David Moenning’s Daily State of the Markets: 05/10

Good morning. After Tuesday’s brief flirtation with negative numbers, stocks got back on track with their winning ways yesterday. Although it was a little bumpy there for a while in the afternoon, the Dow, NYSE, Russell 2000 and S&P Small Cap and Mid Cap indices all finished at fresh new all-time highs. But perhaps what is more interesting is that the S&P 500 now finds itself just 10 points away from the previous high set in early 2000.

While the Fed announcement was the primary focus of the day, it was actually the ongoing stream of M&A deals that helped traders relocate the buy button. Three new companies emerged as takeover targets and two more announced intentions to put themselves up for sale. And from a big-picture standpoint, it is going to be tough for the bears to get anything going for more than a couple of days in this frenzied takeover environment.

But the news of the day was the release of the Fed’s statement at 2:15 pm EDT. And while no one expected the FOMC to take any action, traders were very interested in learning if there were any changes to the accompanying statement. However, Mr. Bernanke and Company must have been short on time because the statement released was pretty much a cut and paste job from last month’s verbiage.

For the seventh straight month, the Fed left interest rates unchanged. The FOMC noted once again that their primary policy concern continues to be the risk of inflation. The fear is that the rate of inflation will fail to moderate over time and the Fed cited the high levels of resource utilization as the main reason for worry. Nevertheless, the committee continues to believe that “inflation pressures seem likely to moderate over time.”

On the growth front, the Fed did acknowledge the recent slowdown in economic activity, which was a modest downgrade from March’s assessment. However, the Fed said it still expects the economy to “expand at a moderate pace over the coming quarter.”

Finally, the FOMC stands by its statement that future policy adjustments (i.e. changes in interest rates) will depend on the evolution of the outlook for both inflation and the economy.

In response, stocks did their usual post-Fed dance, moving down and then back up again as investors concluded that no news was good news as far as the Fed is concerned.

Turning to this morning, we’ve got some economic data to review before the bell today in the form of the March Trade Balance and April Import Prices, which both came in a bit hotter than expected. And don’t forget that we’ve got a big PPI report tomorrow. But getting back to this morning, it appears that traders have been disappointed so far with the April same store sales numbers from retailers, which have been coming in below expectations.

Running through the rest of the pre-game indicators, the major foreign markets are lower. Gold futures are moving down this morning by $3.30 and are trading at $679.20. In the oil pits, crude futures are higher by $0.45 with the latest quote at $62.00. Interest rates are a smidge lower this morning with the yield on the 10-year currently trading at 4.67%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 49 points; the S&P’s are a little more than 6 points under water, while the NASDAQ looks to be almost 9 points below fair value at the moment

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:
Echostar Communications (NASDAQ: DISH) – Reported $0.35 vs. $0.44
Lamar Advertising (NASDAQ: LAMR) – Reported $0.09 vs. $0.00
Sara Lee (NYSE: SLE) – Reported $0. vs. $0.13
Viacom (VIA.B) – Reported $0.34 vs. $0.31

News, Upgrades/Downgrades/Brokerage Research:
Dendreon Corp (NASDAQ: DNDN) – Downgraded at BofA
Barr Pharmaceuticals (NYSE: BRL) – Upgraded at Bernstein
Radio Shack (NYSE: RSH) – Downgraded at Credit Suisse
Whole Foods (NASDAQ: WFMI) – Downgraded at HSBC
Ralcorp Holdings – Downgraded at JP Morgan
Papa Johns Intl (NASDAQ: PZZA) – Upgraded at Oppenheimer
Legg Mason (NYSE: LM) – Downgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: None

Note: All earnings reports compared to Reuter’s consensus estimates

** 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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