David Moenning�s Daily State of the Markets: 06/30
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Gentle Ben Returns
Good morning. After talking tough on inflation for the past 2 months, cooler heads prevailed at yesterday�s much anticipated Fed meeting. As expected, the FOMC raised rates for the 17th straight time by the usual 25 basis points, but then issued a statement that was NOT the same old thing. The markets greeted the new, less hawkish statement with a thunderous round of applause and a gain of 217 points on the Dow.
With the markets fearing that Mr. Bernanke would repeat the rookie mistakes of past Fed Chairmen, this new statement gave traders confidence that the new guy at the Fed won�t wind up wrecking the economy in the quest to squelch inflation.
To the delight of the financial markets, the FOMC acknowledged the fact that the economy is moderating in response to higher rates and energy prices, and that any further slowdown would likely limit the growth of inflation going forward. And speaking of the going forward, the key line in the statement was as follows: "The extent and timing of any additional firming (I.E. further rate hikes)... will depend on the evolution of the outlook for both inflation and economic growth."
In English, this means that the Fed may still have some tightening to do if inflation remains brisk, but they are not committing to further hikes right now. Analysts liked the fact that the Fed alluded to both sides of the equation (inflation and the economy) this time instead of staying fixated only on inflation. And in short, the statement was interpreted to mean that Mr. Bernanke is leaving the door open for a pause in August.
Both stocks and bonds celebrated the news, although the party was much more raucous in the stock indices. The 217 point gain on the Dow was its biggest one-day gain since April 2003 and all other indices finished the session with gains of at least 2%. Volume was strong and breadth was decidedly lopsided in favor of the bulls.
Technicians are quick to point out that the indices blasted through the near-term resistance and that yesterday was the second �9 to 1 up day,� in which up volume exceeds down volume by a measure of more than 9 to 1, without an intervening 9 to 1 down day. History has shown this to be a very bullish development and one that has effectively provided an all-clear signal for the next 6 months in the past.
The bears were heard mumbling something about short-covering and end-of-quarter window dressing, but frankly, it sounded a little like sour grapes.
Turning to this morning, while the party raged on overseas, it seems to be winding down here in the U.S. Looking overseas, the markets were substantially higher in Asia, with gains of +2.5% seen in both the Hang Seng and the Nikkei. And European bourses are enjoying solid gains in the 1% range at the moment.
On the economic front, the report on Personal Income and Spending came in pretty much in line with expectations. Personal Incomes for May rose by +0.4%, which was higher than expectations for an increase of +0.2%. Personal Spending was right in line at +0.4% and the PCE Core Deflator (inflation) was also on target at +0.2%. On a year-over-year basis the PCE Core, which was one of Mr. Greenspan�s favorite indicators, came in at a relatively benign 2.1% rate.
With the Fed remaining data dependent, it will suffice to say that the markets will review every piece of economic data with a fine toothed comb. This report didn�t provide any major surprises but seems to be a modest positive for stocks at the moment.
Running through the rest of the pre-game indicators, gold is flying higher this morning and is currently up by $19.10 at $608 at the moment. Oil is flat, this morning but the August crude contract remains above $70 at $73.51 right now. Interest rates are moving a smidge lower this morning with the 2-year currently trading at 5.19% while the 10-yr is also quoted at 5.19% right now. This flattening of the curve suggests that bond traders are a little nervous about the economy going forward. And finally, with about an hour before the bell, stock futures in the U.S. are heading a little higher. The Dow futures are currently ahead by 10 points; the S&Ps are up by 1.90, and the NASDAQ is sporting a gain of 3 points.
Stocks �In Play� This Morning:
Research in Motion (RIMM) � Reports $0.70 vs. $0.64, Downgraded at Cowen, Mentioned positively at Bear Stearns
Palm Inc (PALM) � Trading lower after earnings, and weak guidance
Apple Computer (AAPL) � Will independently investigate granting of options, Target lowered at BofA
Onyx Pharmaceuticals (ONXX) � Upgraded at BofA
Citizens Communications (CZN) � Upgraded at Merrill
Hewitt Assoc (HEW) � Upgraded at Citigroup
Amer Home Mort (AHM) � Downgraded at AG Edwards
Level 3 Comm (LVLT) � Added to Focus List at JP Morgan
RSA Sec (RSAS) � EMC to acquire company for $2.1B, Downgraded at Raymond James
CA Inc (CA) � Downgraded at Susquehana
EMC Corp (EMC) � Mentioned cautiously at Goldman Sachs
Kroger (KR) � Upgraded at Lehman
Watson Pharmaceuticals (WPI) � Price target reduced at Piper
Avon Products (AVP) � Mentioned positively at Citigroup
Baxter Intl (BAX) � Downgraded at William Blair
Positions in stocks mentioned: KR, 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.
Good morning. After talking tough on inflation for the past 2 months, cooler heads prevailed at yesterday�s much anticipated Fed meeting. As expected, the FOMC raised rates for the 17th straight time by the usual 25 basis points, but then issued a statement that was NOT the same old thing. The markets greeted the new, less hawkish statement with a thunderous round of applause and a gain of 217 points on the Dow.
With the markets fearing that Mr. Bernanke would repeat the rookie mistakes of past Fed Chairmen, this new statement gave traders confidence that the new guy at the Fed won�t wind up wrecking the economy in the quest to squelch inflation.
To the delight of the financial markets, the FOMC acknowledged the fact that the economy is moderating in response to higher rates and energy prices, and that any further slowdown would likely limit the growth of inflation going forward. And speaking of the going forward, the key line in the statement was as follows: "The extent and timing of any additional firming (I.E. further rate hikes)... will depend on the evolution of the outlook for both inflation and economic growth."
In English, this means that the Fed may still have some tightening to do if inflation remains brisk, but they are not committing to further hikes right now. Analysts liked the fact that the Fed alluded to both sides of the equation (inflation and the economy) this time instead of staying fixated only on inflation. And in short, the statement was interpreted to mean that Mr. Bernanke is leaving the door open for a pause in August.
Both stocks and bonds celebrated the news, although the party was much more raucous in the stock indices. The 217 point gain on the Dow was its biggest one-day gain since April 2003 and all other indices finished the session with gains of at least 2%. Volume was strong and breadth was decidedly lopsided in favor of the bulls.
Technicians are quick to point out that the indices blasted through the near-term resistance and that yesterday was the second �9 to 1 up day,� in which up volume exceeds down volume by a measure of more than 9 to 1, without an intervening 9 to 1 down day. History has shown this to be a very bullish development and one that has effectively provided an all-clear signal for the next 6 months in the past.
The bears were heard mumbling something about short-covering and end-of-quarter window dressing, but frankly, it sounded a little like sour grapes.
Turning to this morning, while the party raged on overseas, it seems to be winding down here in the U.S. Looking overseas, the markets were substantially higher in Asia, with gains of +2.5% seen in both the Hang Seng and the Nikkei. And European bourses are enjoying solid gains in the 1% range at the moment.
On the economic front, the report on Personal Income and Spending came in pretty much in line with expectations. Personal Incomes for May rose by +0.4%, which was higher than expectations for an increase of +0.2%. Personal Spending was right in line at +0.4% and the PCE Core Deflator (inflation) was also on target at +0.2%. On a year-over-year basis the PCE Core, which was one of Mr. Greenspan�s favorite indicators, came in at a relatively benign 2.1% rate.
With the Fed remaining data dependent, it will suffice to say that the markets will review every piece of economic data with a fine toothed comb. This report didn�t provide any major surprises but seems to be a modest positive for stocks at the moment.
Running through the rest of the pre-game indicators, gold is flying higher this morning and is currently up by $19.10 at $608 at the moment. Oil is flat, this morning but the August crude contract remains above $70 at $73.51 right now. Interest rates are moving a smidge lower this morning with the 2-year currently trading at 5.19% while the 10-yr is also quoted at 5.19% right now. This flattening of the curve suggests that bond traders are a little nervous about the economy going forward. And finally, with about an hour before the bell, stock futures in the U.S. are heading a little higher. The Dow futures are currently ahead by 10 points; the S&Ps are up by 1.90, and the NASDAQ is sporting a gain of 3 points.
Stocks �In Play� This Morning:
Research in Motion (RIMM) � Reports $0.70 vs. $0.64, Downgraded at Cowen, Mentioned positively at Bear Stearns
Palm Inc (PALM) � Trading lower after earnings, and weak guidance
Apple Computer (AAPL) � Will independently investigate granting of options, Target lowered at BofA
Onyx Pharmaceuticals (ONXX) � Upgraded at BofA
Citizens Communications (CZN) � Upgraded at Merrill
Hewitt Assoc (HEW) � Upgraded at Citigroup
Amer Home Mort (AHM) � Downgraded at AG Edwards
Level 3 Comm (LVLT) � Added to Focus List at JP Morgan
RSA Sec (RSAS) � EMC to acquire company for $2.1B, Downgraded at Raymond James
CA Inc (CA) � Downgraded at Susquehana
EMC Corp (EMC) � Mentioned cautiously at Goldman Sachs
Kroger (KR) � Upgraded at Lehman
Watson Pharmaceuticals (WPI) � Price target reduced at Piper
Avon Products (AVP) � Mentioned positively at Citigroup
Baxter Intl (BAX) � Downgraded at William Blair
Positions in stocks mentioned: KR, 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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