primary cause for the headline inflation numbers to increase, analysts turn to the Core Rate of Inflation to get a feel for �pipeline pressures.�
In light of the fact that there is little that economists can do regarding the situation with oil, they simply disregard the issue and focus on the other driving forces of inflation � things such as wage pressures and price components. With the Core Rate coming in just +0.2% higher and the year-over-year number at 2.1%, which, while at the high end, is still within the Fed�s stated comfort zone, to put it simply, yesterday�s report continues to confirm that aside from oil, inflation pressures appear to be modest at best.
So armed with the knowledge that the recent inflation data does not provide the Fed with any new ammunition for their argument to continue hiking rates, traders decided that the economy and corporate America are currently strong enough to withstand another couple of rate hikes. The thinking is; heck, the first 14 hikes haven�t seemed to do much damage, a couple more probably won�t hurt either. And since earnings continue to come in strong � this quarter will be the 15th straight showing of double-digit earnings growth � then traders can also maintain an upbeat outlook when looking ahead.
As convoluted as it may sound, that�s the primary reason for yesterday�s move to a new cycle high on the DJIA. Well, the fact that oil fell -$1.70 didn�t hurt matter either. But while the NYSE moved to new all-time highs, none of the other indices joined the fun and volume was unimpressive. So let�s simply award the bulls their victory and understand that it�s not going to be easy sledding going forward.
Turning to this morning, normally the weekly jobless claims number isn�t something we focus much attention on. However, recently the thinking is that the labor market is tightening up a bit, so the number becomes noteworthy. The number this week shows that initial claims for unemployment came in at 278k, which was once again lower than the expectations for a number in the 300k range. And although these reports do seem to indicate that there has been a positive shift in the labor market, there has been no market reaction this morning.
In general, stocks appear to be looking for direction so far this morning and aren�t doing much of anything with an hour to go before the opening bell.
Running through the rest this morning�s indicators, overseas markets were higher in Asia, but are mixed in Europe on rate worries caused by strong economic data in Germany. Gold futures are down by -$1.50 this morning to $555.10. Oil futures are continuing a bit lower so far and are currently trading off -0.21 at $60.80. Natural Gas is also quoted lower at $7.17 right now. Bond yields are a little higher with the 2-yr yield at 4.70% and 10-yr at 4.55%. And finally, stock futures in the U.S. are waffling with the Dow currently unchanged, the S&P�s are down a fraction, and the NASDAQ is lower by -2.0.
Stocks "In Play" This Morning:
GOOG � Launches Page Creator web publishing service
TWX � Raising prices for AOL by $2
ABX � Reports $0.32 vs. $0.24
ESRX � Reports $0.77 vs. $0.74 Revenues $4.60B vs. $4.51B
LTD � Reports $1.05 vs $1.01
ERICY � Upgraded at Merrill
NSM � ThinkEquity downgrades Semis
QCOM � Downgraded at ThinkEquity
Dell � DigiTimes says PC shipments to rise 20% to 25% in 2006
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: ESRX, NSM, QCOM
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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.
Its days like yesterday that make the average investor scratch their heads and throw up their hands in frustration. Just last week Mr. Bernanke told everyone that the Fed was concerned about the potential for inflation to increase. And just 24 hours earlier, the minutes from the January 31 FOMC meeting made it clear that the Fed was going to be more �data dependent� in their plans for monetary policy and that they would be focusing specifically on the inflation data. So what happened when the CPI came in hotter than expected yesterday morning? Instead of tanking on the �bad news,� stocks celebrated, of course.
Here�s the deal. The +0.7% rise in CPI was indeed much higher than the anticipated increase of +0.5%. And on a year-over-year basis, the report showed that headline CPI accelerated to 4.0%, which would appear to be a cause for concern. But, let�s remember that stocks discount the future and generally speaking, toss aside things that are widely �known.� And since everybody knows that the increase in energy costs have been the primary cause for the headline inflation numbers to increase, analysts turn to the Core Rate of Inflation to get a feel for �pipeline pressures.�
In light of the fact that there is little that economists can do regarding the situation with oil, they simply disregard the issue and focus on the other driving forces of inflation � things such as wage pressures and price components. With the Core Rate coming in just +0.2% higher and the year-over-year number at 2.1%, which, while at the high end, is still within the Fed�s stated comfort zone, to put it simply, yesterday�s report continues to confirm that aside from oil, inflation pressures appear to be modest at best.
So armed with the knowledge that the recent inflation data does not provide the Fed with any new ammunition for their argument to continue hiking rates, traders decided that the economy and corporate America are currently strong enough to withstand another couple of rate hikes. The thinking is; heck, the first 14 hikes haven�t seemed to do much damage, a couple more probably won�t hurt either. And since earnings continue to come in strong � this quarter will be the 15th straight showing of double-digit earnings growth � then traders can also maintain an upbeat outlook when looking ahead.
As convoluted as it may sound, that�s the primary reason for yesterday�s move to a new cycle high on the DJIA. Well, the fact that oil fell -$1.70 didn�t hurt matter either. But while the NYSE moved to new all-time highs, none of the other indices joined the fun and volume was unimpressive. So let�s simply award the bulls their victory and understand that it�s not going to be easy sledding going forward.
Turning to this morning, normally the weekly jobless claims number isn�t something we focus much attention on. However, recently the thinking is that the labor market is tightening up a bit, so the number becomes noteworthy. The number this week shows that initial claims for unemployment came in at 278k, which was once again lower than the expectations for a number in the 300k range. And although these reports do seem to indicate that there has been a positive shift in the labor market, there has been no market reaction this morning.
In general, stocks appear to be looking for direction so far this morning and aren�t doing much of anything with an hour to go before the opening bell.
Running through the rest this morning�s indicators, overseas markets were higher in Asia, but are mixed in Europe on rate worries caused by strong economic data in Germany. Gold futures are down by -$1.50 this morning to $555.10. Oil futures are continuing a bit lower so far and are currently trading off -0.21 at $60.80. Natural Gas is also quoted lower at $7.17 right now. Bond yields are a little higher with the 2-yr yield at 4.70% and 10-yr at 4.55%. And finally, stock futures in the U.S. are waffling with the Dow currently unchanged, the S&P�s are down a fraction, and the NASDAQ is lower by -2.0.
Stocks "In Play" This Morning:
GOOG � Launches Page Creator web publishing service
TWX � Raising prices for AOL by $2
ABX � Reports $0.32 vs. $0.24
ESRX � Reports $0.77 vs. $0.74 Revenues $4.60B vs. $4.51B
LTD � Reports $1.05 vs $1.01
ERICY � Upgraded at Merrill
NSM � ThinkEquity downgrades Semis
QCOM � Downgraded at ThinkEquity
Dell � DigiTimes says PC shipments to rise 20% to 25% in 2006
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: ESRX, NSM, QCOM
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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