David Moenning�s Daily State of the Markets:

Will They Notice?

Stocks advanced modestly on Thursday in what can best be described at pre-holiday trading. Despite the thin volume, there were some issues worthy of note. However, the real question at hand is if traders will notice them when they return today. At issue are the facts that (1) oil is within spitting distance of $70, (2) interest rates moved above 5% on the 10-year, and that (3) the earnings from both GE and AMD were less than inspiring.

Arguably the biggest development on Thursday was the movement in bond yields. While the rash of economic data basically confirmed existing views on the economy, it also helped convince traders that yields need to move higher. The yield on the 10-yr closed at 5.05%, which was the highest level since June 11, 2002.

The economic reports released during the session provided evidence that the economy continues to chug along. Despite the slowdown in home price appreciation, it appears that shoppers are still hitting the malls as retail sales are still cruising along at a healthy rate. On a year-over-year basis, overall sales rose by more than 8%, while the ex-autos number was higher still at +10%.

Comments from Fed officials also helped rates move higher. Fed Governor Donald Kohn suggested in a speech that the FOMC is unsure how much tightening will be needed to contain inflation, especially since labor markets are tightening up.

The bears also got some ammunition from the oil pits and the earnings parade. However, our furry friends must still be napping because the news from both fronts didn�t attract much attention. With tensions mounting in the Iranian nuclear situation, the price of crude continued to move higher and closed up $0.70 to $69.32.

In addition, high profile earnings disappointments from GE and Advanced Micro Devices (AMD) failed to cause much of a stir. In fact, the results went largely unnoticed as the bulls managed to dismiss the negatives and move the major indices higher. Although with the indexes hovering near recent lows, the jury is still out on whether Thursday�s move meant much.

Looking at the week ahead, earnings will take center stage as the earnings parade kicks into high gear. But, we will also have some economic data to sift through. This morning we will get a report on manufacturing in the New York region before the bell. Looking at the rest of the week:

- Tuesday: March Producer Price Index and Housing Starts

- Wednesday: March Consumer Price Index

- Thursday: March Leading Economic Indicators and Philadelphia Fed Index

Turning to this morning, the earnings report from Citigroup has helped stock futures move up a bit, but the action is fairly lackluster in the early going. In addition, the Empire Manufacturing Index came in well below expectations, which is helping the bond market.

Running through the rest of the pre-game indicators, most overseas markets were closed in observance of Easter, although Japan�s Nikkei fell by -1.4%. Oil futures touched $70 overnight and are currently trading up $0.30 to $69.70. Natural Gas is trading higher by $0.07 to $7.20. Bond yields are down so far this morning with the 2-yr yield at 4.91% and 10-yr is currently trading at 5.02%. And finally, an hour before the bell, stock futures in the U.S. are heading a little higher with the Dow futures sporting a gain of +6 points, the S&Ps are up by 1.70, and the NASDAQ futures are off by 1.

Stocks �In Play� This Morning:

HPQ � Barron�s mentions positively
NYX � In talks with London Stock Exchange
TIVO � Wins lawsuit with Dish, Citigroup ups price target, Barron�s says sell
QCOM � Estimates raised at Piper
AA � Positive mention in Barron�s
ISIL � Upgraded at Merrill
RHAT � Downgraded at Goldman
ANF � Upgraded at Prudential
C � Reported $1.11 vs. $1.02, Revenues $22.18B vs. $22.31B, Authorized $10B buyback
WB � Reported $1.12 vs. $1.21
BDK � Upgraded at Credit Suisse
COF � Downgraded at Morgan Stanley
X � Upgraded at Prudential
GLW � Positive article in WSJ
UNH � WSJ questions timing of option grants
CAT � Target upped at Citigroup

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: QCOM, MER, GS, GLW, CAT

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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