David Moenning�s Daily State of the Markets: 12/08
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A Very Fine Line
Good morning. Stocks have remained handcuffed for the past two sessions over what to expect from this morning�s jobs report. Although the number isn�t expected to be a blockbuster, with the indices sitting so close to their recent highs, there doesn�t appear to be a lot of room for error.
As we�ve discussed at length recently, the bulls have put their faith in the concept of a Goldilocks economy. The idea is that if the economy can continue to grow at a pace that is neither too hot nor too cold, then stocks can continue to march merrily higher. However, there is a fine line between too much growth, which would put inflation and the Fed back on the table, and not enough growth, which could ignite concerns about the R word. And the problem is that there is no guidebook explaining where that fine line might be.
So with traders waiting patiently for this morning�s data, there has surely been some angst with regard to what it will take for the job numbers to be considered too strong or too weak. And this is the reason for the sloppy sessions we�ve seen on Wednesday and Thursday.
There hasn�t been any real impetus to sell, but with buyers having pushed the indices to new highs earlier this week, even the bulls may feel that they need some reassurance before going any farther. So, with the buyers on the sidelines and stocks in an overbought condition once again, it is little wonder that some profit taking may have been the order of the day.
The question of the day now comes down to where that line is between the economy being too hot and too cold? In terms of the jobs report, the consensus estimate is for an increase of 105k. But the chatter on the street seems to be that a job creation number somewhere in the 100,000 to 150,000 ranges keeps Goldilocks in play. However, anything above or below could be a problem.
So, without further adieu, let�s get to the numbers. The government reported that the economy created 132,000 jobs in November, the Unemployment Rate rose a tenth of a percent to 4.5%, and Average Hourly Earnings increased by +0.2%. In breaking down the numbers, it becomes clear that the Services sector of the economy is where all the growth is as the Manufacturing sector actually experienced a drop in jobs.
In addition, both the September and October job creation numbers were revised higher, which puts an additional 42,000 jobs into the mix. Thus, we could make the argument that job growth is quickly approaching the upper end of our fine line. We also need to keep an eye on wage pressures (because the Fed certainly is) and at 4.1%, the year-over-year growth in earnings is also on the high side.
All in all, the number appears to be somewhat friendly to stock traders but a little unfriendly to those in the bond pits.
Running through the rest of the pre-game indicators, with the exception of the UK, the overseas markets are all fractionally lower before the report. Gold futures are a little lower again this morning and are quoted at $634.20 right now. Crude futures are up today with the latest quote showing the January contract up $0.88 to $63.37. Interest rates are moving a little higher this morning on the stronger jobs data and the yield on the 2-year is currently quoted at 4.62% while the 10-yr is trading with a yield of 4.52% right now. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently ahead by about 21 points; the S&Ps are 2.90 ahead of breakeven, and the NASDAQ looks to be about 1 point above fair value at the moment.
Stocks �In Play� This Morning:
McAfee (MFE) � Mentioned positively in Business Week
Gannett (GCI) � Mentioned positively in Business Week
Annaly Capital Mgmt (NLY) � Mentioned positively in Barron�s
MFA Mortgage (MFA) � Mentioned positively in Barron�s
National Semi (NSM) � Reported $0.27 vs. $0.27
Ericsson (ERIC) � Upgraded at BofA
YRC Worldwide (YRCW) � Downgraded at BB&T Capital
Research in Motion (RIMM) � Target increased at Citigroup
Gallaher Group (GLH) � Upgraded at Citigroup
Websense (WBSN) � Downgraded at Citigroup
Circuit City (CC) � Cowen starts with an Outperform rating
Best Buy (BBY) � Cowen starts with an Outperform rating
Brown Forman (BF.B) � Upgraded at HSBC
Xilinx (XLNX) � Downgraded at JP Morgan
BHP Billiton (BHP) � Downgraded at Merrill Lynch
Rio Tinto (RTP) � Downgraded at Merrill Lynch
3M (MMM) � Downgraded at Prudential
Countrywide Financial (CFC) � Downgraded at Stifel, Nicolaus
YUM Brands (YUM) � Downgraded at Wachovia
Praxair (PX) � Target increased at UBS
Long positions in stocks mentioned: MER, CC, PX
** 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. Stocks have remained handcuffed for the past two sessions over what to expect from this morning�s jobs report. Although the number isn�t expected to be a blockbuster, with the indices sitting so close to their recent highs, there doesn�t appear to be a lot of room for error.
As we�ve discussed at length recently, the bulls have put their faith in the concept of a Goldilocks economy. The idea is that if the economy can continue to grow at a pace that is neither too hot nor too cold, then stocks can continue to march merrily higher. However, there is a fine line between too much growth, which would put inflation and the Fed back on the table, and not enough growth, which could ignite concerns about the R word. And the problem is that there is no guidebook explaining where that fine line might be.
So with traders waiting patiently for this morning�s data, there has surely been some angst with regard to what it will take for the job numbers to be considered too strong or too weak. And this is the reason for the sloppy sessions we�ve seen on Wednesday and Thursday.
There hasn�t been any real impetus to sell, but with buyers having pushed the indices to new highs earlier this week, even the bulls may feel that they need some reassurance before going any farther. So, with the buyers on the sidelines and stocks in an overbought condition once again, it is little wonder that some profit taking may have been the order of the day.
The question of the day now comes down to where that line is between the economy being too hot and too cold? In terms of the jobs report, the consensus estimate is for an increase of 105k. But the chatter on the street seems to be that a job creation number somewhere in the 100,000 to 150,000 ranges keeps Goldilocks in play. However, anything above or below could be a problem.
So, without further adieu, let�s get to the numbers. The government reported that the economy created 132,000 jobs in November, the Unemployment Rate rose a tenth of a percent to 4.5%, and Average Hourly Earnings increased by +0.2%. In breaking down the numbers, it becomes clear that the Services sector of the economy is where all the growth is as the Manufacturing sector actually experienced a drop in jobs.
In addition, both the September and October job creation numbers were revised higher, which puts an additional 42,000 jobs into the mix. Thus, we could make the argument that job growth is quickly approaching the upper end of our fine line. We also need to keep an eye on wage pressures (because the Fed certainly is) and at 4.1%, the year-over-year growth in earnings is also on the high side.
All in all, the number appears to be somewhat friendly to stock traders but a little unfriendly to those in the bond pits.
Running through the rest of the pre-game indicators, with the exception of the UK, the overseas markets are all fractionally lower before the report. Gold futures are a little lower again this morning and are quoted at $634.20 right now. Crude futures are up today with the latest quote showing the January contract up $0.88 to $63.37. Interest rates are moving a little higher this morning on the stronger jobs data and the yield on the 2-year is currently quoted at 4.62% while the 10-yr is trading with a yield of 4.52% right now. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently ahead by about 21 points; the S&Ps are 2.90 ahead of breakeven, and the NASDAQ looks to be about 1 point above fair value at the moment.
Stocks �In Play� This Morning:
McAfee (MFE) � Mentioned positively in Business Week
Gannett (GCI) � Mentioned positively in Business Week
Annaly Capital Mgmt (NLY) � Mentioned positively in Barron�s
MFA Mortgage (MFA) � Mentioned positively in Barron�s
National Semi (NSM) � Reported $0.27 vs. $0.27
Ericsson (ERIC) � Upgraded at BofA
YRC Worldwide (YRCW) � Downgraded at BB&T Capital
Research in Motion (RIMM) � Target increased at Citigroup
Gallaher Group (GLH) � Upgraded at Citigroup
Websense (WBSN) � Downgraded at Citigroup
Circuit City (CC) � Cowen starts with an Outperform rating
Best Buy (BBY) � Cowen starts with an Outperform rating
Brown Forman (BF.B) � Upgraded at HSBC
Xilinx (XLNX) � Downgraded at JP Morgan
BHP Billiton (BHP) � Downgraded at Merrill Lynch
Rio Tinto (RTP) � Downgraded at Merrill Lynch
3M (MMM) � Downgraded at Prudential
Countrywide Financial (CFC) � Downgraded at Stifel, Nicolaus
YUM Brands (YUM) � Downgraded at Wachovia
Praxair (PX) � Target increased at UBS
Long positions in stocks mentioned: MER, CC, PX
** 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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