David Moenning's Daily State of the Markets: 07/25
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Credit Crunched
Good morning. Stocks got tagged for steep losses yesterday as the bears suddenly had a plethora of talking points and used them well. Punk earnings, mortgage problems, materials costs, disappointing iPhone sales, and something Bill Gross of PIMCO called a \'credit crunch\' all combined to send the Dow down 226 points for the worst day in months.
While the bulls will try to shake it off as just a bad day, the action suggested that this may not be a one-and-done type of affair. The fact that volume increased significantly, breadth was horrendous, and the sheer size of the drop caused technicians to sit up and take notice.
Even the fundamentalists out there will have to give the bears some credit for their efforts. And speaking of credit, this was the primary story yesterday. First, Countrywide Financial (NYSE: CFC) got things moving to the downside with the statement that it "took impairments on prime loans." In English, this means that CFC actually reported losses on loans that were well above the subprime level. This, of course, gave the bears an opportunity to wave a paw at their opponents and proclaim that the subprime problem is indeed spreading and that the sky will soon be falling in all things financial.
Normally, this news would have been plenty for the bulls to try and deal with. But, when Mr. Bill Gross, who is arguably the largest manager of bonds in the world said that the "credit crunch has not yet been fully priced in," our heroes in horns suddenly found themselves being overrun with negativity.
By using the term \'credit crunch\' Mr. Gross was pointing out that the cost of borrowing has been going up recently - especially in the lower quality arena. This means that companies are being forced to pay more to borrow money, which, in turn, means that earnings could be lower going forward. And while Mr. Gross was once again talking his book (meaning that bond prices go up when topics like this are discussed), this is a concern that we may need to take seriously.
Although the argument that earnings will be impacted makes sense, the bigger concern for investors is the potential impact on the flow of M&A deals. Everybody knows that M&A is the lifeblood of this bull market. So, IF it becomes more difficult to raise capital because the cost of borrowing is rising, then fewer deals may get done. And while this is pure speculation at this stage, this could give the bulls serious trouble from a big-picture standpoint.
Turning to this morning, there is no economic data scheduled for release before the bell, but we will get a report on Existing Home Sales at 10:00am. In looking at the market, in the early going at least, the mood appears to be dramatically more upbeat on the back some nice earnings numbers from the likes of Amazon.com (NASDAQ: AMZN) and Boeing (NYSE: BA).
Running through the rest of the pre-game indicators, with the exception of the UK, the foreign markets are all lower at the moment, although not dramatically so. In the oil pits, crude futures are moving down again with the latest quote off $0.09 at $73.47. Interest rates are a little lower this morning with the yield on the 10-year currently trading at 4.94%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to much better open at the present time. The Dow futures are currently ahead by about 90 points; the S&P\'s are up by almost 10 points, while the NASDAQ looks to be about 17 points above fair value at the moment.
Stocks "In Play" This Morning:
Yesterday\'s Earnings After the Bell:
AFLAC (NYSE: AFL) - Reported $0.84 vs. $0.81
Amazon.com (NASDAQ: AMZN) - Reported $0.19 vs. $0.16
Avaya (NYSE: AV) - Reported $0.15 vs. $0.15
CR Bard (NYSE: BCR) - Reported $0.93 vs. $0.93
Choice Hotels (NYSE: CHH) - Reported $0.43 vs. $0.41
Centex (NYSE: CTX) - Reported <$0.10> vs. <$0.04>
Developers Diversified (NYSE: DDR) - Reported $1.26 vs. $1.17
Jones Lang LaSalle (NYSE: JLL) - Reported $2.32 vs. $1.03
Linear Technology (NASDAQ: LLTC) - Reported $0.36 vs. $0.35
Nabors Industries (NYSE: NBR) - Reported $0.79 vs. $0.81
Snap On (NYSE: SNA) - Reported $0.90 vs. $0.75
Taubman Centers (NYSE: TCO) - Reported $0.68 vs. $0.61
XL Capital (NYSE: XL) - Reported $2.84 vs. $2.47
Today\'s Earnings Before the Bell:
Allegheny Technologies (NYSE: ATI) - Reported $2.00 vs. $1.92
Arkansas Best (NASDAQ: ABFS) - Reported $0.78 vs. $0.66
Air Products (NYSE: APD) - Reported $1.16 vs. $1.06
Boeing (NYSE: BA) - Reported $1.35 vs. $1.16
Colgate Palmolive (NYSE: CL) - Reported $0.84 vs. $0.83
ConocoPhillips (NYSE: COP) - Reported $2.90 vs. $2.68
Corning (NYSE: GLW) - Reported $0.34 vs. $0.32
Freeport McMoRan (NYSE: FCX) - Reported $2.57 vs. $2.74
Hess Corp (NYSE: HES) - Reported $1.70 vs. $1.45
Praxair (NYSE: PX) - Reported $0.89 vs. $0.87
Reynolds American (NYSE: RAI) - Reported $1.10 vs. $1.21
Tribune (NYSE: TRB) - Reported $0.47 vs. $0.48
Xerox (NYSE: XRX) - Reported $0.28 vs. $0.27
News, Upgrades/Downgrades/Brokerage Research:*
Overseas Shipholding (NYSE: OSG) - Downgraded at Banc of America
Amazon.com (NASDAQ: AMZN) - Upgraded at Bear Stearns, Credit Suisse, JP Morgan, Lehman Brothers GlaxoSmithKline (NYSE: GSK) - Downgraded at Bear Stearns
Amerigroup (NYSE: AGP) - Upgraded at CIBC
Kimberly Clark (NYSE: KMB) - Upgraded at Citi
Countrywide Financial (NYSE: CFC) - Downgraded at Friedman Billings
Celanese Corp (NYSE: CE) - Upgraded at Goldman Sachs
PACCAR (NASDAQ: PCAR) - Downgraded at Morgan Stanley
Seagate Technology (NYSE: STX) - Upgraded at RW Baird
Lam Research (NASDAQ: LRCX) - Downgraded at Think Equity
Hain Celestial Group (NASDAQ: HAIN) - Upgraded at UBS
Precision Castparts (NYSE: PCP) - Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: JLL, RAI, FCX, PCP
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.
Good morning. Stocks got tagged for steep losses yesterday as the bears suddenly had a plethora of talking points and used them well. Punk earnings, mortgage problems, materials costs, disappointing iPhone sales, and something Bill Gross of PIMCO called a \'credit crunch\' all combined to send the Dow down 226 points for the worst day in months.
While the bulls will try to shake it off as just a bad day, the action suggested that this may not be a one-and-done type of affair. The fact that volume increased significantly, breadth was horrendous, and the sheer size of the drop caused technicians to sit up and take notice.
Even the fundamentalists out there will have to give the bears some credit for their efforts. And speaking of credit, this was the primary story yesterday. First, Countrywide Financial (NYSE: CFC) got things moving to the downside with the statement that it "took impairments on prime loans." In English, this means that CFC actually reported losses on loans that were well above the subprime level. This, of course, gave the bears an opportunity to wave a paw at their opponents and proclaim that the subprime problem is indeed spreading and that the sky will soon be falling in all things financial.
Normally, this news would have been plenty for the bulls to try and deal with. But, when Mr. Bill Gross, who is arguably the largest manager of bonds in the world said that the "credit crunch has not yet been fully priced in," our heroes in horns suddenly found themselves being overrun with negativity.
By using the term \'credit crunch\' Mr. Gross was pointing out that the cost of borrowing has been going up recently - especially in the lower quality arena. This means that companies are being forced to pay more to borrow money, which, in turn, means that earnings could be lower going forward. And while Mr. Gross was once again talking his book (meaning that bond prices go up when topics like this are discussed), this is a concern that we may need to take seriously.
Although the argument that earnings will be impacted makes sense, the bigger concern for investors is the potential impact on the flow of M&A deals. Everybody knows that M&A is the lifeblood of this bull market. So, IF it becomes more difficult to raise capital because the cost of borrowing is rising, then fewer deals may get done. And while this is pure speculation at this stage, this could give the bulls serious trouble from a big-picture standpoint.
Turning to this morning, there is no economic data scheduled for release before the bell, but we will get a report on Existing Home Sales at 10:00am. In looking at the market, in the early going at least, the mood appears to be dramatically more upbeat on the back some nice earnings numbers from the likes of Amazon.com (NASDAQ: AMZN) and Boeing (NYSE: BA).
Running through the rest of the pre-game indicators, with the exception of the UK, the foreign markets are all lower at the moment, although not dramatically so. In the oil pits, crude futures are moving down again with the latest quote off $0.09 at $73.47. Interest rates are a little lower this morning with the yield on the 10-year currently trading at 4.94%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to much better open at the present time. The Dow futures are currently ahead by about 90 points; the S&P\'s are up by almost 10 points, while the NASDAQ looks to be about 17 points above fair value at the moment.
Stocks "In Play" This Morning:
Yesterday\'s Earnings After the Bell:
AFLAC (NYSE: AFL) - Reported $0.84 vs. $0.81
Amazon.com (NASDAQ: AMZN) - Reported $0.19 vs. $0.16
Avaya (NYSE: AV) - Reported $0.15 vs. $0.15
CR Bard (NYSE: BCR) - Reported $0.93 vs. $0.93
Choice Hotels (NYSE: CHH) - Reported $0.43 vs. $0.41
Centex (NYSE: CTX) - Reported <$0.10> vs. <$0.04>
Developers Diversified (NYSE: DDR) - Reported $1.26 vs. $1.17
Jones Lang LaSalle (NYSE: JLL) - Reported $2.32 vs. $1.03
Linear Technology (NASDAQ: LLTC) - Reported $0.36 vs. $0.35
Nabors Industries (NYSE: NBR) - Reported $0.79 vs. $0.81
Snap On (NYSE: SNA) - Reported $0.90 vs. $0.75
Taubman Centers (NYSE: TCO) - Reported $0.68 vs. $0.61
XL Capital (NYSE: XL) - Reported $2.84 vs. $2.47
Today\'s Earnings Before the Bell:
Allegheny Technologies (NYSE: ATI) - Reported $2.00 vs. $1.92
Arkansas Best (NASDAQ: ABFS) - Reported $0.78 vs. $0.66
Air Products (NYSE: APD) - Reported $1.16 vs. $1.06
Boeing (NYSE: BA) - Reported $1.35 vs. $1.16
Colgate Palmolive (NYSE: CL) - Reported $0.84 vs. $0.83
ConocoPhillips (NYSE: COP) - Reported $2.90 vs. $2.68
Corning (NYSE: GLW) - Reported $0.34 vs. $0.32
Freeport McMoRan (NYSE: FCX) - Reported $2.57 vs. $2.74
Hess Corp (NYSE: HES) - Reported $1.70 vs. $1.45
Praxair (NYSE: PX) - Reported $0.89 vs. $0.87
Reynolds American (NYSE: RAI) - Reported $1.10 vs. $1.21
Tribune (NYSE: TRB) - Reported $0.47 vs. $0.48
Xerox (NYSE: XRX) - Reported $0.28 vs. $0.27
News, Upgrades/Downgrades/Brokerage Research:*
Overseas Shipholding (NYSE: OSG) - Downgraded at Banc of America
Amazon.com (NASDAQ: AMZN) - Upgraded at Bear Stearns, Credit Suisse, JP Morgan, Lehman Brothers GlaxoSmithKline (NYSE: GSK) - Downgraded at Bear Stearns
Amerigroup (NYSE: AGP) - Upgraded at CIBC
Kimberly Clark (NYSE: KMB) - Upgraded at Citi
Countrywide Financial (NYSE: CFC) - Downgraded at Friedman Billings
Celanese Corp (NYSE: CE) - Upgraded at Goldman Sachs
PACCAR (NASDAQ: PCAR) - Downgraded at Morgan Stanley
Seagate Technology (NYSE: STX) - Upgraded at RW Baird
Lam Research (NASDAQ: LRCX) - Downgraded at Think Equity
Hain Celestial Group (NASDAQ: HAIN) - Upgraded at UBS
Precision Castparts (NYSE: PCP) - Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: JLL, RAI, FCX, PCP
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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