David Moenning�s Daily State of the Markets: 07/20
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Correction: It's All About Bernanke
Good morning. The title of yesterday�s missive was, �It�s All About Inflation.� The general consensus was that the CPI report was the most important piece of economic data of the month and it was the Core Rate that held the key to the near-term market direction. However, we now know that it�s really all about Bernanke.
The Core CPI, which strips out all of those useless items such as food and energy, actually came in hotter than expected for the fourth consecutive month and hit the highest level since 2001 on a 12-month basis. This stoked inflation fears once again as well as concerns that the Fed could continue to raise rates. Stocks and bonds initially moved lower in reaction to the report, but then strangely popped higher at the open.
The reason for the change of heart as the opening bell rang was that it looks like Gentle Ben is back. Traders took one look at the prepared statement that Mr. Bernanke was about to read to the Senate Banking Committee and realized that the new Fed Chairman isn�t likely to make the rookie mistake of �going too far.� This restored the idea of a pause in the rate-hike campaign, which in turn, restored faith in the outlook for the economy and earnings.
So, before you could look up when yesterday�s appearance on Capitol Hill stopped being called the semiannual �Humphrey-Hawkins Testimony,� stocks were off to the races. No one really cared that there was a little inflation percolating because Mr. Bernanke says it is primarily due to energy and that longer-term inflation expectations are �well behaved.� Nobody gave a hoot that Israel continued to pound away at Beirut because Mr. Bernanke said that the FOMC will neither tighten too little nor too much. And not a single trader seemed concerned that Iran says it will continue to enrich uranium because Mr. Bernanke said that the economy is �doing just fine, thank you,� and that he doesn�t see a recession.
Interest rates and the price of oil also lent helping hands to the bulls. With Gentle Ben back in the house, rates plunged as the Fed Chairman described what he hopes will be a Goldilocks environment going forward. And oil prices fell for the third straight day on the back of better than expected gasoline supplies. Crude finished the day off $0.88 to $72.66.
So, with an oversold market where sentiment had reached negative extremes and an options expirations week on hand, stocks enjoyed a �melt up� day. The sellers ran for cover, the bears simply stood aside, and the Dow wound up with a gain of 212, which was its biggest up day in more than 3 years. Breadth was stellar and up volume swamped down volume by 12.5 to 1 � which, of course, prompted the bulls to once again espouse the historical benefits of �9 to 1 up days.�
Turning to this morning, there is no important economic data scheduled for release before the bell but we will get a peek at the Index of Leading Economic Indicators at 10:00 and then the Philly Fed report at noon. Looking at the pre-market action, yesterday�s positive mood appears to be spilling over into this morning�s session as apparently traders can put the Fed on the back burner and focus their attention on earnings. The earnings parade is running full tilt at the moment and positive reports from the likes of Apple and Motorola have the NASDAQ looking up in the early going.
Running through the rest of the pre-game indicators, overseas markets are solidly higher across the board, with Asian markets soaring more than 2%. Gold is down a little this morning and is currently exchanging hands at $641.30. Oil is rebounding a bit after three days of profit taking and is currently trading higher by $0.54 to $73.20. Interest rates are little changed this morning after yesterday�s plunge. The 2-year is currently at 5.12% while the 10-yr is trading with a yield at 5.07% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading higher. The Dow futures are currently ahead by 22 points; the S&Ps are up 4.70, and the NASDAQ is showing a rise of almost 14 points.
Stocks �In Play� This Morning:
Ford (F) � Reported -$0.03 vs. $0.14
Apple Computer (AAPL) � Reported $0.54 vs. $0.44, Price target increased at JP Morgan, Upgraded at Merrill Lynch
Starbucks (SBUX) � Upgraded at Citigroup
Motorola (MOT) � Reported $0.33 vs. $0.29, Upgraded at Piper Jaffray
Intel (INTC) � Reported $0.15 vs. $0.13, Guided lower, Estimates reduced at JP Morgan, Citigroup says pullback is buying opportunity
E-Trade (ET) � Reported $0.37 vs. $0.35, Raises guidance
Qualcomm (QCOM) � Reported $0.42 vs. $0.42, Guides lower, BofA reduces price target, Upgraded at Credit Suisse
Nvidia (NVDA) � Upgraded at Deutsche Bank
Caterpillar (CAT) � Removed from recommended list at Citigroup
Fifth Third Bancorp (FITB) � Added to recommended list at Citigroup
Lam Research (LRCX) � BofA reduces estimates
St. Jude Medical (STJ) � Upgraded at Jefferies, Downgraded at Citigroup
NASDAQ Stock Market (NDAQ) � Reported $0.13 vs. $0.09
Network Appliance (NTAP) � Upgraded at Goldman Sachs
Seagate Technology (STX) � Upgraded at Goldman Sachs
Juniper Networks (JNPR) � Downgraded at Citigroup, RW Baird
American Eagle Outfitters (AEOS) � Upgraded at UBS
Positions in stocks mentioned: GS, ET
** 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. The title of yesterday�s missive was, �It�s All About Inflation.� The general consensus was that the CPI report was the most important piece of economic data of the month and it was the Core Rate that held the key to the near-term market direction. However, we now know that it�s really all about Bernanke.
The Core CPI, which strips out all of those useless items such as food and energy, actually came in hotter than expected for the fourth consecutive month and hit the highest level since 2001 on a 12-month basis. This stoked inflation fears once again as well as concerns that the Fed could continue to raise rates. Stocks and bonds initially moved lower in reaction to the report, but then strangely popped higher at the open.
The reason for the change of heart as the opening bell rang was that it looks like Gentle Ben is back. Traders took one look at the prepared statement that Mr. Bernanke was about to read to the Senate Banking Committee and realized that the new Fed Chairman isn�t likely to make the rookie mistake of �going too far.� This restored the idea of a pause in the rate-hike campaign, which in turn, restored faith in the outlook for the economy and earnings.
So, before you could look up when yesterday�s appearance on Capitol Hill stopped being called the semiannual �Humphrey-Hawkins Testimony,� stocks were off to the races. No one really cared that there was a little inflation percolating because Mr. Bernanke says it is primarily due to energy and that longer-term inflation expectations are �well behaved.� Nobody gave a hoot that Israel continued to pound away at Beirut because Mr. Bernanke said that the FOMC will neither tighten too little nor too much. And not a single trader seemed concerned that Iran says it will continue to enrich uranium because Mr. Bernanke said that the economy is �doing just fine, thank you,� and that he doesn�t see a recession.
Interest rates and the price of oil also lent helping hands to the bulls. With Gentle Ben back in the house, rates plunged as the Fed Chairman described what he hopes will be a Goldilocks environment going forward. And oil prices fell for the third straight day on the back of better than expected gasoline supplies. Crude finished the day off $0.88 to $72.66.
So, with an oversold market where sentiment had reached negative extremes and an options expirations week on hand, stocks enjoyed a �melt up� day. The sellers ran for cover, the bears simply stood aside, and the Dow wound up with a gain of 212, which was its biggest up day in more than 3 years. Breadth was stellar and up volume swamped down volume by 12.5 to 1 � which, of course, prompted the bulls to once again espouse the historical benefits of �9 to 1 up days.�
Turning to this morning, there is no important economic data scheduled for release before the bell but we will get a peek at the Index of Leading Economic Indicators at 10:00 and then the Philly Fed report at noon. Looking at the pre-market action, yesterday�s positive mood appears to be spilling over into this morning�s session as apparently traders can put the Fed on the back burner and focus their attention on earnings. The earnings parade is running full tilt at the moment and positive reports from the likes of Apple and Motorola have the NASDAQ looking up in the early going.
Running through the rest of the pre-game indicators, overseas markets are solidly higher across the board, with Asian markets soaring more than 2%. Gold is down a little this morning and is currently exchanging hands at $641.30. Oil is rebounding a bit after three days of profit taking and is currently trading higher by $0.54 to $73.20. Interest rates are little changed this morning after yesterday�s plunge. The 2-year is currently at 5.12% while the 10-yr is trading with a yield at 5.07% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading higher. The Dow futures are currently ahead by 22 points; the S&Ps are up 4.70, and the NASDAQ is showing a rise of almost 14 points.
Stocks �In Play� This Morning:
Ford (F) � Reported -$0.03 vs. $0.14
Apple Computer (AAPL) � Reported $0.54 vs. $0.44, Price target increased at JP Morgan, Upgraded at Merrill Lynch
Starbucks (SBUX) � Upgraded at Citigroup
Motorola (MOT) � Reported $0.33 vs. $0.29, Upgraded at Piper Jaffray
Intel (INTC) � Reported $0.15 vs. $0.13, Guided lower, Estimates reduced at JP Morgan, Citigroup says pullback is buying opportunity
E-Trade (ET) � Reported $0.37 vs. $0.35, Raises guidance
Qualcomm (QCOM) � Reported $0.42 vs. $0.42, Guides lower, BofA reduces price target, Upgraded at Credit Suisse
Nvidia (NVDA) � Upgraded at Deutsche Bank
Caterpillar (CAT) � Removed from recommended list at Citigroup
Fifth Third Bancorp (FITB) � Added to recommended list at Citigroup
Lam Research (LRCX) � BofA reduces estimates
St. Jude Medical (STJ) � Upgraded at Jefferies, Downgraded at Citigroup
NASDAQ Stock Market (NDAQ) � Reported $0.13 vs. $0.09
Network Appliance (NTAP) � Upgraded at Goldman Sachs
Seagate Technology (STX) � Upgraded at Goldman Sachs
Juniper Networks (JNPR) � Downgraded at Citigroup, RW Baird
American Eagle Outfitters (AEOS) � Upgraded at UBS
Positions in stocks mentioned: GS, ET
** 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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