David Moenning�s Daily State of the Markets: 04/27
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Is Good News REALLY Good News?
Strong earnings, lower oil, good economic news, and an upgrade for GM combined to put the bulls back in business yesterday. One day after too much of a good thing appeared to be bad; traders ignored the idea that positive economic news would spur the Fed to add another rate hike or two and moved stocks higher.
Another round of economic data showing strength in the economy would normally cause traders to fret about the Fed. In fact, yesterday�s reports would seem to indicate that the Fed�s rate hikes have not really slowed the economy and that the FOMC is not likely to call it quits at the May meeting. But, then again, the current campaign wasn�t really designed to slow things down and most investors feel that the economy can easily survive another bump or two in short-term rates (the Fed Funds futures are now pricing in a 75% chance of another hike in June).
Although stock traders focused on earnings reports, the stronger-than expected economic data wasn�t lost on the boys in the bond pits. The yield on the 2-year briefly pushed above 5% for the first time since 2001, and the 10-yr yield moved up again, finishing the day at 5.11%.
As we reported before the bell yesterday, the report on Durable Goods sales came in almost four times higher than expectations. And even excluding transportation (aircraft orders surged 71%), orders for durable goods increased an impressive 2.8%. In the technology sector, orders for computers and electronics rose by 7.5%, which was the second biggest gain in the area since the bubble days of 2000. In short, the report shows an economy that is humming along nicely.
We also got good news on the housing front yesterday. While some analysts have been making dire predictions on the future of the housing market, the data seems to indicate that we�ve got something along the lines of a minor slowdown instead. Sales of new homes jumped a surprising 13.8% in March, which was the fastest rate of growth in more than 12 years. Analysts had been looking for an increase in the range of +3%. And as one might expect, higher interest rates have had an impact on the market as prices are down a bit from year-ago levels. All in all, we should probably look for a continued slowdown in housing, but the pullback from last year�s excessive levels isn�t exactly surprising.
Economists also got to sift through the Fed�s Beige Book report yesterday. While the FOMC really doesn�t put a lot of emphasis on this particular report, the data showed that the economy continued to expand in March and into the first half of April. The majority of the Fed�s 12 districts reported that high energy prices were creating some pressure on prices, but the report also showed that manufacturers are having trouble passing on these higher costs.
At the end of the day, all the good news and an 8% move in GM helped the blue chips to a nice gain while the techs, small caps, and mid caps struggled with breakeven. Ongoing talk of windfall profit taxation hurt oil companies and the semis wound up losing ground on the session. So while we can�t exactly call it a broad-based gain, the bulls were happy to see the Dow eek out another fresh six-year high.
Turning to this morning, there isn�t any major economic data to review. However, traders are anxiously awaiting Fed Chairman Bernanke�s testimony this morning. Of particular interest will be the chairman�s views on the recent spike in energy prices and the future of monetary policy.
But, the big story of the day so far is China�s decision to raise interest rates. The Chinese Central Bank raised their one-year rate to 5.85% and has joined the crowd of nations now in tightening mode. The move has put pressure on stocks and bonds in the pre-market. The yield on the 10-yr yield is currently trading at 5.13%.
Running through the rest of the pre-game indicators, overseas were markets were higher in Asia but are lower across the board in Europe this morning. Oil futures are currently trading lower by another $0.74 to $71.19. Natural Gas is trading lower by $0.15 to $7.12. Gold is falling this morning to $632.40. And as we mentioned, interest rates are higher this morning with the 2-year currently trading at 5%. And finally, stock futures in the U.S. are pointing to a lower open with the Dow futures down -47 points, the S&Ps are lower by -5.8 points, and the NASDAQ futures are also down by -7.80.
Stocks �In Play� This Morning:
EBay (EBAY) � Removed from recommended list at Citigroup
Sealed Air (SEE) � Downgraded at Merrill
JDA Software (JDAS) � Downgraded at Montgomery
Companhania Do Rio (RIO) � Mentioned positively in IBD
Taiwan Semi (TSM) � Reported $0.20 vs. $0.18, Revenues $2.41B vs. $2.32B
Hershey (HSY) � Mentioned positively in Barron�s
ST Microelectronics (STM) � Downgraded at Lehman
Dow Chemical (DOW) � Reported $1.24 vs. $1.18, Revenues $12.02B vs. $12.2B
Astrazeneca (AZN) � Reported $0.90 vs. $0.80, Revenues $6.18B vs. $6.20B, Guides higher
Atena (AET) � Reported $0.64 vs. $0.68, Revenues $6.20B vs. $6.06
Boeing (BA) � China Airlines buying 10 747-9 aircraft for $2.5B
LSI Logic (LSI) � Reported $0.11 vs. $0.07, Revenues $475.9M vs. $480.5M, Guides higher
NCR Corp (NCR) � Reported $0.22 vs. $0.19, Revenues $1.28B vs. $1.33
Disclosure: Long positions in stocks mentioned: MER, LEH
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.
Strong earnings, lower oil, good economic news, and an upgrade for GM combined to put the bulls back in business yesterday. One day after too much of a good thing appeared to be bad; traders ignored the idea that positive economic news would spur the Fed to add another rate hike or two and moved stocks higher.
Another round of economic data showing strength in the economy would normally cause traders to fret about the Fed. In fact, yesterday�s reports would seem to indicate that the Fed�s rate hikes have not really slowed the economy and that the FOMC is not likely to call it quits at the May meeting. But, then again, the current campaign wasn�t really designed to slow things down and most investors feel that the economy can easily survive another bump or two in short-term rates (the Fed Funds futures are now pricing in a 75% chance of another hike in June).
Although stock traders focused on earnings reports, the stronger-than expected economic data wasn�t lost on the boys in the bond pits. The yield on the 2-year briefly pushed above 5% for the first time since 2001, and the 10-yr yield moved up again, finishing the day at 5.11%.
As we reported before the bell yesterday, the report on Durable Goods sales came in almost four times higher than expectations. And even excluding transportation (aircraft orders surged 71%), orders for durable goods increased an impressive 2.8%. In the technology sector, orders for computers and electronics rose by 7.5%, which was the second biggest gain in the area since the bubble days of 2000. In short, the report shows an economy that is humming along nicely.
We also got good news on the housing front yesterday. While some analysts have been making dire predictions on the future of the housing market, the data seems to indicate that we�ve got something along the lines of a minor slowdown instead. Sales of new homes jumped a surprising 13.8% in March, which was the fastest rate of growth in more than 12 years. Analysts had been looking for an increase in the range of +3%. And as one might expect, higher interest rates have had an impact on the market as prices are down a bit from year-ago levels. All in all, we should probably look for a continued slowdown in housing, but the pullback from last year�s excessive levels isn�t exactly surprising.
Economists also got to sift through the Fed�s Beige Book report yesterday. While the FOMC really doesn�t put a lot of emphasis on this particular report, the data showed that the economy continued to expand in March and into the first half of April. The majority of the Fed�s 12 districts reported that high energy prices were creating some pressure on prices, but the report also showed that manufacturers are having trouble passing on these higher costs.
At the end of the day, all the good news and an 8% move in GM helped the blue chips to a nice gain while the techs, small caps, and mid caps struggled with breakeven. Ongoing talk of windfall profit taxation hurt oil companies and the semis wound up losing ground on the session. So while we can�t exactly call it a broad-based gain, the bulls were happy to see the Dow eek out another fresh six-year high.
Turning to this morning, there isn�t any major economic data to review. However, traders are anxiously awaiting Fed Chairman Bernanke�s testimony this morning. Of particular interest will be the chairman�s views on the recent spike in energy prices and the future of monetary policy.
But, the big story of the day so far is China�s decision to raise interest rates. The Chinese Central Bank raised their one-year rate to 5.85% and has joined the crowd of nations now in tightening mode. The move has put pressure on stocks and bonds in the pre-market. The yield on the 10-yr yield is currently trading at 5.13%.
Running through the rest of the pre-game indicators, overseas were markets were higher in Asia but are lower across the board in Europe this morning. Oil futures are currently trading lower by another $0.74 to $71.19. Natural Gas is trading lower by $0.15 to $7.12. Gold is falling this morning to $632.40. And as we mentioned, interest rates are higher this morning with the 2-year currently trading at 5%. And finally, stock futures in the U.S. are pointing to a lower open with the Dow futures down -47 points, the S&Ps are lower by -5.8 points, and the NASDAQ futures are also down by -7.80.
Stocks �In Play� This Morning:
EBay (EBAY) � Removed from recommended list at Citigroup
Sealed Air (SEE) � Downgraded at Merrill
JDA Software (JDAS) � Downgraded at Montgomery
Companhania Do Rio (RIO) � Mentioned positively in IBD
Taiwan Semi (TSM) � Reported $0.20 vs. $0.18, Revenues $2.41B vs. $2.32B
Hershey (HSY) � Mentioned positively in Barron�s
ST Microelectronics (STM) � Downgraded at Lehman
Dow Chemical (DOW) � Reported $1.24 vs. $1.18, Revenues $12.02B vs. $12.2B
Astrazeneca (AZN) � Reported $0.90 vs. $0.80, Revenues $6.18B vs. $6.20B, Guides higher
Atena (AET) � Reported $0.64 vs. $0.68, Revenues $6.20B vs. $6.06
Boeing (BA) � China Airlines buying 10 747-9 aircraft for $2.5B
LSI Logic (LSI) � Reported $0.11 vs. $0.07, Revenues $475.9M vs. $480.5M, Guides higher
NCR Corp (NCR) � Reported $0.22 vs. $0.19, Revenues $1.28B vs. $1.33
Disclosure: Long positions in stocks mentioned: MER, LEH
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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