David Moenning's Daily State of the Markets: 09/20
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The New Market Math
Investors around the globe seem to be enjoying the new market math where 50+50=411 (and counting). Basking in the glow of the 50 basis point cuts in both the Discount and Fed Funds rates and encouraged by a second weak inflation number in as many days, the Dow gained another 76 points yesterday. And some quick math tells us that this brings the total gain since Monday to 411 points.
In short, the bulls continued to sing a happy tune yesterday and told anyone that would listen, that it rarely pays to fight the Fed. Although stocks are suddenly overbought and there is sure to be some resistance as we approach the old highs – which is less than 1.5% away on the Dow – the bulls currently have a case that is fairly hard to argue with.
For starters, our horned heroes tell us that the Fed is on the case. The bulls argue that Mr. Bernanke appears to have declared war on the potential for any future economic weakness with his surprise 50-50 rate cut. And in short, “fighting the Fed” has traditionally been a very bad idea for portfolio managers.
Next, the bulls’ secondary battle cry is, “Inflation? What Inflation?” With both the PPI and CPI falling in August, the thinking is that the Fed can put this worry on the back burner for a while and focus on sustaining growth in the economy. And the bottom line is that this means lower rates ahead.
The bullishly inclined also tell us that all of the above indicates the economy will be fine and that worries over a recession are overblown. The bulls suggest that mortgage rates will fall back to levels that remove some of the hurt from ARM resets. The credit crunch will dissipate. And with only one jobs report showing any weakness, the feeling is that the economy will continue to chug merrily along once this episode is behind us.
Finally, the bulls remind us that the fourth quarter is coming and that it’s getting late in the game for the hedge fund managers. Given all of the problems that hedge funds have encountered recently and the fact that the S&P is up more than 7% on the year, the argument is that the go-both-ways crowd will have to get long and stay long for the rest of the year in order to get paid.
So while we probably shouldn’t expect stocks to continue to blast higher at the current rate, history is on the side of the bulls right now. And this means that the dip-buyers ought to be out in force during any declines we might see going forward.
Turning to this morning, with losses in Europe based on banking problems, logic would dictate that we might see some sort of a pullback soon. However, impressive numbers out of Goldman Sachs this morning argue that the impact of the credit crisis may not be as severe as the bears had suggested.
Running through the rest of the pre-game indicators, the overseas markets are mixed by region with Asian up and Europe down. Crude futures are doing little so far this morning with the latest quote down $0.02 to $81.95. Interest rates are moving up again this morning and the 10-yr is trading at a yield of 4.58% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a little weaker. The Dow futures are currently off by about 20 points; the S&Ps are down by about 3 points, and the NASDAQ looks to be about 8 points below fair value at the moment.
Stocks "In Play" This Morning:
Today's Earnings Before the Bell:
Bear Stearns (NYSE: BSC) – Reported $1.16 vs. $1.78
Conagra (NYSE: CAG) – Reported $0.34 vs. $0.29
Circuit City (NYSE: CC) – Reported <$0.38> vs. <$0.12>
FedEx (NYSE: FDX) – Reported $1.58 vs. $1.54
Goldman Sachs (NYSE: GS) – Reported $6.13 vs. $4.32
News, Upgrades/Downgrades/Brokerage Research:
Precision Castparts (NYSE: PCP) – Target increased at BofA
Fannie Mae (NYSE: FNM) – Target increased at BofA
Freddie Mac (NYSE: FRE) – Target increased at BofA
Pepsi Bottling Group (NYSE: PBG) – Downgraded at Bernstein
Motorola (NYSE: MOT) – Upgraded at Cowen
Nokia (NYSE: NOK) – Upgraded at Cowen
General Mills (NYSE: GIS) – Upgraded at Credit Suisse
Korn Ferry (NYSE: KFY) – Downgraded at Goldman Sachs
AMR Corp (NYSE: AMR) – Downgraded at Goldman Sachs
Southwest Air (NYSE: LUV) – Upgraded at Goldman Sachs
Annaly Capital (NYSE: NLY) – Downgraded at Merrill
BT Group (NYSE: BT) – Downgraded at Morgan Stanley
Sprint Nextel (NYSE: S) – Target reduced at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER
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.
Investors around the globe seem to be enjoying the new market math where 50+50=411 (and counting). Basking in the glow of the 50 basis point cuts in both the Discount and Fed Funds rates and encouraged by a second weak inflation number in as many days, the Dow gained another 76 points yesterday. And some quick math tells us that this brings the total gain since Monday to 411 points.
In short, the bulls continued to sing a happy tune yesterday and told anyone that would listen, that it rarely pays to fight the Fed. Although stocks are suddenly overbought and there is sure to be some resistance as we approach the old highs – which is less than 1.5% away on the Dow – the bulls currently have a case that is fairly hard to argue with.
For starters, our horned heroes tell us that the Fed is on the case. The bulls argue that Mr. Bernanke appears to have declared war on the potential for any future economic weakness with his surprise 50-50 rate cut. And in short, “fighting the Fed” has traditionally been a very bad idea for portfolio managers.
Next, the bulls’ secondary battle cry is, “Inflation? What Inflation?” With both the PPI and CPI falling in August, the thinking is that the Fed can put this worry on the back burner for a while and focus on sustaining growth in the economy. And the bottom line is that this means lower rates ahead.
The bullishly inclined also tell us that all of the above indicates the economy will be fine and that worries over a recession are overblown. The bulls suggest that mortgage rates will fall back to levels that remove some of the hurt from ARM resets. The credit crunch will dissipate. And with only one jobs report showing any weakness, the feeling is that the economy will continue to chug merrily along once this episode is behind us.
Finally, the bulls remind us that the fourth quarter is coming and that it’s getting late in the game for the hedge fund managers. Given all of the problems that hedge funds have encountered recently and the fact that the S&P is up more than 7% on the year, the argument is that the go-both-ways crowd will have to get long and stay long for the rest of the year in order to get paid.
So while we probably shouldn’t expect stocks to continue to blast higher at the current rate, history is on the side of the bulls right now. And this means that the dip-buyers ought to be out in force during any declines we might see going forward.
Turning to this morning, with losses in Europe based on banking problems, logic would dictate that we might see some sort of a pullback soon. However, impressive numbers out of Goldman Sachs this morning argue that the impact of the credit crisis may not be as severe as the bears had suggested.
Running through the rest of the pre-game indicators, the overseas markets are mixed by region with Asian up and Europe down. Crude futures are doing little so far this morning with the latest quote down $0.02 to $81.95. Interest rates are moving up again this morning and the 10-yr is trading at a yield of 4.58% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a little weaker. The Dow futures are currently off by about 20 points; the S&Ps are down by about 3 points, and the NASDAQ looks to be about 8 points below fair value at the moment.
Stocks "In Play" This Morning:
Today's Earnings Before the Bell:
Bear Stearns (NYSE: BSC) – Reported $1.16 vs. $1.78
Conagra (NYSE: CAG) – Reported $0.34 vs. $0.29
Circuit City (NYSE: CC) – Reported <$0.38> vs. <$0.12>
FedEx (NYSE: FDX) – Reported $1.58 vs. $1.54
Goldman Sachs (NYSE: GS) – Reported $6.13 vs. $4.32
News, Upgrades/Downgrades/Brokerage Research:
Precision Castparts (NYSE: PCP) – Target increased at BofA
Fannie Mae (NYSE: FNM) – Target increased at BofA
Freddie Mac (NYSE: FRE) – Target increased at BofA
Pepsi Bottling Group (NYSE: PBG) – Downgraded at Bernstein
Motorola (NYSE: MOT) – Upgraded at Cowen
Nokia (NYSE: NOK) – Upgraded at Cowen
General Mills (NYSE: GIS) – Upgraded at Credit Suisse
Korn Ferry (NYSE: KFY) – Downgraded at Goldman Sachs
AMR Corp (NYSE: AMR) – Downgraded at Goldman Sachs
Southwest Air (NYSE: LUV) – Upgraded at Goldman Sachs
Annaly Capital (NYSE: NLY) – Downgraded at Merrill
BT Group (NYSE: BT) – Downgraded at Morgan Stanley
Sprint Nextel (NYSE: S) – Target reduced at UBS
Mr. Moenning holds Long positions in stocks mentioned: MER
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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