David Moenning Daily State of the Markets: 11/30

Stock Market Logic (??)

At times, the logic on Wall Street defies all logic. You see, there are times when good news in the economy is bad news for stocks, which of course, means that bad news is actually good news. And then there are times when good economic news is, well, good. The problem is that there�s no sign on the wall telling you which rules are in play at any given time.

Over the last few weeks, stocks have been rallying in response to good economic news. Since traders had been concerned that the economy would struggle with the hurricanes, the increases in energy prices, and the move up in interest rates, the news that inflation continues to be on the tame side and that the economy is humming along, has been music to the bulls� ears.

However, yesterday that logic went out the window. We got a very nice report on orders for Durable Goods, excellent news on New Home Sales, and a surprising jump in Consumer Confidence. With all three reports exceeding economist�s expectations, you might have expected stocks to have enjoyed a good day. Add in another decline in oil prices (crude dropped -$0.86 to $56.50, which took prices to their lowest level in 5 � months), and the fact that the bulls have simply dominated the action lately, and logic would suggest that the commentators would be crowing about another four-year high.

However, this logical assumption was just plain wrong. You see, the market is currently walking a very fine line between the economy being strong enough to support ongoing growth and yet not too strong so as to create inflation. The fear obviously is that if things get too good, it would just encourage the already trigger-happy Fed to keep the rates hikes coming.

So when orders for Durable Goods come in with a gain of +3.4% versus expectations of +1.5%, New Homes Sales surge 13% to a new record high, and Consumer Confidence leaps 13.7 points to 98.9 (which just happens to be the sixth biggest one-month gain in history), traders, specifically bond traders, start to get nervous about things being �too good.�

The good news is that the good economic data, which was bad news to the market didn�t inflict much damage to the stock market. With seasonality still having an impact, stocks simply went sideways instead of down. Which, given the overbought and overly optimistic mood, is a good thing (I�ll stop soon, I promise).

Turning to this morning, we�ve got more economic data to review. The government reported that the preliminary growth rate for GDP in the third quarter was 4.3%, which was a bit better than the 4.1% level that was expected and the preliminary guesstimate of +3.8%. The Personal Consumption aspect of the report was also better-than expected at 4.2% versus expectations of 3.9%.

So far at least, the markets have had little response. Bond yields are actually pulling back a bit (10-yr is at 4.45%) and stock futures have improved a smidge. Finally, oil is trading a little lower this morning with crude futures currently down -$0.16 to $56.34.

So it would seem that the question of the day is if today�s numbers will be considered too hot, too cold, or just right? Time will tell, but let�s keep in mind that we�ve got some much bigger numbers on the horizon.

Stocks "In Play" This Morning:
YHOO � Downgraded at UBS
INTC - INTC says more than 40 companies are partners on Viiv technology
HPQ � Launches Presario in Taiwan

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: YHOO, INTC

To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI

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