David Moenning Daily State of the Markets: 12/01
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Fear Makes a Comeback
Yesterday�s pullback in the blue chip indices, which was highlighted by a drop in the Dow of -89 points, was basically a continuation of the theme that too much good news is actually bad at this time. And with the exception of the action in four-letter-land (the NASDAQ actually gained 0.11 on the day), it would appear that after taking a six week sabbatical, some fear has finally crept back into the market.
The day began with a stronger-than expected GDP report. The Commerce Department reported that based on preliminary data, the economy grew by 4.3% in the third quarter, which represents the fastest growth rate since the first quarter of 2004. This was better than the government�s first guess of 3.8% and also higher than expectations of a growth rate of 4.1%. And although the PCE reading, which is an indicator of inflation, actually was revised lower, it was the stronger than expected growth rate that put the fear of the Fed back on the table.
Adding fuel to yesterday�s fearful mood was the fact that oil inventories came in significantly lower than expected, the Fed�s Beige Book report spoke of an expanding economy and concerns about inflation, and the Chicago Purchasing Managers Index was better than expected.
However, as we�ve mentioned before on several occasions, the real �tell� as to what is happening in the market can often be found over in the bond pits. And in light of the fact that bonds barely budged yesterday, we can conclude that stocks primarily responded to an overbought condition in the market and overly optimistic mood. In short, stocks were due for a rest and yesterday�s renewed fear of the Fed was simply an easy excuse to grasp onto.
Turning to this morning, the economic data du jour is helping allay the market�s current case of the jitters. The report on Personal Income and Spending came in pretty much in-line with expectations and helped ease fears that the economy and inflation may be heating up. October�s Personal Income was reported up +0.4% versus expectations of +0.5% and the spending numbers came in right on target at +0.2%.
Stocks and bonds alike are responding positively to the news. Stock traders have more than likely noticed that it�s the first day of a new month, which tends to bring with it strong seasonality. And while it is still early, the Dow futures sport a gain of +50 points.
So with stocks looking to open higher, the question of the day is if yesterday�s fear of the Fed was a one-day wonder or will the bears use today�s early strength to reassert themselves?
Stocks "In Play" This Morning:
WMT � November sales comps +3.8%
INTC � Bear Stearns expects company to raise guidance, reiterated by at Needham
NEM � Downgraded at BMO Nesbitt
CVS � Comps at 7% versus expectations of 6.6%
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC, NEM, CVS
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
Yesterday�s pullback in the blue chip indices, which was highlighted by a drop in the Dow of -89 points, was basically a continuation of the theme that too much good news is actually bad at this time. And with the exception of the action in four-letter-land (the NASDAQ actually gained 0.11 on the day), it would appear that after taking a six week sabbatical, some fear has finally crept back into the market.
The day began with a stronger-than expected GDP report. The Commerce Department reported that based on preliminary data, the economy grew by 4.3% in the third quarter, which represents the fastest growth rate since the first quarter of 2004. This was better than the government�s first guess of 3.8% and also higher than expectations of a growth rate of 4.1%. And although the PCE reading, which is an indicator of inflation, actually was revised lower, it was the stronger than expected growth rate that put the fear of the Fed back on the table.
Adding fuel to yesterday�s fearful mood was the fact that oil inventories came in significantly lower than expected, the Fed�s Beige Book report spoke of an expanding economy and concerns about inflation, and the Chicago Purchasing Managers Index was better than expected.
However, as we�ve mentioned before on several occasions, the real �tell� as to what is happening in the market can often be found over in the bond pits. And in light of the fact that bonds barely budged yesterday, we can conclude that stocks primarily responded to an overbought condition in the market and overly optimistic mood. In short, stocks were due for a rest and yesterday�s renewed fear of the Fed was simply an easy excuse to grasp onto.
Turning to this morning, the economic data du jour is helping allay the market�s current case of the jitters. The report on Personal Income and Spending came in pretty much in-line with expectations and helped ease fears that the economy and inflation may be heating up. October�s Personal Income was reported up +0.4% versus expectations of +0.5% and the spending numbers came in right on target at +0.2%.
Stocks and bonds alike are responding positively to the news. Stock traders have more than likely noticed that it�s the first day of a new month, which tends to bring with it strong seasonality. And while it is still early, the Dow futures sport a gain of +50 points.
So with stocks looking to open higher, the question of the day is if yesterday�s fear of the Fed was a one-day wonder or will the bears use today�s early strength to reassert themselves?
Stocks "In Play" This Morning:
WMT � November sales comps +3.8%
INTC � Bear Stearns expects company to raise guidance, reiterated by at Needham
NEM � Downgraded at BMO Nesbitt
CVS � Comps at 7% versus expectations of 6.6%
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC, NEM, CVS
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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