David Moenning Daily State of the Markets: 2/22
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Where For Art Thou, Goldilocks?
During January, the bull camp became convinced that the Fed was about ready to end their long hike down the measured path. The view from the glass is half-full gang was that the economy was neither too hot to cause inflation nor too cold to foster concerns over a recession. In short, it appeared that Goldilocks was alive and well, which meant good things for stock prices.
However, more recently the bulls� cry seems to be more along the lines of �Where for art thou, Goldilocks?� Instead of an economy that�s �just right,� it is beginning to look like the bowl of economic porridge is a little too hot for Mr. Bernanke and Company�s tastes. And this fact alone was enough to give traders reason to pause, well, at least for yesterday anyway.
In the early going it looked like the bulls were ready to try and continue their march higher. With the Dow in new-cycle high territory and the rest of the indices not terribly far behind, the bulls knew that a little more upside momentum might really get the game going.
However, the Conference Board�s report on the Index of Leading Economic Indicators and minutes from the most recent FOMC meeting threw a monkey wrench into the plan. Stocks went into retreat immediately following the release of the LEI. The report came in much hotter than expected, showing an increase of +1.1% in January, which easily exceeded the expectations for an increase of +0.7%. Over the past 12 months, the index has climbed +3.2%, which was the best showing in nearly a year. In sum, the report indicates that the economy�s growth rate will rebound smartly in the first quarter and that the fourth quarter�s sluggish rate was primarily attributable to Katrina and Rita.
And although both the Coincident and Lagging Indices indicated reason for concern going forward, traders assumed the LEI numbers would provide further evidence for the Fed to continue to raise rates. This assumption was furthered by the release of the minutes from the FOMC meeting. As expected, the minutes of 1/31 meeting revealed that FOMC members feel some further firming may be needed. The minutes showed confidence in the pace of economic growth and some concern about inflation.
In addition, a third day of gains in the price of oil didn�t help the bulls� cause. Ongoing geopolitical concerns (i.e. violence in Nigeria and the nuclear issue in Iran) were blamed for oil�s rise of $1.22 to $61.10. And while traders recognize that oil is unlikely to fall to $30 or even $40 anytime soon, the hope had been that crude could settle lower for a bit.
When you couple crude�s rise with worries over the Fed�s next move (by the way, another rate increase in May is now assumed), stocks wound up with little reason to advance and the Dow dropped -46 points. The move occurred on light volume and did little to impact the current uptrend. So we should probably just give the bears a well earned �W� and move on.
Turning to this morning, with the Fed minutes indicating that the committee is data dependent and focused on inflation, today�s CPI report takes on added meaning. The headline number came in a bit hotter than expected at +0.7% versus the consensus of +0.5%. However, the core rate is the more important number right now and it came in in-line with expectations at +0.2. In addition, on a year-over-year basis, the core rate has risen +2.1%, which can still be considered contained. In sum, this morning�s CPI data does not suggest any acceleration of inflation at the present time.
Running through the rest this morning�s indicators, overseas markets are mixed with no major moves seen. Gold futures are down -$5.80 this morning to $550.80. Oil futures are a bit lower and are currently trading at $62.00. Natural Gas is quoted at $7.54 right now. Bond yields are a little lower after the inflation report with the 2-yr yield at 4.70% and 10-yr at 4.56%. And finally, stock futures in the U.S. have improved a smidge after the CPI. The Dow futures are currently higher by +18 points, the S&P�s are up +2.00, and the NASDAQ is ahead +2.0.
Stocks "In Play" This Morning:
MSFT � Dow Jones reports that NOK, ORCL, IBM filed complaint with EU regarding anticompetitive practices
GOOG � Will join with ELNK to bid for SF WiFi contract
AAUK � Reported $2.58 vs. $2.54 announced buyback of $1B and $500M in dividends
ALL � Raised dividend to $0.35
BIDU � Reported $0.13 vs. $0.08 Revenues $14.2M vs. $12.7M
MDT � Reported $0.55 vs. $0.55 Revenues $2.77B vs. $2.89B
MO � Declares dividend of $0.80, ex date 3-13
INTC � Downgraded at ThinkEquity
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC, MO
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
During January, the bull camp became convinced that the Fed was about ready to end their long hike down the measured path. The view from the glass is half-full gang was that the economy was neither too hot to cause inflation nor too cold to foster concerns over a recession. In short, it appeared that Goldilocks was alive and well, which meant good things for stock prices.
However, more recently the bulls� cry seems to be more along the lines of �Where for art thou, Goldilocks?� Instead of an economy that�s �just right,� it is beginning to look like the bowl of economic porridge is a little too hot for Mr. Bernanke and Company�s tastes. And this fact alone was enough to give traders reason to pause, well, at least for yesterday anyway.
In the early going it looked like the bulls were ready to try and continue their march higher. With the Dow in new-cycle high territory and the rest of the indices not terribly far behind, the bulls knew that a little more upside momentum might really get the game going.
However, the Conference Board�s report on the Index of Leading Economic Indicators and minutes from the most recent FOMC meeting threw a monkey wrench into the plan. Stocks went into retreat immediately following the release of the LEI. The report came in much hotter than expected, showing an increase of +1.1% in January, which easily exceeded the expectations for an increase of +0.7%. Over the past 12 months, the index has climbed +3.2%, which was the best showing in nearly a year. In sum, the report indicates that the economy�s growth rate will rebound smartly in the first quarter and that the fourth quarter�s sluggish rate was primarily attributable to Katrina and Rita.
And although both the Coincident and Lagging Indices indicated reason for concern going forward, traders assumed the LEI numbers would provide further evidence for the Fed to continue to raise rates. This assumption was furthered by the release of the minutes from the FOMC meeting. As expected, the minutes of 1/31 meeting revealed that FOMC members feel some further firming may be needed. The minutes showed confidence in the pace of economic growth and some concern about inflation.
In addition, a third day of gains in the price of oil didn�t help the bulls� cause. Ongoing geopolitical concerns (i.e. violence in Nigeria and the nuclear issue in Iran) were blamed for oil�s rise of $1.22 to $61.10. And while traders recognize that oil is unlikely to fall to $30 or even $40 anytime soon, the hope had been that crude could settle lower for a bit.
When you couple crude�s rise with worries over the Fed�s next move (by the way, another rate increase in May is now assumed), stocks wound up with little reason to advance and the Dow dropped -46 points. The move occurred on light volume and did little to impact the current uptrend. So we should probably just give the bears a well earned �W� and move on.
Turning to this morning, with the Fed minutes indicating that the committee is data dependent and focused on inflation, today�s CPI report takes on added meaning. The headline number came in a bit hotter than expected at +0.7% versus the consensus of +0.5%. However, the core rate is the more important number right now and it came in in-line with expectations at +0.2. In addition, on a year-over-year basis, the core rate has risen +2.1%, which can still be considered contained. In sum, this morning�s CPI data does not suggest any acceleration of inflation at the present time.
Running through the rest this morning�s indicators, overseas markets are mixed with no major moves seen. Gold futures are down -$5.80 this morning to $550.80. Oil futures are a bit lower and are currently trading at $62.00. Natural Gas is quoted at $7.54 right now. Bond yields are a little lower after the inflation report with the 2-yr yield at 4.70% and 10-yr at 4.56%. And finally, stock futures in the U.S. have improved a smidge after the CPI. The Dow futures are currently higher by +18 points, the S&P�s are up +2.00, and the NASDAQ is ahead +2.0.
Stocks "In Play" This Morning:
MSFT � Dow Jones reports that NOK, ORCL, IBM filed complaint with EU regarding anticompetitive practices
GOOG � Will join with ELNK to bid for SF WiFi contract
AAUK � Reported $2.58 vs. $2.54 announced buyback of $1B and $500M in dividends
ALL � Raised dividend to $0.35
BIDU � Reported $0.13 vs. $0.08 Revenues $14.2M vs. $12.7M
MDT � Reported $0.55 vs. $0.55 Revenues $2.77B vs. $2.89B
MO � Declares dividend of $0.80, ex date 3-13
INTC � Downgraded at ThinkEquity
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC, MO
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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