David Moenning�s Daily State of the Markets: 07/19
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It's All About Inflation
Good morning. For a while yesterday afternoon, it looked like we were going to be talking about a five-day losing streak and one of the worst stretches in terms of market performance in several years. Just after lunch, the DJIA was hitting the low of the day, it had shed more than 450 points in the last 5 sessions, and was off by 525 from the beginning of the month. But then the cavalry came to save the day and stocks finished with a little flurry of buying in the last 30 minutes. And after all of the hand wringing lately, the rally, even if it was just for a day, allowed the bulls to breathe a little easier.
Although traders got some important data on the inflation front before the bell yesterday, from there it appeared that the majority of the day was spent waiting; waiting on today�s CPI, waiting on today�s Bernanke�s testimony on Monetary Policy in front of the Senate Banking Committee, waiting on the oil inventory numbers, waiting of some big earnings numbers (IBM, YHOO, AAPL, EBAY, INTC, MOT, QCOM), and waiting on some resolution to the fighting between Israel and Hezbollah.
Perhaps the bulls simply got tired of waiting. Perhaps traders were encouraged by the good numbers from Coca-Cola and United Technologies. Perhaps it was the second straight plunge in oil prices (crude futures fell $1.76 to $73.54 on word from Condoleezza Rice that Syria isn�t likely to get involved). Or maybe, just maybe, traders realized that with the market this negative and this oversold, something good could easily happen in the area of earnings, or Mr. Bernanke hinting at a pause, or a decent CPI report, or even peace breaking out.
In any event, stocks rallied into the close on increased volume, which gives the bulls hope that the worst of the current downturn is now over.
On the economic front, as we reported yesterday, the Producer Price Index came in well above expectations. And with crude goods increasing by 33.2% over the past year, which is the biggest year-over-year gain since 1974, the report provided no clarification as to what the Fed�s next move will be.
We also got a report on the state of the housing market yesterday in the form of the NAHB/Wells Fargo Housing Market Index, which fell 3 more points to its lowest level since December 1991. In a restatement of the obvious, the NAHB says that the potential for more rate increases could drive home ownership costs higher, which would result in slower sales. In short, the report suggests that we have not seen a bottom in the housing market.
Turning to this morning, the topic of inflation continues to be the focal point. The headline CPI number came in with an increase of +0.2%, which was in line with the consensus. The Core Rate however, was reported a tenth higher than expectations at +0.3% and is sure to attract some attention. On a year-over year basis, headline CPI now shows an increase of +4.3%, but it is once again the Core Rate that everyone is focused on. Unfortunatley, the Core number is 2.6% higher than it was a year ago, which is the highest reading since the spring of 2002.
Traders� reaction to the CPI data has been far from positive so far. Bond yields are moving higher as this number increases the chances of another rate hike. Stocks have moved to the downside as well as the Dow futures have fallen more than 40 points in a matter of minutes.
Running through the rest of the pre-game indicators, overseas markets are modestly higher across the board. Gold is down a little this morning and is currently at $628. Oil is rebounding after two days of profit taking and is currently trading higher by $0.24 to $73.78. As we mentioned, interest rates are moving higher with the 2-year currently at 5.23% while the 10-yr is trading with a yield at 5.17% right now. And finally, with about an hour before the bell, stock futures in the U.S. are down a bit. The Dow futures are currently off by 21 points; the S&Ps are down by a fraction and the NASDAQ is showing a loss of more than 6 points.
Stocks �In Play� This Morning:
Intl Business Machines (IBM) � Reports $1.30 vs. $1.29
Google (GOOG) � Upgraded at AmTech
Yahoo (YHOO) � Reports $0.16 vs. $0.16, Downgraded at Deutsche, JP Morgan
CSX Corp (CSX) � Reports $1.16 vs. $1.15, Announces split, Raises Dividend
Freeport McMoRan (FCX) � Upgraded at Prudential, UBS raises target
UnitedHealth (UNH) � Reports $0.73 vs. $0.68, Increases guidance for year
US Steel (X) � Mentioned positively at Goldman Sachs
Cisco (CSCO) � Mentioned positively at Goldman Sachs
JP Morgan (JPM) � Reports $0.92 vs. $0.87
Echostar Comm (DISH) � Upgraded at Citigroup
Nokia (NOK) � Upgraded at Lehman
Best Buy � Upgraded at Prudential
CONSOL Energy (CNX) � Downgraded at AG Edwards
JB Hunt (JBHT) � Downgraded at RW Baird, AG Edwards
Forest Labs (FRX) � Downgraded at HSBC
Anheuser Busch (BUD) � Upgraded at Stifel
Electronic Data Systems (EDS) � Mentioned Positively at BofA
General Dynamics (GD) � Reports $1.03 vs. $1.00
Southwest Airlines (LUV) � Reports $0.33 vs. $0.26
Positions in stocks mentioned: GS, IBM, CSX, CSCO, EDS
** 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. For a while yesterday afternoon, it looked like we were going to be talking about a five-day losing streak and one of the worst stretches in terms of market performance in several years. Just after lunch, the DJIA was hitting the low of the day, it had shed more than 450 points in the last 5 sessions, and was off by 525 from the beginning of the month. But then the cavalry came to save the day and stocks finished with a little flurry of buying in the last 30 minutes. And after all of the hand wringing lately, the rally, even if it was just for a day, allowed the bulls to breathe a little easier.
Although traders got some important data on the inflation front before the bell yesterday, from there it appeared that the majority of the day was spent waiting; waiting on today�s CPI, waiting on today�s Bernanke�s testimony on Monetary Policy in front of the Senate Banking Committee, waiting on the oil inventory numbers, waiting of some big earnings numbers (IBM, YHOO, AAPL, EBAY, INTC, MOT, QCOM), and waiting on some resolution to the fighting between Israel and Hezbollah.
Perhaps the bulls simply got tired of waiting. Perhaps traders were encouraged by the good numbers from Coca-Cola and United Technologies. Perhaps it was the second straight plunge in oil prices (crude futures fell $1.76 to $73.54 on word from Condoleezza Rice that Syria isn�t likely to get involved). Or maybe, just maybe, traders realized that with the market this negative and this oversold, something good could easily happen in the area of earnings, or Mr. Bernanke hinting at a pause, or a decent CPI report, or even peace breaking out.
In any event, stocks rallied into the close on increased volume, which gives the bulls hope that the worst of the current downturn is now over.
On the economic front, as we reported yesterday, the Producer Price Index came in well above expectations. And with crude goods increasing by 33.2% over the past year, which is the biggest year-over-year gain since 1974, the report provided no clarification as to what the Fed�s next move will be.
We also got a report on the state of the housing market yesterday in the form of the NAHB/Wells Fargo Housing Market Index, which fell 3 more points to its lowest level since December 1991. In a restatement of the obvious, the NAHB says that the potential for more rate increases could drive home ownership costs higher, which would result in slower sales. In short, the report suggests that we have not seen a bottom in the housing market.
Turning to this morning, the topic of inflation continues to be the focal point. The headline CPI number came in with an increase of +0.2%, which was in line with the consensus. The Core Rate however, was reported a tenth higher than expectations at +0.3% and is sure to attract some attention. On a year-over year basis, headline CPI now shows an increase of +4.3%, but it is once again the Core Rate that everyone is focused on. Unfortunatley, the Core number is 2.6% higher than it was a year ago, which is the highest reading since the spring of 2002.
Traders� reaction to the CPI data has been far from positive so far. Bond yields are moving higher as this number increases the chances of another rate hike. Stocks have moved to the downside as well as the Dow futures have fallen more than 40 points in a matter of minutes.
Running through the rest of the pre-game indicators, overseas markets are modestly higher across the board. Gold is down a little this morning and is currently at $628. Oil is rebounding after two days of profit taking and is currently trading higher by $0.24 to $73.78. As we mentioned, interest rates are moving higher with the 2-year currently at 5.23% while the 10-yr is trading with a yield at 5.17% right now. And finally, with about an hour before the bell, stock futures in the U.S. are down a bit. The Dow futures are currently off by 21 points; the S&Ps are down by a fraction and the NASDAQ is showing a loss of more than 6 points.
Stocks �In Play� This Morning:
Intl Business Machines (IBM) � Reports $1.30 vs. $1.29
Google (GOOG) � Upgraded at AmTech
Yahoo (YHOO) � Reports $0.16 vs. $0.16, Downgraded at Deutsche, JP Morgan
CSX Corp (CSX) � Reports $1.16 vs. $1.15, Announces split, Raises Dividend
Freeport McMoRan (FCX) � Upgraded at Prudential, UBS raises target
UnitedHealth (UNH) � Reports $0.73 vs. $0.68, Increases guidance for year
US Steel (X) � Mentioned positively at Goldman Sachs
Cisco (CSCO) � Mentioned positively at Goldman Sachs
JP Morgan (JPM) � Reports $0.92 vs. $0.87
Echostar Comm (DISH) � Upgraded at Citigroup
Nokia (NOK) � Upgraded at Lehman
Best Buy � Upgraded at Prudential
CONSOL Energy (CNX) � Downgraded at AG Edwards
JB Hunt (JBHT) � Downgraded at RW Baird, AG Edwards
Forest Labs (FRX) � Downgraded at HSBC
Anheuser Busch (BUD) � Upgraded at Stifel
Electronic Data Systems (EDS) � Mentioned Positively at BofA
General Dynamics (GD) � Reports $1.03 vs. $1.00
Southwest Airlines (LUV) � Reports $0.33 vs. $0.26
Positions in stocks mentioned: GS, IBM, CSX, CSCO, EDS
** 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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