David Moenning�s Daily State of the Markets: 05/04
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Rethinking the Word Pause
A day after the Dow hit a fresh six-year high for no apparent reason, stocks pulled back for reasons that may also not have been terribly transparent. In short, traders in the bond pits spent much of the day rethinking the meaning of the word �pause,� which caused rates to rise and stocks to pull back.
With the economic reports coming in better than expected this week, the boys in the bond pits began to realize that Ben Bernanke�s use of the word �pause,� did NOT mean that the Fed was done raising rates. Yesterday, both the ISM Non-Manufacturing Business Activity Index and the report on March Factory Orders came in above consensus expectations. Instead of a decline, the ISM Index actually jumped 2.5 points and the New Orders component was even stronger. This led the analysts at Ned Davis Research to remark, �This is a strong report, one that is likely to keep the Fed on a tightening path.�
This view basically zapped the bulls momentum because, while it may have been a case of wishful thinking, lately, stocks have been acting as if Mr. Bernanke had said that the Fed was actually done raising rates. And with the FOMC meeting now just a week away and the economy looking stronger than ever, traders may be beginning to realize that while there may indeed be a break in the action, more rate increases are likely to be forthcoming.
Yesterday�s stock trading session highlighted the ongoing importance of trying to game the Fed�s next move. As traders fretted, not even a $2.33 drop in oil prices could keep the sellers at bay as worries over rates took center stage. At the end of the day, the yield on the 10-year finished at 5.144%, which was the highest close since May 21, 2002 and stocks were unable to advance.
Oil fell hard on the weekly inventory numbers as the Department of Energy reported that stockpiles of both crude and gasoline were actually much higher than expected. In addition, the report showed that refinery utilization was also on the rise, which quelled some fears about supplies.
After languishing for some time, technology was a bright spot yesterday as positive analyst comments on the semis and a decent earnings report from Qualcomm produced some buying in the sector. But other than that, there wasn�t a lot of good news to be found. Breadth was negative and volume picked up. However, with a decline of just 16 points, it was really more of a sloppy session and the bulls will probably claim a moral victory.
Turning to this morning, the Nonfarm Productivity report came in a bit stronger than expected at 3.2% versus expectations for 3.0% and the important Unit Labor Costs component was reported at 2.5% vs. 1.2%. Stocks and bonds have both moved down a smidge in response to the report. In other news this morning, as expected both the Bank of England and the ECB left interest rates unchanged. But with room for rates to rise overseas, the dollar continues to be under pressure.
Running through the rest of the pre-game indicators, overseas markets are mostly higher. Oil futures are again pulling back and are currently trading down -$0.96 $71.32. Natural Gas is also trading lower to $6.53. Gold is quoted this morning at $667.70. Interest rates are moving higher this morning with the 2-year currently trading at 4.97% and the 10-yr is at 5.17%. And finally, stock futures in the U.S. are pointing to a flat to lower open with the Dow futures down about a point, the S&Ps are also off by about 1 point, while the NASDAQ futures are actually gaining a point.
Stocks �In Play� This Morning:
Prudential (PRU) � Reported $1.38 vs. $1.34, Revenues $6.13B vs. $6.06
Qlogic (QLGC) � Reported $0.21 vs. $0.18, Revenues $130.5M vs. $127.6M
Starbucks (SBUX) � Reported $0.16 vs. $0.14, Revenues $1.89B vs. $1.87B, Raises Guidance
Sunoco (SUN) � Reported $0.59 vs. $0.82, Revenues $8.59B vs. $6.39B
Trinity Inds (TRN) � Reported $0.70 vs. $0.63, Revenues $760.8M vs. $780.9
Whole Foods (WFMI) � Reported $0.36 vs. $0.36, Revenues $1.31B vs. $1.32B
Cigna (CI) � Downgraded at JP Morgan and Lehman
Aetna (AET) � Downgraded at JP Morgan
Total (TOT) � Positive mention in WSJ
Career Education (CECO) � Downgraded at Credit Suisse
Franklin Res (BEN) � Downgraded at Bear Stearns and Keefe Bruyette
Credit Suisse (CSR) � Upgraded at Bear Stearns
Amazon.com (AMZN) � Upgraded at Citigroup
Kohls (KSS) � April sales +13.4% vs 5.4%
Saks (SKS) � April sales +7.2% vs 2.6%
American Eagle (AEOS) � April sales +19% vs. 9.6%
Nordstroms (JWN) � April sales +7.3% vs. 4.9%
Abercrombie & Fitch (ANF) � April sales +17% vs. 7.5%
Nvidia (NVDA) � Downgraded at AmTech
Disclosure: Long positions in stocks mentioned: BSC, TRN, SUN, JPM, LEH, NVDA
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.
A day after the Dow hit a fresh six-year high for no apparent reason, stocks pulled back for reasons that may also not have been terribly transparent. In short, traders in the bond pits spent much of the day rethinking the meaning of the word �pause,� which caused rates to rise and stocks to pull back.
With the economic reports coming in better than expected this week, the boys in the bond pits began to realize that Ben Bernanke�s use of the word �pause,� did NOT mean that the Fed was done raising rates. Yesterday, both the ISM Non-Manufacturing Business Activity Index and the report on March Factory Orders came in above consensus expectations. Instead of a decline, the ISM Index actually jumped 2.5 points and the New Orders component was even stronger. This led the analysts at Ned Davis Research to remark, �This is a strong report, one that is likely to keep the Fed on a tightening path.�
This view basically zapped the bulls momentum because, while it may have been a case of wishful thinking, lately, stocks have been acting as if Mr. Bernanke had said that the Fed was actually done raising rates. And with the FOMC meeting now just a week away and the economy looking stronger than ever, traders may be beginning to realize that while there may indeed be a break in the action, more rate increases are likely to be forthcoming.
Yesterday�s stock trading session highlighted the ongoing importance of trying to game the Fed�s next move. As traders fretted, not even a $2.33 drop in oil prices could keep the sellers at bay as worries over rates took center stage. At the end of the day, the yield on the 10-year finished at 5.144%, which was the highest close since May 21, 2002 and stocks were unable to advance.
Oil fell hard on the weekly inventory numbers as the Department of Energy reported that stockpiles of both crude and gasoline were actually much higher than expected. In addition, the report showed that refinery utilization was also on the rise, which quelled some fears about supplies.
After languishing for some time, technology was a bright spot yesterday as positive analyst comments on the semis and a decent earnings report from Qualcomm produced some buying in the sector. But other than that, there wasn�t a lot of good news to be found. Breadth was negative and volume picked up. However, with a decline of just 16 points, it was really more of a sloppy session and the bulls will probably claim a moral victory.
Turning to this morning, the Nonfarm Productivity report came in a bit stronger than expected at 3.2% versus expectations for 3.0% and the important Unit Labor Costs component was reported at 2.5% vs. 1.2%. Stocks and bonds have both moved down a smidge in response to the report. In other news this morning, as expected both the Bank of England and the ECB left interest rates unchanged. But with room for rates to rise overseas, the dollar continues to be under pressure.
Running through the rest of the pre-game indicators, overseas markets are mostly higher. Oil futures are again pulling back and are currently trading down -$0.96 $71.32. Natural Gas is also trading lower to $6.53. Gold is quoted this morning at $667.70. Interest rates are moving higher this morning with the 2-year currently trading at 4.97% and the 10-yr is at 5.17%. And finally, stock futures in the U.S. are pointing to a flat to lower open with the Dow futures down about a point, the S&Ps are also off by about 1 point, while the NASDAQ futures are actually gaining a point.
Stocks �In Play� This Morning:
Prudential (PRU) � Reported $1.38 vs. $1.34, Revenues $6.13B vs. $6.06
Qlogic (QLGC) � Reported $0.21 vs. $0.18, Revenues $130.5M vs. $127.6M
Starbucks (SBUX) � Reported $0.16 vs. $0.14, Revenues $1.89B vs. $1.87B, Raises Guidance
Sunoco (SUN) � Reported $0.59 vs. $0.82, Revenues $8.59B vs. $6.39B
Trinity Inds (TRN) � Reported $0.70 vs. $0.63, Revenues $760.8M vs. $780.9
Whole Foods (WFMI) � Reported $0.36 vs. $0.36, Revenues $1.31B vs. $1.32B
Cigna (CI) � Downgraded at JP Morgan and Lehman
Aetna (AET) � Downgraded at JP Morgan
Total (TOT) � Positive mention in WSJ
Career Education (CECO) � Downgraded at Credit Suisse
Franklin Res (BEN) � Downgraded at Bear Stearns and Keefe Bruyette
Credit Suisse (CSR) � Upgraded at Bear Stearns
Amazon.com (AMZN) � Upgraded at Citigroup
Kohls (KSS) � April sales +13.4% vs 5.4%
Saks (SKS) � April sales +7.2% vs 2.6%
American Eagle (AEOS) � April sales +19% vs. 9.6%
Nordstroms (JWN) � April sales +7.3% vs. 4.9%
Abercrombie & Fitch (ANF) � April sales +17% vs. 7.5%
Nvidia (NVDA) � Downgraded at AmTech
Disclosure: Long positions in stocks mentioned: BSC, TRN, SUN, JPM, LEH, NVDA
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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