David Moenning�s Daily State of the Markets: 03/14

David Moenning�s Daily State of the Markets:

Ruining the Mood

Stocks appeared to have some momentum in the early going yesterday. Overseas markets were higher and there was a spate of merger activity. The bulls like it when companies buy one another for a couple of reasons. First, since buyouts almost always occur at a sizable premium to the current stock price, it is an indication that prices are not overvalued. And second, the thinking is that businesses know what is really going on better than anyone, so business must be good if executives have the confidence to spend money on acquisitions.

So with a bevy of deals announced on Monday morning, it looked like the rebound, which began after Friday�s jobs report, had some legs. There was no economic data to spoil the fun and the bulls had the top end of the range in sight.

Even the Fed chatter looked like it was going the bulls� way. San Francisco Fed President Janet Yellen suggested that the economy was in �pretty good shape� on the inflation front and even went so far as to warn against the Fed overdoing it in terms of more rate hikes.

However (which, frankly seems to be the key word to this market as every positive is followed by some derivation of the word, but), higher bond yields and a spike in oil prices ruined the mood. With Iran making what would appear to be threats to �use oil as a weapon� in response to any sanctions the U.N. might come up with, the price of crude spiked higher. A day after traders celebrated prices under $60, Futures prices moved up $1.81 to close at $61.77.

Rising bond yields didn�t help the bulls cause yesterday either. With the yield on the 10-year moving to its highest level in almost 2 years, traders recognize that there is a chance that bond yields may soon break out to new highs. This most certainly would put an end to the view that bonds were behaving, and become a significant roadblock for stocks.

So in sum, rising rates and higher oil prices spoiled another �merger Monday.� The early gains slowly but steadily evaporated and at the end of the day, the bulls were left with that empty feeling. Volume was light, breadth was positive, and the action did little to affect the current trend, so we probably shouldn�t read too much into the action.

Turning to this morning, there is some economic data for traders to digest. Overseas, Germany�s Zew Index, which is a measure of investor expectations, came in far below consensus, but seemed to help the market as the fear of higher rates diminishes with weak economic data.

Here in the U.S., the report on Retail Sales basically came in below expectations. The headline number fell by -1.3% versus expectations for a drop of -0.8%, and then the ex-autos number was a bit better than expected at -0.4%. But, we need to keep in mind that this follows a blowout January report, so when taken together, the numbers remain solid and the markets have seen almost no reaction to the report.

Running through the rest of the pre-game indicators about 45 minutes before the bell, overseas markets saw declines in Asia and a mixed bag in Europe. Oil futures are higher again this morning with crude currently trading +$0.33 to $62.10. Natural Gas is trading at $7.18 right now. Gold futures are lower by -$2 to $545.30. Bond yields are backing off the recent highs this morning with the 2-yr yield currently quoted at 4.72% while the 10-yr is at 4.74%. And finally, stock futures in the U.S. are pointing down a bit at the moment with the Dow currently -13, the S&Ps are -1.10, and the NASDAQ is off by -2.0.

Stocks "In Play" This Morning:
GS � Reported a blowout quarter: $5.08 vs. $3.29
VZ � JPM adds telecomm to core portfolio including VZ, TLAB
AAPL � Proposed French law would force increased access to iTunes
BBY � In talks to buy China�s 4th largest consumer electronics firm
GOOG � Set to face off with DOJ today in court
PG � Upped low end of guidance range
DALRQ � May kill pilot pension plan
BUD � Upgraded at Bear Stearns and Deutsche
MOT � Bear Stearns says fix for handsets is working and Chicago Tribune reports that RAZRs back in Cingular stores

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: MOT, GS

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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