David Moenning�s Daily State of the Markets: 07/21
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A Frustrating Trend
Good Friday morning. Let�s cut right to the chase; the bulls have to be frustrated with yesterday�s action. For the third time in the past month, stocks had blasted higher on good news that, at the time anyway, seemed to change the face of the game. However, the day after the big moves occurred, the market has been nothing short of disappointing. Instead of a solid day of follow-through buying that the bulls are looking for, the market has proceeded to turn tail and run back from whence it came each and every time.
After loads of talk about Gentle Ben�s plan to pause, the triumphant return of Goldilocks, and some additional blather about another 9 to 1 up day, stocks fell flat on their face yesterday. Instead of the hoped-for follow-through day, the Dow fell 83 points and the NASDAQ wound up giving back all of Wednesday�s bounty by losing -2%.
At issue yesterday was the state of the consumer, the health of the economy, and some more insight into what the Fed is thinking. First up, earnings from restaurant companies and home builders suggested that the consumer may be pulling back on the reigns. In short, reports from YUM Brands (Taco Bell, Pizza Hut, and KFC) and Domino�s Pizza were not greeted with smiles as YUM dropped -6.4% and DPZ saw a decline of -8.5%.
Next, concerns over the state of the economy were rampant as the transports had their worst day in almost 4 years. Truckers fell, railroads swooned, and air freight companies had a rough go of it. To put it succinctly, if the economy slows down, which it seems destined to do, then there won�t be as much stuff that needs to be moved around.
In addition, the Philly Fed General Business Activity Index fell to a reading of just 6 points in July, which was far below the consensus estimate of 12 points and the lowest level since January. The report confirms the idea that the pace of economic activity is indeed slowing. However, despite Mr. Bernanke�s rather dovish statements lately, the report showed that price pressures (inflation) remain elevated, which is a condition that is expected to continue.
Finally, the minutes from the most recent FOMC meeting showed there to be �significant uncertainty� with regard to future monetary policy. The minutes talked about the idea that we have not yet seen the effects of past tightenings and that it would be prudent to accumulate more information. This type of language obviously argues for a pause in the rate hike campaign.
While the jury is still out on whether the Fed will actually be �one and done� this time, the bond market seems to be revisiting �the conundrum.� With the odds that the Fed will hike the Fed Funds rate to 5.5% in August now only a little more than 50-50, it is interesting to note that none of the publicly traded government bonds yield more than 5.15% at the moment. Obviously, the bond market is concerned about the health of the economy.
Turning to this morning, there is no economic news scheduled for release today but there is an increase in the intensity of fighting in Lebanon and an abundance of earnings reports to wade through. Caterpillar (CAT) is helping the Dow as it beat estimates by a dime and raised guidance for the year. However, Dell (DELL) is giving the NASDAQ fits on account of this morning�s earnings warning and reduction in guidance. The move is costing the stock about 15% in pre-market trading.
Running through the rest of the pre-game indicators, overseas markets are lower across the board. Gold is a little higher this morning and is currently exchanging hands at $634. Oil is also higher on the fighting in the Middle East and Iran�s continued defiance of the U.N. Crude for August delivery is currently trading higher by $0.52 to $74.79. Interest rates are little changed this morning after this week�s plunge and the yield curve is flattening once again. The 2-year is currently at 5.04% while the 10-yr is trading with a yield at 5.02% right now. And finally, with about an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently ahead by 27 points; the S&Ps are up 0.90, and the NASDAQ is showing a loss of almost 3 points.
Stocks �In Play� This Morning:
Amgen (AMGN) � Reported $1.05 vs. $0.94
Advanced Micro Devices (AMD) � Reported $0.18 vs. $0.17
Google (GOOG) � Reported $2.49 vs. $2.22
Microsoft (MSFT) � Reported $0.31 vs. $0.30
Gilead Sciences (GILD) � Reported $0.56 vs. $0.54
Capital One (COF) � Reported $1.78 vs. $2.08
ConocoPhillips (COP) � Mentioned positively in Business Week
Genentech (DNA) � Mentioned positively in Business Week
Halliburton (HAL) � Reported $0.52 vs. $0.49
Schlumberger (SLB) � Reported $0.73 vs. $0.63
Caterpillar (CAT) � Reported $1.52 vs. $1.42, Increases guidance
Dell Computer (DELL) � Lowers guidance
Motorola (MOT) � Added to Focus 1 List at Merrill
Allegheny Energy (AYE) � Upgraded at AG Edwards
Reliance Steel (RS) � Upgraded at CIBC
Johnson Controls (JCI) � Upgraded at Citigroup, Deutsche Bank, Morgan Stanley
Dow Jones (DJ) � Upgraded at Merrill
Kimberly Clark (KMB) � Downgraded at Prudential
Landstar (LSTR) � Upgraded at Raymond James
Positions in stocks mentioned: GS, GILD, COF, SLB, AYE, CAT, RS
** 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 Friday morning. Let�s cut right to the chase; the bulls have to be frustrated with yesterday�s action. For the third time in the past month, stocks had blasted higher on good news that, at the time anyway, seemed to change the face of the game. However, the day after the big moves occurred, the market has been nothing short of disappointing. Instead of a solid day of follow-through buying that the bulls are looking for, the market has proceeded to turn tail and run back from whence it came each and every time.
After loads of talk about Gentle Ben�s plan to pause, the triumphant return of Goldilocks, and some additional blather about another 9 to 1 up day, stocks fell flat on their face yesterday. Instead of the hoped-for follow-through day, the Dow fell 83 points and the NASDAQ wound up giving back all of Wednesday�s bounty by losing -2%.
At issue yesterday was the state of the consumer, the health of the economy, and some more insight into what the Fed is thinking. First up, earnings from restaurant companies and home builders suggested that the consumer may be pulling back on the reigns. In short, reports from YUM Brands (Taco Bell, Pizza Hut, and KFC) and Domino�s Pizza were not greeted with smiles as YUM dropped -6.4% and DPZ saw a decline of -8.5%.
Next, concerns over the state of the economy were rampant as the transports had their worst day in almost 4 years. Truckers fell, railroads swooned, and air freight companies had a rough go of it. To put it succinctly, if the economy slows down, which it seems destined to do, then there won�t be as much stuff that needs to be moved around.
In addition, the Philly Fed General Business Activity Index fell to a reading of just 6 points in July, which was far below the consensus estimate of 12 points and the lowest level since January. The report confirms the idea that the pace of economic activity is indeed slowing. However, despite Mr. Bernanke�s rather dovish statements lately, the report showed that price pressures (inflation) remain elevated, which is a condition that is expected to continue.
Finally, the minutes from the most recent FOMC meeting showed there to be �significant uncertainty� with regard to future monetary policy. The minutes talked about the idea that we have not yet seen the effects of past tightenings and that it would be prudent to accumulate more information. This type of language obviously argues for a pause in the rate hike campaign.
While the jury is still out on whether the Fed will actually be �one and done� this time, the bond market seems to be revisiting �the conundrum.� With the odds that the Fed will hike the Fed Funds rate to 5.5% in August now only a little more than 50-50, it is interesting to note that none of the publicly traded government bonds yield more than 5.15% at the moment. Obviously, the bond market is concerned about the health of the economy.
Turning to this morning, there is no economic news scheduled for release today but there is an increase in the intensity of fighting in Lebanon and an abundance of earnings reports to wade through. Caterpillar (CAT) is helping the Dow as it beat estimates by a dime and raised guidance for the year. However, Dell (DELL) is giving the NASDAQ fits on account of this morning�s earnings warning and reduction in guidance. The move is costing the stock about 15% in pre-market trading.
Running through the rest of the pre-game indicators, overseas markets are lower across the board. Gold is a little higher this morning and is currently exchanging hands at $634. Oil is also higher on the fighting in the Middle East and Iran�s continued defiance of the U.N. Crude for August delivery is currently trading higher by $0.52 to $74.79. Interest rates are little changed this morning after this week�s plunge and the yield curve is flattening once again. The 2-year is currently at 5.04% while the 10-yr is trading with a yield at 5.02% right now. And finally, with about an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently ahead by 27 points; the S&Ps are up 0.90, and the NASDAQ is showing a loss of almost 3 points.
Stocks �In Play� This Morning:
Amgen (AMGN) � Reported $1.05 vs. $0.94
Advanced Micro Devices (AMD) � Reported $0.18 vs. $0.17
Google (GOOG) � Reported $2.49 vs. $2.22
Microsoft (MSFT) � Reported $0.31 vs. $0.30
Gilead Sciences (GILD) � Reported $0.56 vs. $0.54
Capital One (COF) � Reported $1.78 vs. $2.08
ConocoPhillips (COP) � Mentioned positively in Business Week
Genentech (DNA) � Mentioned positively in Business Week
Halliburton (HAL) � Reported $0.52 vs. $0.49
Schlumberger (SLB) � Reported $0.73 vs. $0.63
Caterpillar (CAT) � Reported $1.52 vs. $1.42, Increases guidance
Dell Computer (DELL) � Lowers guidance
Motorola (MOT) � Added to Focus 1 List at Merrill
Allegheny Energy (AYE) � Upgraded at AG Edwards
Reliance Steel (RS) � Upgraded at CIBC
Johnson Controls (JCI) � Upgraded at Citigroup, Deutsche Bank, Morgan Stanley
Dow Jones (DJ) � Upgraded at Merrill
Kimberly Clark (KMB) � Downgraded at Prudential
Landstar (LSTR) � Upgraded at Raymond James
Positions in stocks mentioned: GS, GILD, COF, SLB, AYE, CAT, RS
** 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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