David Moenning�s Daily State of the Markets: 04/03

Limping Home

Stocks ended a solid quarter on Friday by limping home into the close. The major indices finished out the month of March on a down note although the small cap indices managed to just keep on keepin� on and closed at new all-time highs. Interest rates were once again the major focal point as traders couldn�t help but notice that the bond market took another run at the highs on Friday.

Although the bulls had lower oil prices and some economic data that mitigated some inflation concerns on their side, they seemed content with the gains for the quarter and didn�t appear interested in a fight. And while Friday�s decline put a damper on an otherwise solid quarter, the bulls can take solace in the fact that the S&P�s gain of +3.66% was the best first quarter showing since 1999 and the DJIA had its best first three months since 2002.

Stocks opened higher Friday in response to the report from the Commerce Department which showed that the uptick in inflation, as measured by core PCE, that was evident in the fourth quarter, did not carry over into the new year. While the PCE inflation numbers remain at the high end of the Fed�s comfort zone, the key is there is no acceleration evident at the present time.

However, with the market fixated on the Fed�s intentions, the data in the regional manufacturing reports seemed to sour the mood on Friday. The Chicago Purchasing Managers Business Activity Index rebounded 5.5 points in March to 60.4, which was well above expectations of 57.0. In addition, the report showed that price pressures remain elevated. The song remained the same in Cincinnati as regional economic activity expanded at its fastest pace since April 2004. And in New York, business remained solid.

So with reports showing potential improvement in the economy and no real good news on the inflation front, it looked like the bulls decided to call it a day and headed home early. But with positive breadth and decent volume, we probably shouldn�t get too worried about the end-of-quarter shenanigans.

Looking to the week ahead, we�ve got a jobs report scheduled for Friday, so the running discussion of the state of the economy is likely to continue. Here�s a look at the rest of the economic data due for release this week:

- Monday: ISM Index, Construction Spending, and Pending Home Sales

- Wednesday: ISM Non-Manufacturing Index

- Friday: Employment Report, Wholesale Inventories, Consumer Credit

Turning to this morning, there is no economic data scheduled before the bell but the markets are in an upbeat mood as it appears we�ve got another merger Monday on our hands. To review, when companies buy one another, it indicates that business is good and values are fair.

Running through the rest of the pre-game indicators, overseas markets are higher across the board. The positive Tankan Survey in Japan overnight pushed the Nikkei higher by +1.6% and helped the Hang Seng gain +1.8%. Oil futures are moving higher again before the bell today and are currently trading up by $0.39 to $67.02. Natural Gas is trading down a penny to $7.20. Bond yields are continuing to move higher this morning with the 2-yr yield at 4.86% and 10-yr is currently trading at 4.89%. And finally, stock futures in the U.S. are strong before the bell with the Dow sporting a gain of 31 points, the S&Ps are higher by +6.50, and the NASDAQ futures are gaining +10.

Stocks �In Play� This Morning:
LU � Merging with ALA
TWX � Reportedly seeking to acquire wireless arm
NEM � Downgraded at Goldman
PXD � Downgraded at Morgan Stanley
GOOG � Priced secondary at $389.75 with Goldman
INTC � DigiTimes reports orders increased at TSM
STZ � Acquiring Vincor
AMD � Downgraded at Bernstein, Price target reduced
SNDK � Downgraded at Goldman
IGT � Upgraded at Merrill
SHLD � Increases offer for Sears Canada
GM � Confirms sale of 51% of GMAC to investment group
MO � Morgan Stanley reiterates overweight rating on breakup expectations
ADM � Positive article in Barron�s
MSFT � Barron�s cover story is positive on prospects
MOT � UBS raises forecast for handset industry, rates MOT and NOK buy

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

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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