David Moenning�s Daily State of the Markets: 01/17
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Make That 13 Straight
Good morning. Yesterday morning we talked about the idea that earnings were likely to hold the key to the intermediate term in stock prices. While everyone expects a slowdown of sorts in the rate of earnings growth, the big question is if earnings from the S&P 500 companies will break into double digits again. The bulls have enjoyed thirteen straight quarters of double-digit gains (and not the seventeen that we inadvertently reported yesterday), which explains, in large part, the reason the bulls have been able to buck higher oil prices and a bunch of rate hikes over the past three and one-half years.
Since we made a bit of a snafu in reporting the wrong number of consecutive quarters of double-digit earnings growth in the S&P 500 yesterday, we thought it might be a good idea to double check the numbers that are expected for the current reporting season. Analysts at Thomson Financial are now projecting that earnings for fourth quarter of 2006 for the S&P will come in 9.1% higher. Unfortunately, this is down from the 10% projections that were being made just three weeks ago and down significantly from the year ago mark of 14.4%.
Logic would dictate that lowered earning expectations should mean lower stock prices. However, the reason for the lowered expectations right now has more to do with the law of large numbers and tougher comparisons than a dramatic slowdown in the economy. In short, when coming out of a recession, it is easy for companies to put up big numbers. But as the growth cycle continues, the rate of growth is certain to slow. So, at this point in the cycle, a growth rate anywhere near 10% would be a good thing.
The question on trader�s minds though is just how close to the 10% level we can come and if companies have sufficiently sandbagged the quarter. And frankly, this is part of the reason for yesterday�s mostly sideways market.
Although oil plunged another $1.78 and closed at $51.21 on the Saudi Oil Minister�s comments that no further production cuts are needed at the present time, it was the ongoing uncertainty over the economy and earnings that kept price the movement under wraps yesterday.
The good news is that the DJIA once again finished at a new all-time high and the S&P managed to eek out a gain. The bad news is that the NASDAQ suffered from earnings jitters and the manufacturing sector got some punk news from the New York region. But, once again, the bears were held at bay, so the bulls were able to chalk up yet another �W� on the session.
Turning to this morning, the tech bulls were dealt another blow as Intel�s earnings were on the disappointing side. This supports the idea that one must continue to be selective in tech as there is no rising tide at the current time.
On the economic front, this morning�s PPI numbers were a bit hotter than expected, but with a slew of economic data still to come today, the reaction so far has been reasonable. December PPI came in at +0.9%, which was much higher than expectations for an increase of +0.5%. The Core Rate was also a little higher than expectations at +0.2%. In addition, the year-over-year Core Rate, while on target with the consensus estimates of 2.0%, inched up 0.2% from last month and is sure to grab some attention in the bond market � especially among those hoping for a Fed easing.
Running through the rest of the pre-game indicators, the foreign markets were little changed overnight. Gold futures are lower this morning with the last trade off $4.00 to $621.90. In the oil pits, crude futures continue to slide with the latest quote showing the February futures contract down $0.78 to $50.43. Interest rates are moving back up this morning on the PPI data and the 10-year is currently trading with a 4.76% yield. And finally, with an hour before the bell, stock futures in the U.S. are looking a little lower. The Dow futures are currently off by 6 points; the S&P�s are 2.80 points underwater, while the NASDAQ looks to be about 7 points below fair value at the moment.
Stocks �In Play� This Morning:
Intel (INTC) � Reported $0.245 vs. $0.25
AMR Corp (AMR) - Reported $0.07 vs. <$0.08>
JP Morgan (JPM) � Reported $1.09 vs. $0.94
Lennar (LEN) � Reported <$1.24.> vs. <$1.11>
Southwest Airlines (LUV) � Reported <$0.12> vs. $0.13
Mellon Financial (MEL) � Reported $0.64 vs. $0.58
State street (STT) � Reported $0.86 vs. $0.84
Commerce Bancorp (CBH) � Downgraded at CIBC
Symantec (SYMC) � Downgraded at Credit Suisse
Level 3 Comm (LVLT) � Downgraded at Deutsche Bank
Procter & Gamble (PG) � Upgraded at Goldman Sachs
Forest Labs (FRX) � Downgraded at JP Morgan
Adtran (ADTN) � Downgraded at Lehman
Caremark Rx (CMX) � Downgraded at Prudential
Darden Restaurants (DRI) � Upgraded at UBS, Initiated Overweight at Prudential
UST (UST) � Downgraded at UBS
Cisco Systems (CSCO) � Mentioned positively in WSJ
Google (GOOG) � Mentioned positively in WSJ
Disclosure: Long positions is stocks mentioned: GS, LEH, CSCO, DRI, UST
** 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.
Good morning. Yesterday morning we talked about the idea that earnings were likely to hold the key to the intermediate term in stock prices. While everyone expects a slowdown of sorts in the rate of earnings growth, the big question is if earnings from the S&P 500 companies will break into double digits again. The bulls have enjoyed thirteen straight quarters of double-digit gains (and not the seventeen that we inadvertently reported yesterday), which explains, in large part, the reason the bulls have been able to buck higher oil prices and a bunch of rate hikes over the past three and one-half years.
Since we made a bit of a snafu in reporting the wrong number of consecutive quarters of double-digit earnings growth in the S&P 500 yesterday, we thought it might be a good idea to double check the numbers that are expected for the current reporting season. Analysts at Thomson Financial are now projecting that earnings for fourth quarter of 2006 for the S&P will come in 9.1% higher. Unfortunately, this is down from the 10% projections that were being made just three weeks ago and down significantly from the year ago mark of 14.4%.
Logic would dictate that lowered earning expectations should mean lower stock prices. However, the reason for the lowered expectations right now has more to do with the law of large numbers and tougher comparisons than a dramatic slowdown in the economy. In short, when coming out of a recession, it is easy for companies to put up big numbers. But as the growth cycle continues, the rate of growth is certain to slow. So, at this point in the cycle, a growth rate anywhere near 10% would be a good thing.
The question on trader�s minds though is just how close to the 10% level we can come and if companies have sufficiently sandbagged the quarter. And frankly, this is part of the reason for yesterday�s mostly sideways market.
Although oil plunged another $1.78 and closed at $51.21 on the Saudi Oil Minister�s comments that no further production cuts are needed at the present time, it was the ongoing uncertainty over the economy and earnings that kept price the movement under wraps yesterday.
The good news is that the DJIA once again finished at a new all-time high and the S&P managed to eek out a gain. The bad news is that the NASDAQ suffered from earnings jitters and the manufacturing sector got some punk news from the New York region. But, once again, the bears were held at bay, so the bulls were able to chalk up yet another �W� on the session.
Turning to this morning, the tech bulls were dealt another blow as Intel�s earnings were on the disappointing side. This supports the idea that one must continue to be selective in tech as there is no rising tide at the current time.
On the economic front, this morning�s PPI numbers were a bit hotter than expected, but with a slew of economic data still to come today, the reaction so far has been reasonable. December PPI came in at +0.9%, which was much higher than expectations for an increase of +0.5%. The Core Rate was also a little higher than expectations at +0.2%. In addition, the year-over-year Core Rate, while on target with the consensus estimates of 2.0%, inched up 0.2% from last month and is sure to grab some attention in the bond market � especially among those hoping for a Fed easing.
Running through the rest of the pre-game indicators, the foreign markets were little changed overnight. Gold futures are lower this morning with the last trade off $4.00 to $621.90. In the oil pits, crude futures continue to slide with the latest quote showing the February futures contract down $0.78 to $50.43. Interest rates are moving back up this morning on the PPI data and the 10-year is currently trading with a 4.76% yield. And finally, with an hour before the bell, stock futures in the U.S. are looking a little lower. The Dow futures are currently off by 6 points; the S&P�s are 2.80 points underwater, while the NASDAQ looks to be about 7 points below fair value at the moment.
Stocks �In Play� This Morning:
Intel (INTC) � Reported $0.245 vs. $0.25
AMR Corp (AMR) - Reported $0.07 vs. <$0.08>
JP Morgan (JPM) � Reported $1.09 vs. $0.94
Lennar (LEN) � Reported <$1.24.> vs. <$1.11>
Southwest Airlines (LUV) � Reported <$0.12> vs. $0.13
Mellon Financial (MEL) � Reported $0.64 vs. $0.58
State street (STT) � Reported $0.86 vs. $0.84
Commerce Bancorp (CBH) � Downgraded at CIBC
Symantec (SYMC) � Downgraded at Credit Suisse
Level 3 Comm (LVLT) � Downgraded at Deutsche Bank
Procter & Gamble (PG) � Upgraded at Goldman Sachs
Forest Labs (FRX) � Downgraded at JP Morgan
Adtran (ADTN) � Downgraded at Lehman
Caremark Rx (CMX) � Downgraded at Prudential
Darden Restaurants (DRI) � Upgraded at UBS, Initiated Overweight at Prudential
UST (UST) � Downgraded at UBS
Cisco Systems (CSCO) � Mentioned positively in WSJ
Google (GOOG) � Mentioned positively in WSJ
Disclosure: Long positions is stocks mentioned: GS, LEH, CSCO, DRI, UST
** 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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