David Moenning's Daily State of the Markets: 09/14
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Signs of Stability, But...
Stocks advanced Thursday as some signs of stability in the credit markets caused traders to feel that we may have seen the worst of the credit crisis. And with the Fed waiting in the wings to insure that the financial system doesn't freeze up and the economy doesn’t sink into recession, renewed confidence was the order of the day.
Despite the new record close for oil prices at $80.09, news that Countrywide Financial (NYSE: CFC) had lined up another $12 billion in financing provided evidence that there may be a gentle thawing occurring in the credit markets. After all, if CFC, which is at the center of the mortgage mess – at least as far as the public is concerned – can find financing, then things may not be all that calamitous.
We also got some signs of stability in the commercial paper market yesterday. Recall that the big fear during this stock market correction has been that commercial paper market would seize up, eliminating short-term borrowing opportunities for businesses. But yesterday, we got word that although the total issuance for commercial paper did fall for the 5th straight week, last week’s decline of $8.2 billion was far better than the drop of $32 billion seen the week prior. In addition, is should be noted that the drop in CP issuance was tied completely to the asset backed arena – which obviously isn’t coming back any time soon.
It was also positive that the rates on commercial paper continue to come down. For example, while the rate on 30 day AA rated non-financial and financial commercial paper may not be on your daily watch-list, it is important that the rates fell to their lowest level since June 2006 on Wednesday.
Another big fear during this corrective phase has been that M&A deals would simply stop getting done and that the private equity game was over. So, word that buyers have been lined up for the sale of some of the debt to finance the takeover of Alliance Boots was a big deal yesterday.
All in all, while it would be naïve to think that the corrective phase is over or that we won’t retest the lows when some another batch of bad news crops up, the fact that some stability appears to be returning to the credit markets was indeed a positive for stocks yesterday.
Turning to this morning, the news is not so encouraging in pre-market trading today. Fears of the impact of the credit crisis have returned as Northern Rock, a bank in the UK was forced to borrow from the Bank of England and issued a profit warning this morning. This has caused selling in the financials across the pond and will probably put a damper on yesterday’s fun in the U.S.
Next up on the bad news front this morning, Merrill may be pulling the plug on the big-cap tech rally as they downgraded Intel (Nasdaq: INTC).
And finally, the economic news this morning was disappointing as Retail Sales in August came in weaker than expected. This is the second Friday in a row that we’ve seen big misses on the economic front, which certainly isn’t helping the stock market at the moment. The report showed that Retail Sales were up +0.3% in August, but unfortunately, this was below the estimates for an increase of +0.5%. In addition, the all-important Ex-Autos number missed by a large amount, falling by -0.4% when analysts had been looking for an increase of +0.2%
Running through the rest of the pre-game indicators, overseas markets mixed by region with Asian stocks higher and European stocks lower. Crude futures are down by $0.49 to $79.60 after OPEC came out and said that $80 is too high. Interest rates are moving down again this morning and the 10-yr is trading at a yield of 4.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 75 points; the S&Ps are down by more than 10 points, and the NASDAQ looks to be about 19 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Apple (Nasdaq: AAPL) – T-Mobile to sell iPhone exclusively in Germany
Weyerhaeuser (NYSE: WY) – Upgraded at BofA
United Technologies (NYSE: UTX) – Upgraded at Bernstein
Fluor Corp (NYSE: FLR) – Downgraded at Citi
Nortel (NYSE: NT) – Estimates reduced at Credit Suisse
Imclone (Nasdaq: IMCL) – Downgraded at Freidman Billings
Sandisk (Nasdaq: SNDK) – Mentioned positively at Goldman Sachs
Cameron Intl (NYSE: CAM) – Target increased at Jefferies
Oceaneering Intl (NYSE: OII) – Target increased at Jefferies
Intel (Nasdaq: INTC) – Downgraded at Merrill Lynch
Texas Instruments (NYSE: TXN) – Target lowered at Merrill
American Express (NYSE: AXP) – Downgraded at Merrill Lynch
Research in Motion (Nasdaq: RIMM) – Target increased at RBC Capital
Mr. Moenning holds Long positions in stocks mentioned: MER, AAPL, FLR, OII, CAM, RIMM
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.
Stocks advanced Thursday as some signs of stability in the credit markets caused traders to feel that we may have seen the worst of the credit crisis. And with the Fed waiting in the wings to insure that the financial system doesn't freeze up and the economy doesn’t sink into recession, renewed confidence was the order of the day.
Despite the new record close for oil prices at $80.09, news that Countrywide Financial (NYSE: CFC) had lined up another $12 billion in financing provided evidence that there may be a gentle thawing occurring in the credit markets. After all, if CFC, which is at the center of the mortgage mess – at least as far as the public is concerned – can find financing, then things may not be all that calamitous.
We also got some signs of stability in the commercial paper market yesterday. Recall that the big fear during this stock market correction has been that commercial paper market would seize up, eliminating short-term borrowing opportunities for businesses. But yesterday, we got word that although the total issuance for commercial paper did fall for the 5th straight week, last week’s decline of $8.2 billion was far better than the drop of $32 billion seen the week prior. In addition, is should be noted that the drop in CP issuance was tied completely to the asset backed arena – which obviously isn’t coming back any time soon.
It was also positive that the rates on commercial paper continue to come down. For example, while the rate on 30 day AA rated non-financial and financial commercial paper may not be on your daily watch-list, it is important that the rates fell to their lowest level since June 2006 on Wednesday.
Another big fear during this corrective phase has been that M&A deals would simply stop getting done and that the private equity game was over. So, word that buyers have been lined up for the sale of some of the debt to finance the takeover of Alliance Boots was a big deal yesterday.
All in all, while it would be naïve to think that the corrective phase is over or that we won’t retest the lows when some another batch of bad news crops up, the fact that some stability appears to be returning to the credit markets was indeed a positive for stocks yesterday.
Turning to this morning, the news is not so encouraging in pre-market trading today. Fears of the impact of the credit crisis have returned as Northern Rock, a bank in the UK was forced to borrow from the Bank of England and issued a profit warning this morning. This has caused selling in the financials across the pond and will probably put a damper on yesterday’s fun in the U.S.
Next up on the bad news front this morning, Merrill may be pulling the plug on the big-cap tech rally as they downgraded Intel (Nasdaq: INTC).
And finally, the economic news this morning was disappointing as Retail Sales in August came in weaker than expected. This is the second Friday in a row that we’ve seen big misses on the economic front, which certainly isn’t helping the stock market at the moment. The report showed that Retail Sales were up +0.3% in August, but unfortunately, this was below the estimates for an increase of +0.5%. In addition, the all-important Ex-Autos number missed by a large amount, falling by -0.4% when analysts had been looking for an increase of +0.2%
Running through the rest of the pre-game indicators, overseas markets mixed by region with Asian stocks higher and European stocks lower. Crude futures are down by $0.49 to $79.60 after OPEC came out and said that $80 is too high. Interest rates are moving down again this morning and the 10-yr is trading at a yield of 4.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 75 points; the S&Ps are down by more than 10 points, and the NASDAQ looks to be about 19 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Apple (Nasdaq: AAPL) – T-Mobile to sell iPhone exclusively in Germany
Weyerhaeuser (NYSE: WY) – Upgraded at BofA
United Technologies (NYSE: UTX) – Upgraded at Bernstein
Fluor Corp (NYSE: FLR) – Downgraded at Citi
Nortel (NYSE: NT) – Estimates reduced at Credit Suisse
Imclone (Nasdaq: IMCL) – Downgraded at Freidman Billings
Sandisk (Nasdaq: SNDK) – Mentioned positively at Goldman Sachs
Cameron Intl (NYSE: CAM) – Target increased at Jefferies
Oceaneering Intl (NYSE: OII) – Target increased at Jefferies
Intel (Nasdaq: INTC) – Downgraded at Merrill Lynch
Texas Instruments (NYSE: TXN) – Target lowered at Merrill
American Express (NYSE: AXP) – Downgraded at Merrill Lynch
Research in Motion (Nasdaq: RIMM) – Target increased at RBC Capital
Mr. Moenning holds Long positions in stocks mentioned: MER, AAPL, FLR, OII, CAM, RIMM
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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