David Moenning�s Daily State of the Markets: 05/08
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The Countdowns Begin
With the Dow blasting higher by 138 points on Friday and reaching its highest level since January 2000, the countdown to the old highs for the venerable index has definitely begun. And while all of the indices enjoyed solid gains on the back of Goldilocks� latest appearance, the bulls have to be pleased to see the NYSE, Russell 2000, and both the S&P Small Cap and Mid Cap indices march on to fresh all-time highs.
The surge higher was based on the hope that the weakness seen in the employment report will be enough to encourage Mr. Bernanke to announce at least a pause in the Fed�s hike down the measured path. The jobs report was cool enough to encourage the hope of less action by the Fed and yet not cold enough to cause worries over the economy.
The Labor Department reported that Nonfarm Payrolls rose by 138k in April, which was well below expectations for a rise of 205k and the smallest increase in six months. In addition, the total job growth for the two months prior were both revised lower by a total of 36,000 jobs. The bulls took one look at the report and assumed that this would be just the ticket they needed.
With most traders believing the jobs data supports the idea that the Fed will pause the rate hike campaign this week, Friday�s battle cry became �Goldilocks is back.� Most everyone embraced the concept and stocks took off at the open, and never looked back.
However, while the data does appear to support a pause at Wednesday�s meeting, we need to recognize that the jobs report also showed some signs of strength. The average workweek rose to its highest level (meaning the longest workweek in terms of hours) since September 2002. In addition, average hourly earnings jumped 9 cents, which, when combined with the upward revision to March�s numbers brought the year-over-year change to 3.8% and marks the highest level since August 2001. And finally, when you combine hours worked and wages paid, you get aggregate payrolls, which rose the most since the fall of 1998.
Today begins a countdown of another sort, as anyone even remotely related to the stock market is counting the hours until we hear what Mr. Bernanke and Co. have to say on Wednesday at 2:15 eastern. While stocks may continue to discount the �rumor� of a pause, we should be on our toes for the bears to �sell the news� when and if, a pause is announced.
Looking ahead to the rest of the week, there is no economic news before the bell today. However we will get some data to review throughout the coming week:
- Tuesday � Wholesale Inventories
- Wednesday � Monthly Budget Statement
- Thursday � Retail Sales Report and Business Inventories
- Friday � Import Prices and U of M�s Consumer Sentiment Index
Turning to this morning, as expected, stocks appear to be in waiting mode as the countdown to the Fed is in full swing. The big story is a report that Iran has sent a letter to President Bush requesting opportunities to resolve the current standoff. Oil is moving a bit lower in response. In addition, there is one M&A deal in the banking sector for traders to focus on, but other than that things are fairly quiet.
Running through the rest of the pre-game indicators, both Hong Kong and Japanese markets enjoyed solid gains overnight while European markets are modestly higher on balance this morning. Oil futures are moving down and are currently trading off $0.81 to $69.38. Natural Gas is also trading lower to $6.62. Gold is quoted lower this morning at $678.50. Interest rates are moving up a smidge with the 2-year currently trading at 4.96% and the 10-yr is at 5.12%. And finally, stock futures in the U.S. are doing little prior to the open with the Dow futures about 10 points below fair value, the S&Ps are lower by a fraction, and the NASDAQ futures are almost 3 points below their fair value.
Stocks �In Play� This Morning:
Circuit City (CC) � Downgraded at Raymond James
Golden West Financial (GDW) � Being acquired by Wachovia
United Technologies (UTX) � Mentioned positively in Barron�s
Google (GOOG) � Mentioned cautiously in Barron�s
Microsoft (MSFT) � Mentioned cautiously in Barron�s
Nabors Inds (NBR) � Reported $0.79 vs. $0.74, Revenues $7.18B vs. $1.09B
Health Net (HNT) � Reported $0.65 vs. $0.62, Revenues $3.19B vs. $3.18B, Guides lower
Coca Cola (KO) � Mentioned positively at Banc America
Blackrock (BLK) � Downgraded at Goldman Sachs
Affiliated Managers (AMG) � Upgraded at Goldman
Best Buy (BBY) � Downgraded at Raymond James
Shuffle Master (SHFL) � Downgraded at Bear Stearns
Wynn Resorts (WYNN) � Upgraded at Bear Stearns
Warner Music (WMG) � Upgraded at Citigroup
Ryland Group (RYL) � Downgraded at JP Morgan
PG&E (PCG) � Downgraded at Lehman
SLM Corp (SLM) � Upgraded at Morgan Stanley
Disclosure: Long positions in stocks mentioned: HNT, MER, GS, BBY, BSC, LEH, CC
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.
With the Dow blasting higher by 138 points on Friday and reaching its highest level since January 2000, the countdown to the old highs for the venerable index has definitely begun. And while all of the indices enjoyed solid gains on the back of Goldilocks� latest appearance, the bulls have to be pleased to see the NYSE, Russell 2000, and both the S&P Small Cap and Mid Cap indices march on to fresh all-time highs.
The surge higher was based on the hope that the weakness seen in the employment report will be enough to encourage Mr. Bernanke to announce at least a pause in the Fed�s hike down the measured path. The jobs report was cool enough to encourage the hope of less action by the Fed and yet not cold enough to cause worries over the economy.
The Labor Department reported that Nonfarm Payrolls rose by 138k in April, which was well below expectations for a rise of 205k and the smallest increase in six months. In addition, the total job growth for the two months prior were both revised lower by a total of 36,000 jobs. The bulls took one look at the report and assumed that this would be just the ticket they needed.
With most traders believing the jobs data supports the idea that the Fed will pause the rate hike campaign this week, Friday�s battle cry became �Goldilocks is back.� Most everyone embraced the concept and stocks took off at the open, and never looked back.
However, while the data does appear to support a pause at Wednesday�s meeting, we need to recognize that the jobs report also showed some signs of strength. The average workweek rose to its highest level (meaning the longest workweek in terms of hours) since September 2002. In addition, average hourly earnings jumped 9 cents, which, when combined with the upward revision to March�s numbers brought the year-over-year change to 3.8% and marks the highest level since August 2001. And finally, when you combine hours worked and wages paid, you get aggregate payrolls, which rose the most since the fall of 1998.
Today begins a countdown of another sort, as anyone even remotely related to the stock market is counting the hours until we hear what Mr. Bernanke and Co. have to say on Wednesday at 2:15 eastern. While stocks may continue to discount the �rumor� of a pause, we should be on our toes for the bears to �sell the news� when and if, a pause is announced.
Looking ahead to the rest of the week, there is no economic news before the bell today. However we will get some data to review throughout the coming week:
- Tuesday � Wholesale Inventories
- Wednesday � Monthly Budget Statement
- Thursday � Retail Sales Report and Business Inventories
- Friday � Import Prices and U of M�s Consumer Sentiment Index
Turning to this morning, as expected, stocks appear to be in waiting mode as the countdown to the Fed is in full swing. The big story is a report that Iran has sent a letter to President Bush requesting opportunities to resolve the current standoff. Oil is moving a bit lower in response. In addition, there is one M&A deal in the banking sector for traders to focus on, but other than that things are fairly quiet.
Running through the rest of the pre-game indicators, both Hong Kong and Japanese markets enjoyed solid gains overnight while European markets are modestly higher on balance this morning. Oil futures are moving down and are currently trading off $0.81 to $69.38. Natural Gas is also trading lower to $6.62. Gold is quoted lower this morning at $678.50. Interest rates are moving up a smidge with the 2-year currently trading at 4.96% and the 10-yr is at 5.12%. And finally, stock futures in the U.S. are doing little prior to the open with the Dow futures about 10 points below fair value, the S&Ps are lower by a fraction, and the NASDAQ futures are almost 3 points below their fair value.
Stocks �In Play� This Morning:
Circuit City (CC) � Downgraded at Raymond James
Golden West Financial (GDW) � Being acquired by Wachovia
United Technologies (UTX) � Mentioned positively in Barron�s
Google (GOOG) � Mentioned cautiously in Barron�s
Microsoft (MSFT) � Mentioned cautiously in Barron�s
Nabors Inds (NBR) � Reported $0.79 vs. $0.74, Revenues $7.18B vs. $1.09B
Health Net (HNT) � Reported $0.65 vs. $0.62, Revenues $3.19B vs. $3.18B, Guides lower
Coca Cola (KO) � Mentioned positively at Banc America
Blackrock (BLK) � Downgraded at Goldman Sachs
Affiliated Managers (AMG) � Upgraded at Goldman
Best Buy (BBY) � Downgraded at Raymond James
Shuffle Master (SHFL) � Downgraded at Bear Stearns
Wynn Resorts (WYNN) � Upgraded at Bear Stearns
Warner Music (WMG) � Upgraded at Citigroup
Ryland Group (RYL) � Downgraded at JP Morgan
PG&E (PCG) � Downgraded at Lehman
SLM Corp (SLM) � Upgraded at Morgan Stanley
Disclosure: Long positions in stocks mentioned: HNT, MER, GS, BBY, BSC, LEH, CC
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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