David Moenning�s Daily State of the Markets: 05/01
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Stimulus Interruptus
To be sure, the bulls have had plenty of help in stimulating demand for stock prices lately. The glass-is-half-full gang has been able to count on better than expected earnings and the idea that the Fed is about done to move prices higher. Well, until Friday, that is, when the stimulus for buying seemed to have been interrupted.
Iran�s defiance of the West, an increase in oil prices, a big miss by Mr. Softie (Microsoft), mixed economic news, and threats of a walkout by the nation�s immigrants combined to put a damper on the bulls� fun. And while the end result wasn�t exactly life threatening for the bullishly inclined, the stimulus to buy definitely appeared diminished.
There were three primary causes for traders to adopt a �wait and see� attitude. First, there was the report from the UN Security Council which indicated that Iran has failed to meet its deadline to halt uranium enrichment and so far at least, refuses to cooperate with UN inspectors. Next up, Microsoft�s big earnings miss, along with the corresponding -11% decline in the stock price, definitely put a damper on all things tech on the day. And then the inflation component of the GDP report may have encouraged the bulls to simply head home early.
The reports out of Iran put fears of supply interruption back on the table and oil prices bounced up $0.91 after four straight days of losses. This issue seems destined for at least some sort of showdown. And while the threat of military intervention seems unlikely at this point, the risk premium in the price of oil remains robust.
Microsoft became the season�s highest profile earnings disappointment by reporting earnings that were a penny light and providing guidance for the year that was well below analyst estimates. And with no stimulus other than a likely near-term trading bounce, most managers decided to sell first and ask questions later. MSFT experienced its biggest one-day decline since the early days of the bear market, falling -11.38% on 591 million shares.
Inflation worries also cropped up a little on Friday morning after the government�s report on the first quarter�s GDP showed the prices component was higher than expected. However, the employment cost index helped offset these worries, keeping the notion of inflation mostly on the back burner for now.
Stocks responded to the day�s stimuli with a lackluster performance. Not unexpectedly, the DJIA and NASDAQ suffered from Microsoft�s troubles, while the S&P and small caps benefited from the resurgence in banking and oil shares.
Looking ahead to this week, the economic data scheduled for release may provide some additional stimulus. Of course the question of which team will benefit is always open for debate.
Monday � Personal Income and Spending, Construction Spending, ISM Index
Tuesday � Pending Home Sales
Wednesday � Factory Orders, ISM Non-Manufacturing
Thursday � Productivity Report
Friday � April Employment Report
Turning to this morning, things are fairly quiet in the pre-market with most of Europe and Asia closed for the May-Day holiday. This morning�s economic news came in a bit better than expected with Personal Income reported at +0.8% versus expectations for +0.4%, Personal Spending came in at +0.6% vs. +0.4%, while the PCE Deflator (inflation) was right on target with an increase of 2.9%
Running through the rest of the pre-game indicators, oil futures are currently trading higher by $0.48 to $72.36 on word of a refinery fire in Italy. Natural Gas is also trading a bit higher to $6.67. Gold is continuing to quietly move higher and is quoted this morning at $657.80. Interest rates are little changed this morning with the 2-year currently trading at 4.89% and the 10-yr is at 5.08%. And finally, stock futures in the U.S. are pointing to a mixed open with the Dow futures down -2 points an hour before the bell, the S&Ps are higher by 1.9 points, and the NASDAQ futures are gaining 3.
Stocks �In Play� This Morning:
Google (GOOG) � Considered most overvalued stock by Barron�s Big Money Poll
Travelzoo (TZOO) � Barron�s mentions cautiously
Snap On (SNA) � Barron�s mentions positively
Yahoo (YHOO) � Planning new site Yahoo Tech
Microsoft (MSFT) � GOOG complains new browser is unfair
Wal-Mart (WMT) � April sales projected to be higher than estimates
Air Products (APD) � Downgraded at Citigroup
Lyondell Chemical (LYO) � Upgraded at Credit Suisse
Noble Corp (NE) � Downgraded at Morgan Stanley with RIG and DO
Atwood Oceanics (ATW) � Downgraded at Credit Suisse and Jeffries
Automatic Data Processing (ADP) � Upgraded at Deutsche
Starbucks (SBUX) � NY Times says company to announce promotion of movies and books
Dynegy (DYN) � To restate 2005 financials
Humana (HUM) � Reports $0.50 vs. $0.45, Revenues $4.7B vs. $4.73B
Napster (NAPS) � Napster.com is first legal free music service
Motorola (MOT) � Ups quarterly dividend by 25% to $.05 per share
Goldman Sachs (GS) � BofA increases estimates on GS, BSC, MS, LEH, and AGE
Disclosure: Long positions in stocks mentioned: GS, BSC, 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.
To be sure, the bulls have had plenty of help in stimulating demand for stock prices lately. The glass-is-half-full gang has been able to count on better than expected earnings and the idea that the Fed is about done to move prices higher. Well, until Friday, that is, when the stimulus for buying seemed to have been interrupted.
Iran�s defiance of the West, an increase in oil prices, a big miss by Mr. Softie (Microsoft), mixed economic news, and threats of a walkout by the nation�s immigrants combined to put a damper on the bulls� fun. And while the end result wasn�t exactly life threatening for the bullishly inclined, the stimulus to buy definitely appeared diminished.
There were three primary causes for traders to adopt a �wait and see� attitude. First, there was the report from the UN Security Council which indicated that Iran has failed to meet its deadline to halt uranium enrichment and so far at least, refuses to cooperate with UN inspectors. Next up, Microsoft�s big earnings miss, along with the corresponding -11% decline in the stock price, definitely put a damper on all things tech on the day. And then the inflation component of the GDP report may have encouraged the bulls to simply head home early.
The reports out of Iran put fears of supply interruption back on the table and oil prices bounced up $0.91 after four straight days of losses. This issue seems destined for at least some sort of showdown. And while the threat of military intervention seems unlikely at this point, the risk premium in the price of oil remains robust.
Microsoft became the season�s highest profile earnings disappointment by reporting earnings that were a penny light and providing guidance for the year that was well below analyst estimates. And with no stimulus other than a likely near-term trading bounce, most managers decided to sell first and ask questions later. MSFT experienced its biggest one-day decline since the early days of the bear market, falling -11.38% on 591 million shares.
Inflation worries also cropped up a little on Friday morning after the government�s report on the first quarter�s GDP showed the prices component was higher than expected. However, the employment cost index helped offset these worries, keeping the notion of inflation mostly on the back burner for now.
Stocks responded to the day�s stimuli with a lackluster performance. Not unexpectedly, the DJIA and NASDAQ suffered from Microsoft�s troubles, while the S&P and small caps benefited from the resurgence in banking and oil shares.
Looking ahead to this week, the economic data scheduled for release may provide some additional stimulus. Of course the question of which team will benefit is always open for debate.
Monday � Personal Income and Spending, Construction Spending, ISM Index
Tuesday � Pending Home Sales
Wednesday � Factory Orders, ISM Non-Manufacturing
Thursday � Productivity Report
Friday � April Employment Report
Turning to this morning, things are fairly quiet in the pre-market with most of Europe and Asia closed for the May-Day holiday. This morning�s economic news came in a bit better than expected with Personal Income reported at +0.8% versus expectations for +0.4%, Personal Spending came in at +0.6% vs. +0.4%, while the PCE Deflator (inflation) was right on target with an increase of 2.9%
Running through the rest of the pre-game indicators, oil futures are currently trading higher by $0.48 to $72.36 on word of a refinery fire in Italy. Natural Gas is also trading a bit higher to $6.67. Gold is continuing to quietly move higher and is quoted this morning at $657.80. Interest rates are little changed this morning with the 2-year currently trading at 4.89% and the 10-yr is at 5.08%. And finally, stock futures in the U.S. are pointing to a mixed open with the Dow futures down -2 points an hour before the bell, the S&Ps are higher by 1.9 points, and the NASDAQ futures are gaining 3.
Stocks �In Play� This Morning:
Google (GOOG) � Considered most overvalued stock by Barron�s Big Money Poll
Travelzoo (TZOO) � Barron�s mentions cautiously
Snap On (SNA) � Barron�s mentions positively
Yahoo (YHOO) � Planning new site Yahoo Tech
Microsoft (MSFT) � GOOG complains new browser is unfair
Wal-Mart (WMT) � April sales projected to be higher than estimates
Air Products (APD) � Downgraded at Citigroup
Lyondell Chemical (LYO) � Upgraded at Credit Suisse
Noble Corp (NE) � Downgraded at Morgan Stanley with RIG and DO
Atwood Oceanics (ATW) � Downgraded at Credit Suisse and Jeffries
Automatic Data Processing (ADP) � Upgraded at Deutsche
Starbucks (SBUX) � NY Times says company to announce promotion of movies and books
Dynegy (DYN) � To restate 2005 financials
Humana (HUM) � Reports $0.50 vs. $0.45, Revenues $4.7B vs. $4.73B
Napster (NAPS) � Napster.com is first legal free music service
Motorola (MOT) � Ups quarterly dividend by 25% to $.05 per share
Goldman Sachs (GS) � BofA increases estimates on GS, BSC, MS, LEH, and AGE
Disclosure: Long positions in stocks mentioned: GS, BSC, 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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