David Moenning's Daily State of the Markets: 10/10

All the Right Reasons

Stocks soared to new record highs again on Tuesday after the FOMC minutes showed that Mr. Bernanke & Co. cut rates for all the right reasons. And unlike Monday’s blast, this time, all the big cap indices were on the same page as the S&P 500, DJIA, NASDAQ, and NYSE all finished in new-high territory.

Up until the release of the minutes from the September 18th Fed meeting, the market had been waffling around with modest gains. However, once the minutes were made available, it became clear that the economy is not in trouble and that the Fed may not be done cutting rates – so, the bulls celebrated.

Until last Friday, most investors expected at least one more rate cut out of the Fed before the end of the year and the odds favored a 0.25% reduction at the October meeting. However, with Friday’s jobs report showing that the supposed economic weakness in August wasn’t real, there was some fear that the Fed might use the report as an excuse to be one-and-done with the rate cuts and return their focus to the never ending fight against inflation.

But after perusing the minutes from the meeting, it became clear that the Fed did not believe the employment report from August was accurate. The minutes went on to show that the FOMC “was a little more confident” that the decline in inflation “would be sustained.” It was also positive that Mr. Bernanke’s gang expressed some concern that a continued rapid decline in the dollar could be inflationary. And finally, the fact that the vote was unanimous provided Bernanke with some additional credibility.

Thus, the minutes seemed to suggest that the Fed is focused on all the right stuff and yet still may be able to lend the economy a hand with another rate cut at either the October or December meeting IF needed. This gives traders confidence that the Fed can pull off the hat trick of stimulating the economy with lower rates if needed, continuing to stay vigilant on inflation, and yet still be in a position to defend the dollar if necessary.

So, with no real concerns about a recession or inflation and lower rates possibly on the way, the macro picture remains constructive for higher stock prices. However, the earnings parade has begun, so we will have plenty of micro inputs to focus on as well in the coming weeks.

Turning to this morning, once again we don’t have any economic data to review before the opening bell but we will get a report on Wholesale Inventories at 10:00 am.

Running through the rest of the pre-game indicators; with the exception of Hong Kong, which followed the U.S. higher, the overseas markets are fractionally mixed this morning. Crude futures are up $0.23 so far with the latest quote at $80.49. Interest rates are up a little this morning with the 10-yr trading at a yield of 4.66% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little lower. The Dow futures are currently off by about 14 points; the S&Ps are down by about 3 points, while the NASDAQ looks to be about 4 points below of fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Alcoa (AA) – Reported $0.64 vs. $0.66

Today’s Earnings Before the Bell:<

Costco Wholesale (COST) – Reported $0.83 vs. $0.83
Host Hotels & Resorts (HST) – Reported $0.46 vs. $0.33
Shaw Group (SGR) – Reported $0.60 vs. $0.34
Monsanto (MON) – Reported <$0.18> vs. <$0.17>


News, Upgrades/Downgrades/Brokerage Research:

Amazon.com (AMZN) – Target increased at BofA
Apple (AAPL) – Estimates increased at BofA
BEA Systems (BEAS) – Downgraded at BofA
Molson Coors Brewing (TAP) – Target increased at BofA
EBay (EBAY) – Estimates increased at Bear Stearns
Tesoro (TSO) – Upgraded at Bernstein
Volvo (VOLV) – Upgraded at JP Morgan
Microchip Technology (MCHP) – Upgraded at Lehman
Lam Research (LRCX) – Target reduced at Lehman
KLA Tencor (KLAC) – Downgraded at Lehman
Novellus Systems (NVLS) – Downgraded at Lehman
Adtran (ADTN) – Upgraded at Merrill Lynch
Target (TGT) – Downgraded at Piper Jaffray
Qwest Comm (Q) – Downgraded at UBS
EMC Corp (EMC) – Target increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, AAPL

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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