David Moenning�s Daily State of the Markets: 05/26
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Signs of Life
After two weeks of being pasted on a daily basis, the bulls finally showed some signs of life yesterday. While it easy to argue that the Dow�s 93 point rise may have been more a case of profit taking by the shorts than an indication of serious buying, no one in the bull camp will argue with the gains.
With the markets more than a little skittish and traders fixated on each piece of economic data, yesterday�s reports on GDP and Existing Home Sales provided the bulls a much needed spark. Traders are currently on the lookout for data providing any clues as to which way the Fed will lean at their June meeting. And in short, yesterday�s data was perceived as supporting a pause in the action.
The GDP report can be filed in the Goldilocks category. The 5.3 growth rate in the first quarter has to be considered a solid number, but it still managed to come in below expectations (i.e. not too hot and yet, not too cold). After parsing the data, it is apparent that GDP fell short because of downward revisions to both consumer and business spending. On the inflation front, the numbers came in right on the nose, which eased fears of escalating prices. So while the economy grew at a strong clip, the growth rate wasn�t strong enough to create inflation. And then let�s remember that most analysts expect the economy�s rate of growth to cool in the second half.
The Existing Home Sales numbers also provided evidence that the economy is far from overheated. Sales of existing homes fell 2% in April, which was actually a bit better than expectations. However the report told of a broad-based decline in activity, an increase in inventories, and an ongoing slowdown in price appreciation.
In sum, the two reports suggest that (1) inflation is not yet a problem, (2) that the economy continues to motor along, and (3) the current rate hikes are indeed having an effect. This bodes well for those hoping that the Fed will at least pause their campaign in June.
Statements made by Fed Chairman Bernanke also lifted traders� spirits and may have been responsible for the afternoon lift. In comments made before the Joint Economic Committee of Congress on Wednesday, Mr. Bernanke said that long-term inflation expectations remain well contained and that core inflation is stable in the face of higher energy costs. While on the subject of energy, he mentioned that while the Fed cannot ignore the movements in asset prices, he reminded committee members that the Fed acts only on the economic impact of asset prices. In other words, this statement suggests that a preemptive strike against inflation or any �just in case� rate hikes may not be in the cards.
So with data purporting that the economic slowdown may be arriving just in time to keep the Fed off the warpath, stocks were able to move up. And while the volume was unimpressive and the bears may have gotten an early jump on the holiday weekend, it was definitely enjoyable to see the leaders bounce and some green on the screens for a change.
Turning to this morning, trading is likely to slow considerably this afternoon as traders focus on their weekend plans. But before everybody heads to the exits, we�ve got one more piece of data to review.
The report on Personal Income and Spending has a similar tone to yesterday�s data, meaning that there were no big surprises that would impact the Fed�s decision. Personal Incomes rose by +0.5%, which was less than the estimates for an increase of +0.7%. The spending number was in-line with the consensus as was the all important Core PCE Deflator (one of the Fed�s favorite measures of inflation), which showed an increase of +0.2%. Stocks have moved slightly higher on the report, but not meaningfully so.
Running through the pre-game indicators, there were green screens all over the world overnight in response to Wall Street�s rebound. Oil futures are doing little this morning and are trading at $71.40 right now. Gold is moving a bit higher again this morning and is currently quoted up $5.00 to $653.50. Interest rates are moving a little higher this morning with the 2-year currently trading at 4.97% while the 10-yr is quoted at 5.09% right now. And finally, with about an hour before the bell, stock futures in the U.S. are bouncing a bit above breakeven. The Dow futures are currently higher by 19 points, the S&Ps are higher by 1.80, while the NASDAQ is sporting a fractional decline.
Stocks �In Play� This Morning:
Juniper Networks (JNPR) � To replace Albertsons in S&P 500
Signature Bank New York (SBNY) � Mentioned positively in Business Week
Sierra Health Services (SIE) � Mentioned positively in Business Week
Andys Pharmaceuticals (ANDS) � Mentioned positively in Business Week
Crocs Inc (CROX) � Increases earnings guidance, Files secondary offering
Qualcomm (QCOM) � Introduces first mobile TV chip
General Motors (GM) � Upgraded at Prudential
Goldman Sachs (GS) � Upgraded at UBS
Merrill Lynch (MER) � Upgraded at Wachovia
Bank of America (BAC) � To restate financials for 2003, 04, 05
Sunoco (SUN) � Upgraded at Deutsche
Consol Energy (CNX) � Gets outperform rating at RBC Capital
Positions in stocks mentioned: GS, MER, SUN
** 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.
After two weeks of being pasted on a daily basis, the bulls finally showed some signs of life yesterday. While it easy to argue that the Dow�s 93 point rise may have been more a case of profit taking by the shorts than an indication of serious buying, no one in the bull camp will argue with the gains.
With the markets more than a little skittish and traders fixated on each piece of economic data, yesterday�s reports on GDP and Existing Home Sales provided the bulls a much needed spark. Traders are currently on the lookout for data providing any clues as to which way the Fed will lean at their June meeting. And in short, yesterday�s data was perceived as supporting a pause in the action.
The GDP report can be filed in the Goldilocks category. The 5.3 growth rate in the first quarter has to be considered a solid number, but it still managed to come in below expectations (i.e. not too hot and yet, not too cold). After parsing the data, it is apparent that GDP fell short because of downward revisions to both consumer and business spending. On the inflation front, the numbers came in right on the nose, which eased fears of escalating prices. So while the economy grew at a strong clip, the growth rate wasn�t strong enough to create inflation. And then let�s remember that most analysts expect the economy�s rate of growth to cool in the second half.
The Existing Home Sales numbers also provided evidence that the economy is far from overheated. Sales of existing homes fell 2% in April, which was actually a bit better than expectations. However the report told of a broad-based decline in activity, an increase in inventories, and an ongoing slowdown in price appreciation.
In sum, the two reports suggest that (1) inflation is not yet a problem, (2) that the economy continues to motor along, and (3) the current rate hikes are indeed having an effect. This bodes well for those hoping that the Fed will at least pause their campaign in June.
Statements made by Fed Chairman Bernanke also lifted traders� spirits and may have been responsible for the afternoon lift. In comments made before the Joint Economic Committee of Congress on Wednesday, Mr. Bernanke said that long-term inflation expectations remain well contained and that core inflation is stable in the face of higher energy costs. While on the subject of energy, he mentioned that while the Fed cannot ignore the movements in asset prices, he reminded committee members that the Fed acts only on the economic impact of asset prices. In other words, this statement suggests that a preemptive strike against inflation or any �just in case� rate hikes may not be in the cards.
So with data purporting that the economic slowdown may be arriving just in time to keep the Fed off the warpath, stocks were able to move up. And while the volume was unimpressive and the bears may have gotten an early jump on the holiday weekend, it was definitely enjoyable to see the leaders bounce and some green on the screens for a change.
Turning to this morning, trading is likely to slow considerably this afternoon as traders focus on their weekend plans. But before everybody heads to the exits, we�ve got one more piece of data to review.
The report on Personal Income and Spending has a similar tone to yesterday�s data, meaning that there were no big surprises that would impact the Fed�s decision. Personal Incomes rose by +0.5%, which was less than the estimates for an increase of +0.7%. The spending number was in-line with the consensus as was the all important Core PCE Deflator (one of the Fed�s favorite measures of inflation), which showed an increase of +0.2%. Stocks have moved slightly higher on the report, but not meaningfully so.
Running through the pre-game indicators, there were green screens all over the world overnight in response to Wall Street�s rebound. Oil futures are doing little this morning and are trading at $71.40 right now. Gold is moving a bit higher again this morning and is currently quoted up $5.00 to $653.50. Interest rates are moving a little higher this morning with the 2-year currently trading at 4.97% while the 10-yr is quoted at 5.09% right now. And finally, with about an hour before the bell, stock futures in the U.S. are bouncing a bit above breakeven. The Dow futures are currently higher by 19 points, the S&Ps are higher by 1.80, while the NASDAQ is sporting a fractional decline.
Stocks �In Play� This Morning:
Juniper Networks (JNPR) � To replace Albertsons in S&P 500
Signature Bank New York (SBNY) � Mentioned positively in Business Week
Sierra Health Services (SIE) � Mentioned positively in Business Week
Andys Pharmaceuticals (ANDS) � Mentioned positively in Business Week
Crocs Inc (CROX) � Increases earnings guidance, Files secondary offering
Qualcomm (QCOM) � Introduces first mobile TV chip
General Motors (GM) � Upgraded at Prudential
Goldman Sachs (GS) � Upgraded at UBS
Merrill Lynch (MER) � Upgraded at Wachovia
Bank of America (BAC) � To restate financials for 2003, 04, 05
Sunoco (SUN) � Upgraded at Deutsche
Consol Energy (CNX) � Gets outperform rating at RBC Capital
Positions in stocks mentioned: GS, MER, SUN
** 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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