David Moenning�s Daily State of the Markets:
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The Gentle Reminder
Good morning. Yesterday�s �Merger Monday,� which included a blockbuster deal between Bank of New York and Mellon Financial, served as a gentle reminder to both teams that valuations in the stock market remain attractive. And based on the concept that those doing the buying know best how things are going out there in Corporate America, it is hard to get overly negative about the market as long as the deals keep coming.
Despite an 11% drop in Pfizer, which knocked about 30 points off the Dow, stocks enjoyed a solid performance yesterday. The 12-point gain in the S&P pushed the market�s primary measuring stick to a new cycle high while the NYSE, Russell 2000, and the Midcap 400 Indices all pushed on to new all-time highs.
The focal point to the session was the M&A activity, however, another round of weak-yet-not-too-weak economic numbers and a decline in oil prices helped keep the mood upbeat. January crude futures snapped a six-day winning streak and dropped $0.99 to $62.44. Speculation over OPEC�s ability to actually cut production and warmer weather were to blame for the decline. However, most analysts are continuing to keep an eye on crude levels going forward.
While traders were focused on M&A activity, we should keep in mind that the primary driver to the urge to merge is the valuation levels in the market. Although interest rates have increased from the generational lows seen a couple of years back, it is important to recognize that rates remain low enough to encourage economic activity. In fact, last week, our primary valuation model, which includes comparisons of stock values to the level of interest rates, rose to its highest level since early 1978.
In short, when you consider the alternatives to stocks such as bonds and real estate, the stock market looks to be a fairly attractive home for money right now. And as long as this is the case, then we need to remember to give the bulls the benefit of the doubt whenever things get a little dicey.
Getting back to the near-term outlook, it was also positive to see the leaders make some headway yesterday. In fact, our only complaint about the action is that volume was on the light side. And while this negative can be right-sided pretty quickly, the bulls will need to step up here if they expect to continue to do a happy dance into year-end.
Turning to this morning, we�ve got another round of economic data to digest in the form of the Q3 Productivity report. Then later this morning, we�ll get a peek at Factory Orders for October and the ISM Non-Manufacturing Index from November.
The Productivity report was a bit of a surprise in that it came in weaker than expected, but in a good way. Q3 Productivity was reported at +0.2% when a gain of +0.4% had been expected. While this is a bit disappointing and the lowest gain since mid-1997, the key here is that Unit Labor Costs came in a full point below expectations at +2.3%. Thus, at first blush, it would appear that Goldilocks is alive and well
Running through the rest of the pre-game indicators, the overseas markets were mixed overnight. Hong Kong enjoyed strong gains while the rest of the major markets are showing fractional movements in either direction. Gold futures are a smidge higher this morning and are quoted at $651.10 right now. Crude futures are rallying once again this morning and the latest quote shows the January contract up $0.67 to $63.11. Interest rates are moving down on the data this morning. The yield on the 2-year is currently quoted at 4.48% while the 10-yr is trading with a yield of 4.41% right now. And finally, with an hour before the bell, stock futures in the U.S. are looking a little higher. The Dow futures are currently ahead by 20 points, the S&Ps are a couple points above breakeven, and the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
ENI (E) � Downgraded at BofA
American Express (AXP) � Downgraded by AG Edwards
Hess Corp (HES) � Downgraded at BofA
Station Casinos (STN) � Downgraded at BofA, Bear Stearns
Chevron (CVX) � Downgraded at BofA
Sirius Satellite Radio (SIRI) � Downgraded at Bear Stearns
ConocoPhillips (COP) � Upgraded at Deutsche Bank
Marathon Oil (MRO) � Downgraded at Deutsche Bank
Cooper Tire & Rubber (CTB) � Upgraded at Deutsche Bank
Vodafone (VOD) � Upgraded at Goldman Sachs
Ashland (ASH) � Downgraded at JP Morgan
Manpower (MAN) � Downgraded at Morgan Stanley
Blue Nile (NILE) � Upgraded at RBC Capital
Hershey (HSY) � Downgraded at UBS
Starbucks (SBUX) � Upgraded at UBS
Vornado Realty (VNO) � Upgraded at Wachovia
Schlumberger (SLB) � Downgraded at Wachovia
Long positions in stocks mentioned: BSC, GS, MS, MRO, SLB
** 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. Yesterday�s �Merger Monday,� which included a blockbuster deal between Bank of New York and Mellon Financial, served as a gentle reminder to both teams that valuations in the stock market remain attractive. And based on the concept that those doing the buying know best how things are going out there in Corporate America, it is hard to get overly negative about the market as long as the deals keep coming.
Despite an 11% drop in Pfizer, which knocked about 30 points off the Dow, stocks enjoyed a solid performance yesterday. The 12-point gain in the S&P pushed the market�s primary measuring stick to a new cycle high while the NYSE, Russell 2000, and the Midcap 400 Indices all pushed on to new all-time highs.
The focal point to the session was the M&A activity, however, another round of weak-yet-not-too-weak economic numbers and a decline in oil prices helped keep the mood upbeat. January crude futures snapped a six-day winning streak and dropped $0.99 to $62.44. Speculation over OPEC�s ability to actually cut production and warmer weather were to blame for the decline. However, most analysts are continuing to keep an eye on crude levels going forward.
While traders were focused on M&A activity, we should keep in mind that the primary driver to the urge to merge is the valuation levels in the market. Although interest rates have increased from the generational lows seen a couple of years back, it is important to recognize that rates remain low enough to encourage economic activity. In fact, last week, our primary valuation model, which includes comparisons of stock values to the level of interest rates, rose to its highest level since early 1978.
In short, when you consider the alternatives to stocks such as bonds and real estate, the stock market looks to be a fairly attractive home for money right now. And as long as this is the case, then we need to remember to give the bulls the benefit of the doubt whenever things get a little dicey.
Getting back to the near-term outlook, it was also positive to see the leaders make some headway yesterday. In fact, our only complaint about the action is that volume was on the light side. And while this negative can be right-sided pretty quickly, the bulls will need to step up here if they expect to continue to do a happy dance into year-end.
Turning to this morning, we�ve got another round of economic data to digest in the form of the Q3 Productivity report. Then later this morning, we�ll get a peek at Factory Orders for October and the ISM Non-Manufacturing Index from November.
The Productivity report was a bit of a surprise in that it came in weaker than expected, but in a good way. Q3 Productivity was reported at +0.2% when a gain of +0.4% had been expected. While this is a bit disappointing and the lowest gain since mid-1997, the key here is that Unit Labor Costs came in a full point below expectations at +2.3%. Thus, at first blush, it would appear that Goldilocks is alive and well
Running through the rest of the pre-game indicators, the overseas markets were mixed overnight. Hong Kong enjoyed strong gains while the rest of the major markets are showing fractional movements in either direction. Gold futures are a smidge higher this morning and are quoted at $651.10 right now. Crude futures are rallying once again this morning and the latest quote shows the January contract up $0.67 to $63.11. Interest rates are moving down on the data this morning. The yield on the 2-year is currently quoted at 4.48% while the 10-yr is trading with a yield of 4.41% right now. And finally, with an hour before the bell, stock futures in the U.S. are looking a little higher. The Dow futures are currently ahead by 20 points, the S&Ps are a couple points above breakeven, and the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
ENI (E) � Downgraded at BofA
American Express (AXP) � Downgraded by AG Edwards
Hess Corp (HES) � Downgraded at BofA
Station Casinos (STN) � Downgraded at BofA, Bear Stearns
Chevron (CVX) � Downgraded at BofA
Sirius Satellite Radio (SIRI) � Downgraded at Bear Stearns
ConocoPhillips (COP) � Upgraded at Deutsche Bank
Marathon Oil (MRO) � Downgraded at Deutsche Bank
Cooper Tire & Rubber (CTB) � Upgraded at Deutsche Bank
Vodafone (VOD) � Upgraded at Goldman Sachs
Ashland (ASH) � Downgraded at JP Morgan
Manpower (MAN) � Downgraded at Morgan Stanley
Blue Nile (NILE) � Upgraded at RBC Capital
Hershey (HSY) � Downgraded at UBS
Starbucks (SBUX) � Upgraded at UBS
Vornado Realty (VNO) � Upgraded at Wachovia
Schlumberger (SLB) � Downgraded at Wachovia
Long positions in stocks mentioned: BSC, GS, MS, MRO, SLB
** 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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