David Moenning�s Daily State of the Markets: 04/07
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Why All the Fuss?
Stocks pulled back a bit on Thursday as the bears pointed to higher oil prices, sluggish same-store-sales numbers from retailers, and more troubles for President Bush. However, the bulls will argue that stocks actually hung tough during the session. They suggest that the bears should have been able to make more progress since most everyone looking to buy was waiting to do so until after this morning�s employment report.
Although it wasn�t exactly a surprise to anyone, there was an awful lot of discussion yesterday regarding the shift in Easter this year. This was intended to help explain why the same-store-sales numbers from the nation�s retailers were viewed as disappointing. The combination of crummy weather and Easter being pushed back, produced the weakest results since November 2004. Of the 54 retailers reporting, only 22 exceeded expectations. This meant that nearly 60% of the results came in below expectations. But, the good news, of course, is that Easter hasn�t been postponed, so the �lost sales� should show up next month.
Stocks opened lower on the retail news and weakened throughout the morning as oil prices continued to march higher. Crude benefited from worries over supplies for the summer driving season and finished up $0.87 to $67.94. Traders then got word that Lewis Libby, the embattled former top aide for Vice President Cheney, testified that President Bush actually authorized the CIA leak. The news knocked the bulls off balance and lopped a quick 45 points off the Dow. But somehow our barnyard buddies managed to recover their balance in short order.
In all, the session was a bit odd for a couple of reasons. First, with the bulls basically sitting on their hands waiting on the jobs report and then the combination of the punk retail data and the troubles for Mr. Bush, one would have thought socks would have reacted with a much lower finish. And then there seems to be a great deal more concern than normal over this morning�s Jobs report. Thus, the question of the day was, �Why all the fuss over the jobs numbers this time?�
This is when keeping the market�s primary issues in focus pays off. Simply put, the question of when the Fed is expected to cease and desist is the biggest area of uncertainty at the moment. And since the issue of inflation has been cited by the FOMC as their biggest worry going forward, anything impacting inflation becomes a focal point. Thus, one would logically conclude that the CPI/PPI data would be the biggest number to watch. However, they would be wrong because these standard measures of inflation are impacted heavily by the price of energy and we all know what energy has been doing and that the Fed can�t do a darn thing about it.
No, the real key to the Fed�s worry about inflation is tied to the labor market. The thinking is that the labor market is beginning to tighten at the present time. The fear is that if the job market strengthens too much more, it could lead to demands for higher wages, which, in turn, would lead to inflation. And when you consider that almost 70% of final product prices stem from labor, it becomes clear why everyone�s eyes are focused on the jobs numbers this morning.
So without further adieux, let�s get to the report. Almost surprisingly, the numbers came in pretty close to expectations. March Nonfarm payrolls increased by 211,000, which was higher than expectations for a rise of 190,000. However, the upside surprise was almost entirely offset by the revision to the February totals, which declined to 225k from the initial reading of 243k. The unemployment rate fell a tenth to 4.7% last month, which was below the consensus of 4.8%. Average hourly earnings rose just +0.2%, which was a market friendly result.
Stock and bond futures are both rallying in response to the report due to the fact that there were neither big surprises nor any ammunition for higher rates.
Running through the pre-game indicators, the overseas markets are mostly higher. Oil futures are moving down this morning and are currently trading off -$0.84 to $67.10. Natural Gas is also trading lower by $0.14 to $6.83. Gold continues to flirt with highs not seen since 1981 and this morning is trading down $3.00 to $596.70. Bond yields are moving down a smidge this morning with the 2-yr yield at 4.82% and 10-yr currently trading at 4.88%. And finally, stock futures in the U.S. are higher before the bell with the Dow futures sporting a gain of +44 points, the S&Ps are higher by $5.50, and the NASDAQ futures are gaining +7.70
Stocks �In Play� This Morning:
X � Upgraded at Deutsche
SBUX � March same store sales +10% vs. StreetAccount est +6.9%
STZ � Misses by a penny, Downgraded at Stifel, Nicolaus, Reiterated buy at UBS
BP � UBS upgrades Euro Oil sector, prefers BP, TOT
CHL � DigiTimes reports China�s mobile subscribers up 5.27M last month
DELL/HPQ � DigiTimes says notebook sales could decline 35% this year
UNH � SEC accounting discussions concluded with no new impact to GAAP
HMA � Downgraded at Goldman
ICE � Downgraded at Morgan Stanley
QCOM � Increases quarterly dividend to $0.12 from $0.09
C � WSJ mentions positively
AN � Ups guidance
MOT � Awarded $76M Navy contract
RIMM � Reports $0.65 vs. $0.65, reduces guidance, Downgraded at RBC, Defended at AmTech
AAPL � Target reduced at BofA
AMGN � Positive comments from Cowen
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: SBUX, STZ, CHL, QCOM, MOT, AMGN
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.
Stocks pulled back a bit on Thursday as the bears pointed to higher oil prices, sluggish same-store-sales numbers from retailers, and more troubles for President Bush. However, the bulls will argue that stocks actually hung tough during the session. They suggest that the bears should have been able to make more progress since most everyone looking to buy was waiting to do so until after this morning�s employment report.
Although it wasn�t exactly a surprise to anyone, there was an awful lot of discussion yesterday regarding the shift in Easter this year. This was intended to help explain why the same-store-sales numbers from the nation�s retailers were viewed as disappointing. The combination of crummy weather and Easter being pushed back, produced the weakest results since November 2004. Of the 54 retailers reporting, only 22 exceeded expectations. This meant that nearly 60% of the results came in below expectations. But, the good news, of course, is that Easter hasn�t been postponed, so the �lost sales� should show up next month.
Stocks opened lower on the retail news and weakened throughout the morning as oil prices continued to march higher. Crude benefited from worries over supplies for the summer driving season and finished up $0.87 to $67.94. Traders then got word that Lewis Libby, the embattled former top aide for Vice President Cheney, testified that President Bush actually authorized the CIA leak. The news knocked the bulls off balance and lopped a quick 45 points off the Dow. But somehow our barnyard buddies managed to recover their balance in short order.
In all, the session was a bit odd for a couple of reasons. First, with the bulls basically sitting on their hands waiting on the jobs report and then the combination of the punk retail data and the troubles for Mr. Bush, one would have thought socks would have reacted with a much lower finish. And then there seems to be a great deal more concern than normal over this morning�s Jobs report. Thus, the question of the day was, �Why all the fuss over the jobs numbers this time?�
This is when keeping the market�s primary issues in focus pays off. Simply put, the question of when the Fed is expected to cease and desist is the biggest area of uncertainty at the moment. And since the issue of inflation has been cited by the FOMC as their biggest worry going forward, anything impacting inflation becomes a focal point. Thus, one would logically conclude that the CPI/PPI data would be the biggest number to watch. However, they would be wrong because these standard measures of inflation are impacted heavily by the price of energy and we all know what energy has been doing and that the Fed can�t do a darn thing about it.
No, the real key to the Fed�s worry about inflation is tied to the labor market. The thinking is that the labor market is beginning to tighten at the present time. The fear is that if the job market strengthens too much more, it could lead to demands for higher wages, which, in turn, would lead to inflation. And when you consider that almost 70% of final product prices stem from labor, it becomes clear why everyone�s eyes are focused on the jobs numbers this morning.
So without further adieux, let�s get to the report. Almost surprisingly, the numbers came in pretty close to expectations. March Nonfarm payrolls increased by 211,000, which was higher than expectations for a rise of 190,000. However, the upside surprise was almost entirely offset by the revision to the February totals, which declined to 225k from the initial reading of 243k. The unemployment rate fell a tenth to 4.7% last month, which was below the consensus of 4.8%. Average hourly earnings rose just +0.2%, which was a market friendly result.
Stock and bond futures are both rallying in response to the report due to the fact that there were neither big surprises nor any ammunition for higher rates.
Running through the pre-game indicators, the overseas markets are mostly higher. Oil futures are moving down this morning and are currently trading off -$0.84 to $67.10. Natural Gas is also trading lower by $0.14 to $6.83. Gold continues to flirt with highs not seen since 1981 and this morning is trading down $3.00 to $596.70. Bond yields are moving down a smidge this morning with the 2-yr yield at 4.82% and 10-yr currently trading at 4.88%. And finally, stock futures in the U.S. are higher before the bell with the Dow futures sporting a gain of +44 points, the S&Ps are higher by $5.50, and the NASDAQ futures are gaining +7.70
Stocks �In Play� This Morning:
X � Upgraded at Deutsche
SBUX � March same store sales +10% vs. StreetAccount est +6.9%
STZ � Misses by a penny, Downgraded at Stifel, Nicolaus, Reiterated buy at UBS
BP � UBS upgrades Euro Oil sector, prefers BP, TOT
CHL � DigiTimes reports China�s mobile subscribers up 5.27M last month
DELL/HPQ � DigiTimes says notebook sales could decline 35% this year
UNH � SEC accounting discussions concluded with no new impact to GAAP
HMA � Downgraded at Goldman
ICE � Downgraded at Morgan Stanley
QCOM � Increases quarterly dividend to $0.12 from $0.09
C � WSJ mentions positively
AN � Ups guidance
MOT � Awarded $76M Navy contract
RIMM � Reports $0.65 vs. $0.65, reduces guidance, Downgraded at RBC, Defended at AmTech
AAPL � Target reduced at BofA
AMGN � Positive comments from Cowen
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: SBUX, STZ, CHL, QCOM, MOT, AMGN
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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