David Moenning�s Daily State of the Markets: 05/02
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Bernanke Taketh Away
Last week stocks sprung higher on Ben Bernanke�s testimony before Congress, which seemed to suggest that the Fed was about done with its regularly scheduled rate hikes. In light of the fact that the new FOMC chairman had pledged a more transparent and plain talking Fed, it seemed quite clear to Fed-watchers everywhere that the testimony was intended to let the markets know that the Fed was about done, well, for now anyway.
However, yesterday at 3:20 pm, CNBC aired a report stating that Mr. Bernanke feels the markets had misunderstood his comments. So, just as the Fed Chairman�s words had given the market life, this new comment took away the gains of the day as traders worried about a potential flip-flop.
In an interview over the weekend with Maria Bartiromo, Bernanke said the media misunderstood his remarks last week. He mentioned that his testimony was simply designed to create some flexibility for the FOMC. This report definitely upset an otherwise nice day for the bulls and seemed to directly contradict earlier comments from Atlanta Fed President Jack Guynn. While Bernanke appeared to be backpedaling, Mr. Guynn�s comments seemed to mirror those made recently by other Fed officials. Mr. Guynn�s statement was highlighted by the words �properly calibrated� being used to describe current monetary policy.
Prior to the knee-jerk reaction to Bernanke�s comments, the markets had been focusing on the strong economic data and the good news from Wal-Mart (the company said sales increased by 6.8% versus guidance of 4% to 6%). Thus, the growth prospects for the economy going forward clearly outweighed sharply higher oil prices and surging bond yields.
On the oil front, the situation in Iran appears to worsen by the day as yesterday Iran stated that oil prices were almost certain to rise if the UN decides to impose sanctions. The escalating rhetoric coupled with the ongoing problem in Nigeria sent crude prices up $1.82 to $73.70. And prices are continuing to rise this morning on word that Iran�s Deputy Oil Minister says oil may hit $100 this year.
The other big story of the day was the nearly 4-year highs for bond yields. The yield on the 10-year bond moved up strongly to a new cycle high, going from 5.07% to 5.13% on the session. Yields first moved up on the Personal Income and Spending report and then took another leg higher following the 10:00 am reports on ISM Manufacturing and Construction Spending � both of which came in stronger than expected.
So at the end of the day, it appears that although he is new on the job, Mr. Bernanke�s words have the ability to both giveth and taketh away in terms of stock prices. But given the abundance of comments made from other Fed officials lately, we probably shouldn�t get too worked up over the yet-to be aired interview.
Turning to this morning, stronger global markets and ongoing solid earnings seem to be lending the bulls a hand before the bell. There is no economic news before the onset of stock trading, but we will get a report on Pending Home Sales at 10:00 am.
Running through the rest of the pre-game indicators, overseas markets are higher across the board with Hong Kong gaining +1.24%, Japan +1.35%, France +0.8%, Germany +0.5%, and the UK +0.7%. Oil futures continue to trade higher in response to the news out of Iran and are currently up $0.45 to $74.15. Natural Gas is also trading a higher to $6.87. Gold continues to react inversely to the U.S. Dollar and is quoted this morning at $662.90. Interest rates are little changed this morning after yesterday�s big move. The 2-year is currently trading at 4.95% and the 10-yr is at 5.12%. And finally, stock futures in the U.S. are pointing to a higher open with the Dow futures about 20 points ahead of fair value an hour before the bell, the S&Ps are higher by about 3 points, and the NASDAQ futures are gaining 7.
Stocks �In Play� This Morning:
Chesapeake Energy (CHK) � Reported $1.07 vs. $0.98 Revenues $1.94B vs. $1.67B
Hercules Offshore (HERO) � Upgraded at Citigroup
Phelps Dodge (PD) � Initiated overweight at Morgan Stanley
Caremark Rx (CMX) � Reported $0.51 vs. $0.50, Revenues $8.91B vs. $8.73B
Lehman Bros (LEH) � Downgraded at Wachovia
Humana (HUM) � Upgraded at UBS
Southwest Airlines (LUV) � Upgraded at JP Morgan
Hovnanian Enterprises (HOV) � Reduces Q2 guidance
Jet Blue (JBLU) � Downgraded at JP Morgan
Apple (AAPL) � Renews contracts to keep iTunes prices at $0.99
OshKosh Truck (OSK) � Reported $0.67 vs. $0.65, Revenues $844.8M vs. $828.5M
Principal Financial Group (PFG) � Reported $0.85 vs. $0.76, Revenues $2.39B vs. $2.31B
Sirius Satellite Radio (SIRI) � Reported ($0.33) vs. ($0.37), Revenues $126.7M vs. $126.0M
Canon (CAJ) � Mentioned positively at Goldman Sachs
St Paul Travelers (STA) � Reported $1.41 vs. $1.29, Revenues $6.05B vs. $5.46B, guides higher
Verizon (VZ) � Reported $0.60 vs. $0.59, Revenues $22.7B vs. $ 22.9B
Disclosure: Long positions in stocks mentioned: CHK, MS, LEH, GS
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.
Last week stocks sprung higher on Ben Bernanke�s testimony before Congress, which seemed to suggest that the Fed was about done with its regularly scheduled rate hikes. In light of the fact that the new FOMC chairman had pledged a more transparent and plain talking Fed, it seemed quite clear to Fed-watchers everywhere that the testimony was intended to let the markets know that the Fed was about done, well, for now anyway.
However, yesterday at 3:20 pm, CNBC aired a report stating that Mr. Bernanke feels the markets had misunderstood his comments. So, just as the Fed Chairman�s words had given the market life, this new comment took away the gains of the day as traders worried about a potential flip-flop.
In an interview over the weekend with Maria Bartiromo, Bernanke said the media misunderstood his remarks last week. He mentioned that his testimony was simply designed to create some flexibility for the FOMC. This report definitely upset an otherwise nice day for the bulls and seemed to directly contradict earlier comments from Atlanta Fed President Jack Guynn. While Bernanke appeared to be backpedaling, Mr. Guynn�s comments seemed to mirror those made recently by other Fed officials. Mr. Guynn�s statement was highlighted by the words �properly calibrated� being used to describe current monetary policy.
Prior to the knee-jerk reaction to Bernanke�s comments, the markets had been focusing on the strong economic data and the good news from Wal-Mart (the company said sales increased by 6.8% versus guidance of 4% to 6%). Thus, the growth prospects for the economy going forward clearly outweighed sharply higher oil prices and surging bond yields.
On the oil front, the situation in Iran appears to worsen by the day as yesterday Iran stated that oil prices were almost certain to rise if the UN decides to impose sanctions. The escalating rhetoric coupled with the ongoing problem in Nigeria sent crude prices up $1.82 to $73.70. And prices are continuing to rise this morning on word that Iran�s Deputy Oil Minister says oil may hit $100 this year.
The other big story of the day was the nearly 4-year highs for bond yields. The yield on the 10-year bond moved up strongly to a new cycle high, going from 5.07% to 5.13% on the session. Yields first moved up on the Personal Income and Spending report and then took another leg higher following the 10:00 am reports on ISM Manufacturing and Construction Spending � both of which came in stronger than expected.
So at the end of the day, it appears that although he is new on the job, Mr. Bernanke�s words have the ability to both giveth and taketh away in terms of stock prices. But given the abundance of comments made from other Fed officials lately, we probably shouldn�t get too worked up over the yet-to be aired interview.
Turning to this morning, stronger global markets and ongoing solid earnings seem to be lending the bulls a hand before the bell. There is no economic news before the onset of stock trading, but we will get a report on Pending Home Sales at 10:00 am.
Running through the rest of the pre-game indicators, overseas markets are higher across the board with Hong Kong gaining +1.24%, Japan +1.35%, France +0.8%, Germany +0.5%, and the UK +0.7%. Oil futures continue to trade higher in response to the news out of Iran and are currently up $0.45 to $74.15. Natural Gas is also trading a higher to $6.87. Gold continues to react inversely to the U.S. Dollar and is quoted this morning at $662.90. Interest rates are little changed this morning after yesterday�s big move. The 2-year is currently trading at 4.95% and the 10-yr is at 5.12%. And finally, stock futures in the U.S. are pointing to a higher open with the Dow futures about 20 points ahead of fair value an hour before the bell, the S&Ps are higher by about 3 points, and the NASDAQ futures are gaining 7.
Stocks �In Play� This Morning:
Chesapeake Energy (CHK) � Reported $1.07 vs. $0.98 Revenues $1.94B vs. $1.67B
Hercules Offshore (HERO) � Upgraded at Citigroup
Phelps Dodge (PD) � Initiated overweight at Morgan Stanley
Caremark Rx (CMX) � Reported $0.51 vs. $0.50, Revenues $8.91B vs. $8.73B
Lehman Bros (LEH) � Downgraded at Wachovia
Humana (HUM) � Upgraded at UBS
Southwest Airlines (LUV) � Upgraded at JP Morgan
Hovnanian Enterprises (HOV) � Reduces Q2 guidance
Jet Blue (JBLU) � Downgraded at JP Morgan
Apple (AAPL) � Renews contracts to keep iTunes prices at $0.99
OshKosh Truck (OSK) � Reported $0.67 vs. $0.65, Revenues $844.8M vs. $828.5M
Principal Financial Group (PFG) � Reported $0.85 vs. $0.76, Revenues $2.39B vs. $2.31B
Sirius Satellite Radio (SIRI) � Reported ($0.33) vs. ($0.37), Revenues $126.7M vs. $126.0M
Canon (CAJ) � Mentioned positively at Goldman Sachs
St Paul Travelers (STA) � Reported $1.41 vs. $1.29, Revenues $6.05B vs. $5.46B, guides higher
Verizon (VZ) � Reported $0.60 vs. $0.59, Revenues $22.7B vs. $ 22.9B
Disclosure: Long positions in stocks mentioned: CHK, MS, LEH, GS
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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