David Moenning�s Daily State of the Markets: 04/10
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It Was All About Bonds
Stocks ran smack into a wall on Friday as bond yields reached levels not seen since June, 2002. In short, it was obvious that interest rates were the key to the session, but the reasons for the sudden move up were tougher to identify.
The beauty of the bond market is that, unlike stocks, there is less emotion and speculation involved. Normally all you need to do is follow the economic data to get a firm handle on what�s happening and why. However, the impetus for Friday�s move higher in bond yields had a different source.
Friday�s jobs report was definitely a focal point for the markets. Traders worried that if job creation was overly robust, the numbers might give the Fed a reason to toss in another rate hike. However, when the report was actually released, both stock and bond markets celebrated the Goldilocks-like numbers. And with no sign of wage inflation in sight, it looked like a good day to be a bull.
But a funny thing happened on the way to the celebration. Instead of stocks enjoying another romp to new cycle highs on the idea that the Fed would soon stop raising rates, the market got whacked for a nearly triple-digit loss as interest rates moved up through resistance and moved ever closer to the 5% level on the 10-yr.
One had to look globally for the reason for the rise in bond yields. While the jobs report appeared benign to traders in the U.S., currency traders did not agree. Thus, it was a rise in the greenback that got bond traders� attention. With the dollar on the rise, the thinking was that both stock and bond traders might have missed something. That something was the issue of Japan raising rates. With speculation that the BOJ will soon begin actually raising rates (last time they simply hinted that the move was coming), traders understand that interest rates here at home will need to rise to stay competitive.
Therefore, with Europe and Japan in tightening modes, it follows that interest rates in the U.S. will have to rise. While it is true that the world is all too happy to keep lending us money to fund our massive deficits, the question of price is always an issue.
So, with rates rising, oil remaining stubbornly high, and earnings season just around the corner, the bulls decided to head home early. Sell programs took over and by the end of the day the week�s gains had evaporated. The good news is that the major indices simply pulled back to support on relatively light volume, so we probably shouldn�t hide our heads in the sand just yet.
Looking to the week ahead, brace yourself, because it�s earning season once again. The bulls are looking for another strong quarter and argue that the lack of preannouncements over the past month is an indication that companies will have predominantly good news. The season will kickoff, as usual, with a report from Alcoa after the close this afternoon. And for those of you keeping score at home, Reuters is looking for AA to post earnings of $0.52 per share.
In terms of economic data this week, it looks to be a fairly quiet week. There is no economic data scheduled for release today or tomorrow so traders will be focused almost completely on earnings. In looking at the rest of the week:
Wednesday: Trade Balance, Monthly Budget Statement
Thursday: March Retail Sales, Business Inventories, U of M�s Consumer Sentiment
Friday: Industrial Production
Turning to this morning, a story in the Washington Post which speculates that the U.S. is considering air strikes against Iran is moving oil prices higher. However, stock traders are not taking the threat seriously at this time.
Running through the pre-game indicators, the overseas markets are mixed. Oil futures are currently trading up $0.65 to $68.04. Natural Gas is trading lower by $0.04 to $6.71. Gold futures continue to attract attention and this morning are trading up $8.90 to $601.60. Bond yields are steady so far with the 2-yr yield at 4.90% and 10-yr currently trading at 4.97%. And finally, stock futures in the U.S. are mostly higher an hour before the bell with the Dow futures sporting a gain of +19 points, the S&Ps are higher by $1.50, but the NASDAQ futures are down by -1.50
Stocks �In Play� This Morning:
GOOG � Looking at Solix Technologies for entrance into Enterprise Search
IBM � Will release security system technology for handheld devices
NEM � Upgraded at Prudential
AMAT � Downgraded at UBS, Also KLAC, LRCX, VSEA
MOT � JPM upgrades sales estimates for handsets
CMX � Upgraded at Morgan Stanley
INTC � DigiTimes reports company may lower prices ahead of schedule
ESRX � Downgraded at Morgan Stanley
ANF � Upgraded at AG Edwards
BBI � Upgraded at Citigroup
RTN � Downgraded at Merrill
RIMM � Barron�s suggest competition looming
DIS � WSJ says company will begin offering free programs on Web
MSFT � Set to launch XBOX 360 in Eastern Europe, Middle East, and S. Africa
CHK � Raymond James upgrades CHK, OXY, UPL, XTO, BDE, CXG, CRK, EPL, RRC, and WGR due to supply interruptions.
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: IBM, MOT, CMX, ESRX, CHK
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 ran smack into a wall on Friday as bond yields reached levels not seen since June, 2002. In short, it was obvious that interest rates were the key to the session, but the reasons for the sudden move up were tougher to identify.
The beauty of the bond market is that, unlike stocks, there is less emotion and speculation involved. Normally all you need to do is follow the economic data to get a firm handle on what�s happening and why. However, the impetus for Friday�s move higher in bond yields had a different source.
Friday�s jobs report was definitely a focal point for the markets. Traders worried that if job creation was overly robust, the numbers might give the Fed a reason to toss in another rate hike. However, when the report was actually released, both stock and bond markets celebrated the Goldilocks-like numbers. And with no sign of wage inflation in sight, it looked like a good day to be a bull.
But a funny thing happened on the way to the celebration. Instead of stocks enjoying another romp to new cycle highs on the idea that the Fed would soon stop raising rates, the market got whacked for a nearly triple-digit loss as interest rates moved up through resistance and moved ever closer to the 5% level on the 10-yr.
One had to look globally for the reason for the rise in bond yields. While the jobs report appeared benign to traders in the U.S., currency traders did not agree. Thus, it was a rise in the greenback that got bond traders� attention. With the dollar on the rise, the thinking was that both stock and bond traders might have missed something. That something was the issue of Japan raising rates. With speculation that the BOJ will soon begin actually raising rates (last time they simply hinted that the move was coming), traders understand that interest rates here at home will need to rise to stay competitive.
Therefore, with Europe and Japan in tightening modes, it follows that interest rates in the U.S. will have to rise. While it is true that the world is all too happy to keep lending us money to fund our massive deficits, the question of price is always an issue.
So, with rates rising, oil remaining stubbornly high, and earnings season just around the corner, the bulls decided to head home early. Sell programs took over and by the end of the day the week�s gains had evaporated. The good news is that the major indices simply pulled back to support on relatively light volume, so we probably shouldn�t hide our heads in the sand just yet.
Looking to the week ahead, brace yourself, because it�s earning season once again. The bulls are looking for another strong quarter and argue that the lack of preannouncements over the past month is an indication that companies will have predominantly good news. The season will kickoff, as usual, with a report from Alcoa after the close this afternoon. And for those of you keeping score at home, Reuters is looking for AA to post earnings of $0.52 per share.
In terms of economic data this week, it looks to be a fairly quiet week. There is no economic data scheduled for release today or tomorrow so traders will be focused almost completely on earnings. In looking at the rest of the week:
Wednesday: Trade Balance, Monthly Budget Statement
Thursday: March Retail Sales, Business Inventories, U of M�s Consumer Sentiment
Friday: Industrial Production
Turning to this morning, a story in the Washington Post which speculates that the U.S. is considering air strikes against Iran is moving oil prices higher. However, stock traders are not taking the threat seriously at this time.
Running through the pre-game indicators, the overseas markets are mixed. Oil futures are currently trading up $0.65 to $68.04. Natural Gas is trading lower by $0.04 to $6.71. Gold futures continue to attract attention and this morning are trading up $8.90 to $601.60. Bond yields are steady so far with the 2-yr yield at 4.90% and 10-yr currently trading at 4.97%. And finally, stock futures in the U.S. are mostly higher an hour before the bell with the Dow futures sporting a gain of +19 points, the S&Ps are higher by $1.50, but the NASDAQ futures are down by -1.50
Stocks �In Play� This Morning:
GOOG � Looking at Solix Technologies for entrance into Enterprise Search
IBM � Will release security system technology for handheld devices
NEM � Upgraded at Prudential
AMAT � Downgraded at UBS, Also KLAC, LRCX, VSEA
MOT � JPM upgrades sales estimates for handsets
CMX � Upgraded at Morgan Stanley
INTC � DigiTimes reports company may lower prices ahead of schedule
ESRX � Downgraded at Morgan Stanley
ANF � Upgraded at AG Edwards
BBI � Upgraded at Citigroup
RTN � Downgraded at Merrill
RIMM � Barron�s suggest competition looming
DIS � WSJ says company will begin offering free programs on Web
MSFT � Set to launch XBOX 360 in Eastern Europe, Middle East, and S. Africa
CHK � Raymond James upgrades CHK, OXY, UPL, XTO, BDE, CXG, CRK, EPL, RRC, and WGR due to supply interruptions.
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: IBM, MOT, CMX, ESRX, CHK
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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