David Moenning's Daily State of the Markets: 10/15

Is The Game Back On?

Oracle's (Nasdaq: ORCL) bid for BEA Systems (Nasdaq: BEAS) and the expectations of a bidding war appear to have reminded investors that the takeover game may be back. So, with a big name buyout, some solid economic data, and an expiration week on the horizon, stocks returned to their winning ways on Friday.

Although this summer’s credit crisis certainly put an end to the highly leveraged buyout, takeover, LBO, and private equity craze for a while, the fact that the debt markets have calmed down significantly over the past month has brought back the urge to merge.

Lest we forget, merger mania tells investors that it’s "game on" in the bull camp. The fact that companies are willing to plunk down cold hard cash for a competitor tell us several things. First, it says that management is confident enough in the outlook for their business to spend the big bucks necessary to make the acquisition. Next, takeovers tell us that management isn’t overly concerned about the economy slowing down. Corporate buyouts also inject cash into the system. And finally, since most deals are done at a substantial premium to current prices, takeovers tell us that valuations are not a problem in the stock market.

The bulls also got some help on Friday from the economic data released. First, our heroes in horns pointed to the headline number from the Retail Sales report, which was better than expected and seemed to offset some of the concerns from Thursday’s chain store sales results. And second, although the headline PPI was higher than expected, the all-important Core Rate advanced just +0.1%, which was actually below analyst expectations.

Looking to the week ahead, the earnings parade will really start to roll as we’ll get reports from twelve of the Dow 30 stocks. In addition, we’ll get a feel for how the big name banks fared during the credit crisis as names such as Wells Fargo (WFC), US Bancorp (USB), JP Morgan (JPM), Bank of America (BAC), and Wachovia (WB) will release earnings numbers. And finally, it’s a big week for big tech as well since we’ll get results from Intel (INTC) and Yahoo! (YHOO) on Tuesday, eBay (EBAY) on Wednesday, and Advanced Micro (AMD), Google (GOOG), and IBM (IBM) after the close on Thursday.

Turning to this morning, we got some encouraging data on the economy as the Empire Manufacturing Index came in at more than double expectations. However, crude futures are getting tough to ignore as the price pushes ever higher and is near $85 this morning.

Running through the rest of the pre-game indicators; the overseas markets are mixed this morning with Hong Kong sporting a nice gain while just about everything else is waffling around breakeven. Crude futures are up $1.15 so far with the latest quote at $84.84. Interest rates are up a bit this morning on the positive economic data with the 10-yr trading at a yield of 4.71% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little stronger. The Dow futures are currently ahead by about 24 points; the S&Ps are up by about 2 points, while the NASDAQ looks to be about a point above fair value at the moment.

Stocks "In Play" This Morning:


Today’s Earnings Before the Bell:

Citigroup (C) – Reported $0.47 vs. $0.43
Eaton (ETN) – Reported $1.79 vs. $1.68
Mattel (MAT) – Reported $0.61 vs. $0.70

News, Upgrades/Downgrades/Brokerage Research:

BJ’s Wholesale Club (NYSE: BJ) – Downgraded at BofA
BEA Systems (Nasdaq: BEAS) – Downgraded at Bear Stearns, Citi
China Telecom (NYSE: CHA) – Downgraded at Bear Stearns
Encana (NYSE: ECA) – Downgraded at Credit Suisse
Petsmart (Nasdaq: PETM) – Downgraded at Credit Suisse
Office Depot (NYSE: ODP) – Downgraded at Credit Suisse
ENI (NYSE: E) – Downgraded at Credit Suisse
Waddell & Reed (NYSE: WDR) – Upgraded at Credit Suisse
Assurant (NYSE: AIZ) – Upgraded at Goldman Sachs
Apple (Nasdaq: AAPL) – Target increased at Lehman
Longs Drug Stores (NYSE: LDG) – Upgraded at Lehman
Forest Labs (NYSE: FRX) – Upgraded at Merrill Lynch
Annaly Capital (NYSE: NLY) – Upgraded at UBS
KB Home (NYSE: KBH) – Downgraded at UBS
Medco Health Solutions (NYSE: MHS) – Downgraded at Wachovia

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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