David Moenning's Daily State of the Markets: 10/30
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A Pullback at Last
Good morning and welcome back. At long last, the bears were finally able to muster up the strength to produce a modest pullback on Friday. It had been a long time coming as the drop of 73 points was the biggest decline since September 7th. And to find a weaker session, you have to go all the way back to August 9th when the Dow lost nearly 100 points.
While the headlines blamed the decline on the weaker-than expected GDP report, in reality, that�s a tough argument to support. You see, although GDP came in below expectations and at the slowest rate since the first quarter of 2003, the weakness was assumed and thus, not much of a surprise. In addition, the weakness stemmed primarily from the housing market, which plunged 17.4% and knocked off 1.1 points from GDP by itself. But again, this wasn�t exactly a surprise.
However, what was surprising was the strength seen in the consumer. Apparently the reports of the death of the consumer were once again premature as spending accelerated to 3.1% (up from 2.6%) and PCE (Personal Consumption Expenditures) moved back above 70% of GDP. Thus, if you REALLY want to know what�s going on in the economy, just watch your neighbors, because with the consumer accounting for 70% of the economy�s growth, the neighborhood trends may be quite telling.
The GDP report also showed that inflation pressures eased significantly. And although this wasn�t really a surprise either, the fact that the PCE Price Index fell to 2.5% from 4.0% was likely in line with the Fed�s expectations. And in short, this data should allow Mr. Bernanke and company to keep the hiking boots on the porch for the remainder of the year.'
We got some additional positive news on the consumer from the University of Michigan�s Consumer Sentiment Index, which came in above expectations at 93.6. And although the report didn�t immediately impact stock trading, it does go to support the idea that the current pullback in stocks may not be fundamentally based.
In short, let�s recognize that the recent run up has created an overbought condition and that the bulls have had everything go their way for quite some time. Thus, it is natural for the opposing team to run with the ball for a while. And given the strength of the recent rally, we should probably expect the bulls to resume their run after a few days of selling.
Looking at the week ahead, we�ve got a full slate of economic data to sift through:
- Monday: Personal Income, Spending & PCE Core
- Tuesday: Consumer Confidence, Chicago Purchasing Managers
- Wednesday: ADP Emp, Construction Spending, ISM Manufacturing, Pending Home Sales
- Thursday: 3rd Quarter Productivity, Factory Orders
- Friday: October Employment Report
In looking at this morning�s pre-market activity, stocks are lower in the early going. The Personal Income and Spending report came in pretty much as expected as Income grew by +0.5%, Spending was up +0.1%, and the PCE Deflator (inflation) was below consensus estimates.
Running through the rest of the pre-game indicators, the major overseas markets are mostly lower this morning. Gold futures are moving up a bit and are quoted at $606.50 right now. Crude futures are moving lower with the latest quote showing oil down $0.89 to $59.86. Interest rates are little changed this morning with the 2-year currently quoted at 4.74% while the 10-yr is trading with a yield of 4.66% right now. And finally, with a little over an hour before the bell, stock futures in the U.S. are trading a little lower. The Dow futures are currently 10 points below fair value, the S&Ps are off 2.30, and the NASDAQ is sporting a loss of about 1 point at the moment.
Stocks �In Play� This Morning:
Tellabs (TLAB) � Mentioned positively in Barron�s
Canadian National Res (CNQ) � Mentioned positively in Barron�s
Wal-Mart (WMT) � Guides October sales below prior estimates
Ameriprise (AMP) � Upgraded at BofA
Biogen (BIIB) � Upgraded at Bear Stearns
Carpenter Technology (CRS) � Upgraded at Bear Stearns
Gold Fields (GFI) � Downgraded at CIBC
Overseas Shipholding (OSG) � Downgraded at Citigroup
Exelon (EXC) � Downgraded at Citigroup
Ingersoll-Rand (IR) � Downgraded at Deutsche Bank
Lockheed Martin (LMT) � Upgraded at Goldman Sachs
Janus Capital (JNS) � Downgraded at Goldman Sachs
Pacific Sunwear (PSUN) � Upgraded at JP Morgan
Yahoo (YHOO) � Upgraded at Merrill Lynch
Whole Foods (WFMI) � Downgraded at RBC Capital
Caterpillar (CAT) � Earnings estimates reduced at Bear Stearns
Ashland (ASH) � Reported $0.79 vs. $0.92, Revenues $1.93B vs. 1.79B
Long positions in stocks mentioned: MER, JNS
** 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 and welcome back. At long last, the bears were finally able to muster up the strength to produce a modest pullback on Friday. It had been a long time coming as the drop of 73 points was the biggest decline since September 7th. And to find a weaker session, you have to go all the way back to August 9th when the Dow lost nearly 100 points.
While the headlines blamed the decline on the weaker-than expected GDP report, in reality, that�s a tough argument to support. You see, although GDP came in below expectations and at the slowest rate since the first quarter of 2003, the weakness was assumed and thus, not much of a surprise. In addition, the weakness stemmed primarily from the housing market, which plunged 17.4% and knocked off 1.1 points from GDP by itself. But again, this wasn�t exactly a surprise.
However, what was surprising was the strength seen in the consumer. Apparently the reports of the death of the consumer were once again premature as spending accelerated to 3.1% (up from 2.6%) and PCE (Personal Consumption Expenditures) moved back above 70% of GDP. Thus, if you REALLY want to know what�s going on in the economy, just watch your neighbors, because with the consumer accounting for 70% of the economy�s growth, the neighborhood trends may be quite telling.
The GDP report also showed that inflation pressures eased significantly. And although this wasn�t really a surprise either, the fact that the PCE Price Index fell to 2.5% from 4.0% was likely in line with the Fed�s expectations. And in short, this data should allow Mr. Bernanke and company to keep the hiking boots on the porch for the remainder of the year.'
We got some additional positive news on the consumer from the University of Michigan�s Consumer Sentiment Index, which came in above expectations at 93.6. And although the report didn�t immediately impact stock trading, it does go to support the idea that the current pullback in stocks may not be fundamentally based.
In short, let�s recognize that the recent run up has created an overbought condition and that the bulls have had everything go their way for quite some time. Thus, it is natural for the opposing team to run with the ball for a while. And given the strength of the recent rally, we should probably expect the bulls to resume their run after a few days of selling.
Looking at the week ahead, we�ve got a full slate of economic data to sift through:
- Monday: Personal Income, Spending & PCE Core
- Tuesday: Consumer Confidence, Chicago Purchasing Managers
- Wednesday: ADP Emp, Construction Spending, ISM Manufacturing, Pending Home Sales
- Thursday: 3rd Quarter Productivity, Factory Orders
- Friday: October Employment Report
In looking at this morning�s pre-market activity, stocks are lower in the early going. The Personal Income and Spending report came in pretty much as expected as Income grew by +0.5%, Spending was up +0.1%, and the PCE Deflator (inflation) was below consensus estimates.
Running through the rest of the pre-game indicators, the major overseas markets are mostly lower this morning. Gold futures are moving up a bit and are quoted at $606.50 right now. Crude futures are moving lower with the latest quote showing oil down $0.89 to $59.86. Interest rates are little changed this morning with the 2-year currently quoted at 4.74% while the 10-yr is trading with a yield of 4.66% right now. And finally, with a little over an hour before the bell, stock futures in the U.S. are trading a little lower. The Dow futures are currently 10 points below fair value, the S&Ps are off 2.30, and the NASDAQ is sporting a loss of about 1 point at the moment.
Stocks �In Play� This Morning:
Tellabs (TLAB) � Mentioned positively in Barron�s
Canadian National Res (CNQ) � Mentioned positively in Barron�s
Wal-Mart (WMT) � Guides October sales below prior estimates
Ameriprise (AMP) � Upgraded at BofA
Biogen (BIIB) � Upgraded at Bear Stearns
Carpenter Technology (CRS) � Upgraded at Bear Stearns
Gold Fields (GFI) � Downgraded at CIBC
Overseas Shipholding (OSG) � Downgraded at Citigroup
Exelon (EXC) � Downgraded at Citigroup
Ingersoll-Rand (IR) � Downgraded at Deutsche Bank
Lockheed Martin (LMT) � Upgraded at Goldman Sachs
Janus Capital (JNS) � Downgraded at Goldman Sachs
Pacific Sunwear (PSUN) � Upgraded at JP Morgan
Yahoo (YHOO) � Upgraded at Merrill Lynch
Whole Foods (WFMI) � Downgraded at RBC Capital
Caterpillar (CAT) � Earnings estimates reduced at Bear Stearns
Ashland (ASH) � Reported $0.79 vs. $0.92, Revenues $1.93B vs. 1.79B
Long positions in stocks mentioned: MER, JNS
** 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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