David Moenning�s Daily State of the Market 04/19
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One and Done!
For the fourth time this year, traders celebrated the idea that the Fed is finally ready to call it a day. And while the three previous rallies all ended with FOMC officials effectively saying, �Hey, not so fast there sport,� this time, it looks official and the bulls celebrated in style.
The day started on an upbeat note in response to some downbeat news in the housing market and a PPI report which confirmed, once again, that inflation is well contained at the core level. Both Housing Starts and Building Permits came in below expectations, which wasn�t all that surprising at this stage. However, the reports helped to remove the worry that the Fed will have to keep raising rates in order to cool off the housing market. And on the inflation front, the Core PPI came in below the consensus estimates for the month and on a year-over-year basis.
The bulls then got a nice boost from San Francisco Fed President Janet Yellen, who, after reiterating the party-line about the economy, made two comments that got everyone�s attention. Ms. Yellen said first that the Fed Funds rate is near neutral, which, in Fed-speak means that the FOMC has achieved their appointed task. And second, she mentioned that she is �highly alert� to the impact of too much tightening on the economy.
Then, at about 2:00 p.m., the minutes from the 3/28 Fed meeting were released and the party really got hopping. The minutes showed that Ms. Yellen was not alone in her concern over too much tightening and before you could count up the number of consecutive rate hikes the Fed has implemented (it�s 15 so far) the market was off to the races. Traders celebrated the idea that the Fed does NOT appear destined to overdo it this time and that the economy, and in turn, earnings, would come through the siege of rate hikes in fine fashion.
Stocks enjoyed their best day in almost a year as the Dow leapt to a gain of +195 points. The rest of the indices followed suit and gains in excess of +1.7% were enjoyed across the board. Volume picked up nicely and, as expected, breadth was stellar.
While the day was very enjoyable for anyone holding stocks to any degree, before you run out and mortgage the house again to fund that margin account, there are a couple of things to keep in mind here. First, we�ve got the third Friday of the month on tap, which means it�s an options expiration week. The fact that those leveraged options bets expire in just a few days probably added some fuel to yesterday�s fire as the bears were definitely caught leaning.
In addition, although it went almost unnoticed yesterday, the price of oil just keeps climbing. With no obvious resolution to the coming standoff with Iran in sight, oil traders continue to assume that we will see an interruption in supply, which keeps prices on the rise. Crude futures closed up another $0.95 to $71.35 in response. And with the price of gasoline on the rise, it is doubtful that, barring a quick resolution to the nuclear issue in Iran, this situation will simply go away.
Thus, the key question for the bulls right now is if the Fed had factored in oil prices at $70+ when they penned their comments on 3/28? And then it might be a good idea to ponder if the recent surge in commodities can really remain a non-factor on the inflation front? In short, the bulls will obviously be keeping their hooves crossed on this one.
Turning to this morning, we�ve got lots of earnings and another inflation report to sift through. In short, the song remains the same on the inflation font. The headline CPI number came in at +0.4%, which was right in line with expectations while the Core Rate was a tenth higher than the consensus at +0.3%. On a year-over-year basis, the Core Rate was unchanged and remains at the high end of the Fed�s comfort zone.
The stock market has taken the report in stride but the bond market was a little disappointed with the core number. Yields have inched higher since the CPI numbers were released with the 2-year yield currently at 4.86% and the 10-year is trading at 5.00%.
Running through the rest of the pre-game indicators, overseas markets were all higher in response to Wall Street�s big day. Oil futures are currently trading lower by $0.34 to $71.01. Natural Gas is also lower by $0.14 to $7.87. And finally, stock futures in the U.S. are pointing to a stronger open with the Dow futures sporting a gain of +34 points, the S&Ps are up by 3.0, and the NASDAQ futures are gaining 9.2 points on earnings news in tech.
Stocks �In Play� This Morning:
Pfizer (PFE) � Reported $0.61 vs. $0.53, Revenues $12.66B vs. $13.03B
Coca Cola (KO) � Reported $0.49 vs. $0.48, Revenues $5.23B vs. $5.32B
JP Morgan (JPM) � Reported $0.86 vs. $0.83, Revenues $15.24B vs. $15.15B
Motorola (MOT) � Reported $0.29 vs. $0.27, Revenues $10.01B vs. $9.54
CR Bard (BCR) � Reported $0.86 vs. $0.78, Revenues $467.5M vs. $465.8M, Target raised at Citigroup
Amgen (AMGN) � Reported $0.91 vs. $0.88, Revenues $3.2B vs. $3.32B
Allstate (ALL) � Reported $2.01 vs. $1.63, Revenues $9.08B vs. $8.83B, Guides higher
Intl Business Machines (IBM) � Reported $1.08 vs. $1.05, Revenues $20.66B vs. $20.64
Texas Instruments (TXN) � Reported $0.33 vs. $0.33, Revenues $3.33B vs. $3.29B
Yahoo! (YHOO) � Reported $0.15 vs. $0.16, $0.11 after options expense, search #s up
Panera Bread (PNRA) � Upgraded at William Blair
Cymer (CYMI) � Reported $0.52 vs. $0.41, Revenues $127.1M vs. $120.3, Upgraded at Needham
Goodrich (GR) � Upgraded at Banc of America
Intel (INTC) � WSJ looking for weak quarter
Seagate Tech (STX) � Downgraded at Bear Stearns
Temple Inland (TIN) � Downgraded at Citigroup
Barr Pharmaceuticals (BRL) � Upgraded at Lehman
Mylan Labs (MYL) � Downgraded at Lehman
Manpower (MAN) � Upgraded at Wachovia
Disclosure: Long positions in stocks mentioned: MER, BSC, LEH, MOT, BCR, IBM, GR
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.
For the fourth time this year, traders celebrated the idea that the Fed is finally ready to call it a day. And while the three previous rallies all ended with FOMC officials effectively saying, �Hey, not so fast there sport,� this time, it looks official and the bulls celebrated in style.
The day started on an upbeat note in response to some downbeat news in the housing market and a PPI report which confirmed, once again, that inflation is well contained at the core level. Both Housing Starts and Building Permits came in below expectations, which wasn�t all that surprising at this stage. However, the reports helped to remove the worry that the Fed will have to keep raising rates in order to cool off the housing market. And on the inflation front, the Core PPI came in below the consensus estimates for the month and on a year-over-year basis.
The bulls then got a nice boost from San Francisco Fed President Janet Yellen, who, after reiterating the party-line about the economy, made two comments that got everyone�s attention. Ms. Yellen said first that the Fed Funds rate is near neutral, which, in Fed-speak means that the FOMC has achieved their appointed task. And second, she mentioned that she is �highly alert� to the impact of too much tightening on the economy.
Then, at about 2:00 p.m., the minutes from the 3/28 Fed meeting were released and the party really got hopping. The minutes showed that Ms. Yellen was not alone in her concern over too much tightening and before you could count up the number of consecutive rate hikes the Fed has implemented (it�s 15 so far) the market was off to the races. Traders celebrated the idea that the Fed does NOT appear destined to overdo it this time and that the economy, and in turn, earnings, would come through the siege of rate hikes in fine fashion.
Stocks enjoyed their best day in almost a year as the Dow leapt to a gain of +195 points. The rest of the indices followed suit and gains in excess of +1.7% were enjoyed across the board. Volume picked up nicely and, as expected, breadth was stellar.
While the day was very enjoyable for anyone holding stocks to any degree, before you run out and mortgage the house again to fund that margin account, there are a couple of things to keep in mind here. First, we�ve got the third Friday of the month on tap, which means it�s an options expiration week. The fact that those leveraged options bets expire in just a few days probably added some fuel to yesterday�s fire as the bears were definitely caught leaning.
In addition, although it went almost unnoticed yesterday, the price of oil just keeps climbing. With no obvious resolution to the coming standoff with Iran in sight, oil traders continue to assume that we will see an interruption in supply, which keeps prices on the rise. Crude futures closed up another $0.95 to $71.35 in response. And with the price of gasoline on the rise, it is doubtful that, barring a quick resolution to the nuclear issue in Iran, this situation will simply go away.
Thus, the key question for the bulls right now is if the Fed had factored in oil prices at $70+ when they penned their comments on 3/28? And then it might be a good idea to ponder if the recent surge in commodities can really remain a non-factor on the inflation front? In short, the bulls will obviously be keeping their hooves crossed on this one.
Turning to this morning, we�ve got lots of earnings and another inflation report to sift through. In short, the song remains the same on the inflation font. The headline CPI number came in at +0.4%, which was right in line with expectations while the Core Rate was a tenth higher than the consensus at +0.3%. On a year-over-year basis, the Core Rate was unchanged and remains at the high end of the Fed�s comfort zone.
The stock market has taken the report in stride but the bond market was a little disappointed with the core number. Yields have inched higher since the CPI numbers were released with the 2-year yield currently at 4.86% and the 10-year is trading at 5.00%.
Running through the rest of the pre-game indicators, overseas markets were all higher in response to Wall Street�s big day. Oil futures are currently trading lower by $0.34 to $71.01. Natural Gas is also lower by $0.14 to $7.87. And finally, stock futures in the U.S. are pointing to a stronger open with the Dow futures sporting a gain of +34 points, the S&Ps are up by 3.0, and the NASDAQ futures are gaining 9.2 points on earnings news in tech.
Stocks �In Play� This Morning:
Pfizer (PFE) � Reported $0.61 vs. $0.53, Revenues $12.66B vs. $13.03B
Coca Cola (KO) � Reported $0.49 vs. $0.48, Revenues $5.23B vs. $5.32B
JP Morgan (JPM) � Reported $0.86 vs. $0.83, Revenues $15.24B vs. $15.15B
Motorola (MOT) � Reported $0.29 vs. $0.27, Revenues $10.01B vs. $9.54
CR Bard (BCR) � Reported $0.86 vs. $0.78, Revenues $467.5M vs. $465.8M, Target raised at Citigroup
Amgen (AMGN) � Reported $0.91 vs. $0.88, Revenues $3.2B vs. $3.32B
Allstate (ALL) � Reported $2.01 vs. $1.63, Revenues $9.08B vs. $8.83B, Guides higher
Intl Business Machines (IBM) � Reported $1.08 vs. $1.05, Revenues $20.66B vs. $20.64
Texas Instruments (TXN) � Reported $0.33 vs. $0.33, Revenues $3.33B vs. $3.29B
Yahoo! (YHOO) � Reported $0.15 vs. $0.16, $0.11 after options expense, search #s up
Panera Bread (PNRA) � Upgraded at William Blair
Cymer (CYMI) � Reported $0.52 vs. $0.41, Revenues $127.1M vs. $120.3, Upgraded at Needham
Goodrich (GR) � Upgraded at Banc of America
Intel (INTC) � WSJ looking for weak quarter
Seagate Tech (STX) � Downgraded at Bear Stearns
Temple Inland (TIN) � Downgraded at Citigroup
Barr Pharmaceuticals (BRL) � Upgraded at Lehman
Mylan Labs (MYL) � Downgraded at Lehman
Manpower (MAN) � Upgraded at Wachovia
Disclosure: Long positions in stocks mentioned: MER, BSC, LEH, MOT, BCR, IBM, GR
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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