David Moenning�s Daily State of the Markets: 05/17
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More Worries About Inflation
Tuesday�s trading session wound up in the stalemate column as decent earnings from retailers and relatively benign economic data early was met head on by a rebound in commodity prices and worries over the CPI report. The stalemate kept both teams from claiming victory as the blue chip indices finished just a smidge below breakeven while the NASDAQ suffered a loss for the sixth straight day.
With the Fed making it quite clear that they are now �data dependent,� any and all economic news is now the focal point of the market, especially when comes to inflation. And while the PPI and Housing Starts numbers got the attention before the bell yesterday, it was the report on Industrial Production and Capacity Utilization that may have been responsible for the session�s lack of enthusiasm.
Unless you live in a cave and you haven�t tried to put it on the market recently, you are probably aware of the fact that the housing market is slowing. No one in the analyst community is overly concerned about the situation as it appears to be a natural pullback from an overheated condition. And yesterday�s numbers did little to counter this view. Housing Starts dropped -7.4%, a decline that was much larger than had been expected, to a 1.85 million unit annual rate, which is the lowest level since November 2000.
And if you follow the markets at all, you are probably already aware that the headline PPI number once again came in hotter than expected while the core rate was weaker than economists had projected. In scanning the details of the report, one sees that it was the 12.3% jump in gasoline prices that was the culprit for the headline number�s pop higher, but that high energy prices do not appear to be seeping into the Core rate. In fact, outside of metals prices, inflation pressures appear to be well contained. But, in light of the fact that the Fed wants to hedge their bets going forward, keep an eye on commodity prices and their impact on manufacturer�s costs.
Both of these reports were out before the bell yesterday and helped the market overcome its pre-market malaise. However, the report on Industrial Production, in conjunction with rising commodity prices, renewed concerns about the Fed�s next move. And since most of our readers probably do not find the details of a report on Industrial Production and the Capacity Utilization of the nation�s factories overly stimulating, let�s cut to the chase. In short, the reports could add to the Fed�s worries over tightening resource utilization (I.E. not having enough of everything to go around).
So with the economic data providing no real catalyst for either team and a CPI report looming, stocks wound up treading water on the session. The bulls will be looking for something to build on in the near-term while the bears are clearly lurking and waiting for their counterparts to stumble.
Turning to this morning, inflation worries continue to be the focus. The CPI report came in a bit hotter than expected and has sparked talk of more rate hikes by the Fed. The headline CPI showed an increase of +0.6%, which was higher than the estimates for +0.5%. But it is the Core Rate that is attracting some attention as it came in a tenth higher at +0.3%. And on a year-over-year basis, the rate remains a bit above the Fed�s comfort zone at +2.3%.
Both the stock and bond market have moved lower in response to the report as the CPI numbers appear to put the Fed�s pause in question this morning.
In other news, oil prices are moving a bit higher on Iran�s rejection of an EU call to halt the enrichment of Uranium.
Running through the rest of the pre-game indicators, overseas markets are mostly higher. Oil futures are trading up by $0.20 right now to $69.73. Gold is rebounding and is quoted up $19.10 this morning at $712 right now. Interest rates are moving higher this morning in response to the CPI data, with the 2-year currently trading at 4.99% and the 10-yr is at 5.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are moving down. The Dow futures are currently off by 61 points, the S&Ps are lower by 4.50, and the NASDAQ is sporting a drop of 9.8 points.
Stocks �In Play� This Morning:
Applied Materials (AMAT) � Reported $0.26 vs. $0.23, Revenues $2.25B vs. $2.14, Guides higher, Upgraded at First Albany
Hewlett Packard (HPQ) � Reported $0.54 vs. $0.49, Revenues $22.6B vs. $22.6B
Abercrombie & Fitch (ANF) � Reported $0.62 vs. $0.54
Compuware (CPWR) � Reported $0.15 vs. $0.13, Revenues $309.5M vs. $309.5
Motorola (MOT) � CEO says Q Phone should be available next week
Broadcom (BRCM) � Target raised at UBS
Johnson & Johnson (JNJ) � Upgraded at Goldman Sachs
Automatic Data Processing (ADP) � Upgraded at Bear Stearns
Autodesk (ADSK) � Upgraded at Piper Jaffray
Principal Financial Group (PFG) � Received subpoena from Spitzer, Announces buyback
Sprint (S) � Upgraded at Raymond James
American Capital Strategies (ACAS) � Upgraded at William Blair
Disclosure: Mr. Moenning and/or related companies currently hold long positions in the following stocks mentioned: AMAT, JNJ, GS, BSC
For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com 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.
Tuesday�s trading session wound up in the stalemate column as decent earnings from retailers and relatively benign economic data early was met head on by a rebound in commodity prices and worries over the CPI report. The stalemate kept both teams from claiming victory as the blue chip indices finished just a smidge below breakeven while the NASDAQ suffered a loss for the sixth straight day.
With the Fed making it quite clear that they are now �data dependent,� any and all economic news is now the focal point of the market, especially when comes to inflation. And while the PPI and Housing Starts numbers got the attention before the bell yesterday, it was the report on Industrial Production and Capacity Utilization that may have been responsible for the session�s lack of enthusiasm.
Unless you live in a cave and you haven�t tried to put it on the market recently, you are probably aware of the fact that the housing market is slowing. No one in the analyst community is overly concerned about the situation as it appears to be a natural pullback from an overheated condition. And yesterday�s numbers did little to counter this view. Housing Starts dropped -7.4%, a decline that was much larger than had been expected, to a 1.85 million unit annual rate, which is the lowest level since November 2000.
And if you follow the markets at all, you are probably already aware that the headline PPI number once again came in hotter than expected while the core rate was weaker than economists had projected. In scanning the details of the report, one sees that it was the 12.3% jump in gasoline prices that was the culprit for the headline number�s pop higher, but that high energy prices do not appear to be seeping into the Core rate. In fact, outside of metals prices, inflation pressures appear to be well contained. But, in light of the fact that the Fed wants to hedge their bets going forward, keep an eye on commodity prices and their impact on manufacturer�s costs.
Both of these reports were out before the bell yesterday and helped the market overcome its pre-market malaise. However, the report on Industrial Production, in conjunction with rising commodity prices, renewed concerns about the Fed�s next move. And since most of our readers probably do not find the details of a report on Industrial Production and the Capacity Utilization of the nation�s factories overly stimulating, let�s cut to the chase. In short, the reports could add to the Fed�s worries over tightening resource utilization (I.E. not having enough of everything to go around).
So with the economic data providing no real catalyst for either team and a CPI report looming, stocks wound up treading water on the session. The bulls will be looking for something to build on in the near-term while the bears are clearly lurking and waiting for their counterparts to stumble.
Turning to this morning, inflation worries continue to be the focus. The CPI report came in a bit hotter than expected and has sparked talk of more rate hikes by the Fed. The headline CPI showed an increase of +0.6%, which was higher than the estimates for +0.5%. But it is the Core Rate that is attracting some attention as it came in a tenth higher at +0.3%. And on a year-over-year basis, the rate remains a bit above the Fed�s comfort zone at +2.3%.
Both the stock and bond market have moved lower in response to the report as the CPI numbers appear to put the Fed�s pause in question this morning.
In other news, oil prices are moving a bit higher on Iran�s rejection of an EU call to halt the enrichment of Uranium.
Running through the rest of the pre-game indicators, overseas markets are mostly higher. Oil futures are trading up by $0.20 right now to $69.73. Gold is rebounding and is quoted up $19.10 this morning at $712 right now. Interest rates are moving higher this morning in response to the CPI data, with the 2-year currently trading at 4.99% and the 10-yr is at 5.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are moving down. The Dow futures are currently off by 61 points, the S&Ps are lower by 4.50, and the NASDAQ is sporting a drop of 9.8 points.
Stocks �In Play� This Morning:
Applied Materials (AMAT) � Reported $0.26 vs. $0.23, Revenues $2.25B vs. $2.14, Guides higher, Upgraded at First Albany
Hewlett Packard (HPQ) � Reported $0.54 vs. $0.49, Revenues $22.6B vs. $22.6B
Abercrombie & Fitch (ANF) � Reported $0.62 vs. $0.54
Compuware (CPWR) � Reported $0.15 vs. $0.13, Revenues $309.5M vs. $309.5
Motorola (MOT) � CEO says Q Phone should be available next week
Broadcom (BRCM) � Target raised at UBS
Johnson & Johnson (JNJ) � Upgraded at Goldman Sachs
Automatic Data Processing (ADP) � Upgraded at Bear Stearns
Autodesk (ADSK) � Upgraded at Piper Jaffray
Principal Financial Group (PFG) � Received subpoena from Spitzer, Announces buyback
Sprint (S) � Upgraded at Raymond James
American Capital Strategies (ACAS) � Upgraded at William Blair
Disclosure: Mr. Moenning and/or related companies currently hold long positions in the following stocks mentioned: AMAT, JNJ, GS, BSC
For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com 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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