David Moenning�s Daily State of the Markets: 05/25
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A Dependency Problem
One look at yesterday�s trading makes it clear that Mr. Bernanke and friends have turned traders into data junkies. The market�s dependency on economic data is now quite obvious as stocks are currently propelled higher on data suggesting that the Fed can pause and then are sent lower on any report that makes the case for more rate hikes.
Stocks rallied in the early going on the back of a much weaker than expected Durable Goods report. As opposed to analyst expectations for a drop of -0.5%, the actual headline number fell by -4.8%. The report�s divergence from the consensus was surprising despite the fact that the data series is known for its volatility. It didn�t really matter how you tweaked the data, the report clearly showed weakness. For example, the key Nondefense Capital Goods Ex-Aircraft number, which is a proxy for capital expenditures and strips out the wild gyrations in airliner orders, also fell by 1.7%. And although Durable Goods orders have increased by 12.8% over the last 12 months, the report suggested to traders that the surprising weakness could be viewed as a reason for the Fed to pause.
Stocks rallied to a gain of about 60 points on the data and it appeared that the bulls might have found their mojo after all. But then the report on New Home Sales came in much stronger than expected. This promoted the worry that the Fed will decide to stay on the hiking trail a while longer and the bears returned with a vengeance, sending stocks down almost 140 points from their high.
However, the move to new lows by the S&P and NASDAQ and an obvious break below the S&P�s 200-day may have caused traders to rethink the reasons for the decline. With nothing more than worry over another rate hike or two to go on, traders might have recognized yesterday afternoon that the current pullback may have fully discounted the expectation of another rate hike.
Given the negativity in the market and the fact that the Fed Funds futures still project a less than 50% chance of another hike in June, it appeared that traders decided that enough was enough (for now) and started to do some buying. In short, the data presented during Wednesday�s session wound up being a push and thus, traders may have decided to wait for today�s fix before making any further bets.
Turning to this morning, upgrades for Wal-Mart and EBay have put traders in a better mood to start the day. In addition, the government has provided the data junkies with another key bit of information via the preliminary report on the first quarter�s GDP.
The GDP report provided little surprises, which is probably a positive for the market. The headline GDP number came in at +5.3%, which was higher than the government�s first guess of +4.8%, but was a bit below the consensus expectations of +5.8%. The personal consumption number was also below estimates at +5.2% and the Prices Index (aka inflation) came in right on the nose of expectations. Thus, all in all, the report is stock friendly in that it doesn�t give the Fed any new ammo for further rate hikes.
Running through the pre-game indicators, Asian markets were weak overnight while the European markets are higher. Oil futures are gaining $0.34 right now to $70.20 on word that the current round of talks with Iran went nowhere. Gold is moving a bit higher this morning and is currently quoted at $643.00 right now. Interest rates are moving a little lower this morning in response to the GDP numbers with the 2-year currently trading at 4.93% while the 10-yr is quoted at 5.03% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving higher. The Dow futures are currently up by 42 points, the S&Ps are higher by 8.0, and the NASDAQ is sporting a gain of about 11 points. The key question right now is, of course, will the gains last?
Stocks �In Play� This Morning:
KLA Tencor (KLAC) � Upgraded at BofA
Nordstrom (JWN) � Upgraded at Credit Suisse
Dollar General (DG) � Downgraded at Credit Suisse
Payless Shoesource (PSS) � Upgraded at Goldman Sachs
Ross Stores (ROST) � Downgraded at Goldman Sachs
Wal-Mart Stores (WMT) � Upgraded at BofA
EBay (EBAY) � Upgraded at Bear Stearns
Electronic Arts (ERTS) � Upgraded at Bear Stearns
XM Satellite Radio (XMSR) � Downgraded at Bear Stearns
MasterCard (MA) � IPO priced at $39, Below expectations for $40 - $43
Jones Lang LaSalle (JLL) � Mentioned positively in IBD
TiVo (TIVO) � Reported -$0.13 vs. -$0.22, Revenues $56.5M vs. $55.1M
Apple Computer (AAPL) � Mentioned positively at Bear Stearns
SBA Communications (SBAC) � Upgraded at Raymond James
Positions in stocks mentioned: BSC, GS, SBAC
** 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.
One look at yesterday�s trading makes it clear that Mr. Bernanke and friends have turned traders into data junkies. The market�s dependency on economic data is now quite obvious as stocks are currently propelled higher on data suggesting that the Fed can pause and then are sent lower on any report that makes the case for more rate hikes.
Stocks rallied in the early going on the back of a much weaker than expected Durable Goods report. As opposed to analyst expectations for a drop of -0.5%, the actual headline number fell by -4.8%. The report�s divergence from the consensus was surprising despite the fact that the data series is known for its volatility. It didn�t really matter how you tweaked the data, the report clearly showed weakness. For example, the key Nondefense Capital Goods Ex-Aircraft number, which is a proxy for capital expenditures and strips out the wild gyrations in airliner orders, also fell by 1.7%. And although Durable Goods orders have increased by 12.8% over the last 12 months, the report suggested to traders that the surprising weakness could be viewed as a reason for the Fed to pause.
Stocks rallied to a gain of about 60 points on the data and it appeared that the bulls might have found their mojo after all. But then the report on New Home Sales came in much stronger than expected. This promoted the worry that the Fed will decide to stay on the hiking trail a while longer and the bears returned with a vengeance, sending stocks down almost 140 points from their high.
However, the move to new lows by the S&P and NASDAQ and an obvious break below the S&P�s 200-day may have caused traders to rethink the reasons for the decline. With nothing more than worry over another rate hike or two to go on, traders might have recognized yesterday afternoon that the current pullback may have fully discounted the expectation of another rate hike.
Given the negativity in the market and the fact that the Fed Funds futures still project a less than 50% chance of another hike in June, it appeared that traders decided that enough was enough (for now) and started to do some buying. In short, the data presented during Wednesday�s session wound up being a push and thus, traders may have decided to wait for today�s fix before making any further bets.
Turning to this morning, upgrades for Wal-Mart and EBay have put traders in a better mood to start the day. In addition, the government has provided the data junkies with another key bit of information via the preliminary report on the first quarter�s GDP.
The GDP report provided little surprises, which is probably a positive for the market. The headline GDP number came in at +5.3%, which was higher than the government�s first guess of +4.8%, but was a bit below the consensus expectations of +5.8%. The personal consumption number was also below estimates at +5.2% and the Prices Index (aka inflation) came in right on the nose of expectations. Thus, all in all, the report is stock friendly in that it doesn�t give the Fed any new ammo for further rate hikes.
Running through the pre-game indicators, Asian markets were weak overnight while the European markets are higher. Oil futures are gaining $0.34 right now to $70.20 on word that the current round of talks with Iran went nowhere. Gold is moving a bit higher this morning and is currently quoted at $643.00 right now. Interest rates are moving a little lower this morning in response to the GDP numbers with the 2-year currently trading at 4.93% while the 10-yr is quoted at 5.03% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving higher. The Dow futures are currently up by 42 points, the S&Ps are higher by 8.0, and the NASDAQ is sporting a gain of about 11 points. The key question right now is, of course, will the gains last?
Stocks �In Play� This Morning:
KLA Tencor (KLAC) � Upgraded at BofA
Nordstrom (JWN) � Upgraded at Credit Suisse
Dollar General (DG) � Downgraded at Credit Suisse
Payless Shoesource (PSS) � Upgraded at Goldman Sachs
Ross Stores (ROST) � Downgraded at Goldman Sachs
Wal-Mart Stores (WMT) � Upgraded at BofA
EBay (EBAY) � Upgraded at Bear Stearns
Electronic Arts (ERTS) � Upgraded at Bear Stearns
XM Satellite Radio (XMSR) � Downgraded at Bear Stearns
MasterCard (MA) � IPO priced at $39, Below expectations for $40 - $43
Jones Lang LaSalle (JLL) � Mentioned positively in IBD
TiVo (TIVO) � Reported -$0.13 vs. -$0.22, Revenues $56.5M vs. $55.1M
Apple Computer (AAPL) � Mentioned positively at Bear Stearns
SBA Communications (SBAC) � Upgraded at Raymond James
Positions in stocks mentioned: BSC, GS, SBAC
** 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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