David Moenning's Daily State of the Markets: 1/20

Will the Optimism Stick?

With today’s historic inauguration expected to usher in a time of hope and optimism for the future, the question on the minds of investors is just how long the upbeat mood will last.

Looking at the stock market, despite the ongoing steady stream of bad news from the economy and the banking sector, the mood has been a bit more upbeat for the past two sessions. If you will recall, just about the time the bears were ready to declare a new phase in their offensive, the bulls turned things around last Thursday and then managed to ultimately push the indices a bit higher on Friday ahead of the long weekend. However, the question here too is how long will this optimism last?

Stocks continue to be plagued with the nagging question of whether or not the current levels of the major indices sufficiently discount all the bad news and trouble ahead. With the S&P 500 down -46% from its October 2007 high and -35% from last October’s high water mark, the bulls will argue that the current decline is indeed sufficient and that major indices have currently discounted anything short of the Great Depression.

Our heroes in horns go on to argue that the massive efforts by the Treasuries and Central Bankers of the world as well as the massive stimulus packages being put into play, are sure to jumpstart the sagging economies of the globe.

However, the bears contest that we’ve never seen this type of financial calamity before and that the worst may still be ahead of us. Our furry friends point to the rather stunning loss of somewhere north of $40 billion by the Royal Bank of Scotland as exhibit A. And then the never ending flow of bad economic news as additional evidence that the bulls are not likely to enjoy a day in the sun anytime soon.

Friday was a microcosm of the arguments being offered. While the banking sector once again took it on the chin (the BKX is down -29% year-to-date) in response to worries over earnings (or lack thereof), and the economic data showed that industrial production simply collapsed in December, the stock market managed to push away from the key support levels.

However, with the line in sand at S&P 817 simply a bad day away, we will have to wait and see if the mood and stock prices can hold up.

Turning to this morning, the troubles in the banking industry were highlighted yesterday by the Royal Bank of Scotland’s record setting loss and the announcement of more governmental assistance. Here in the U.S, while the inauguration will be the center of attention for the entire country, stock futures are pointing to a less than optimistic start.

Running through the rest of the pre-game indicators, the major foreign markets are mostly lower although Europe has improved a bit lately. Crude futures are plunging with the latest quote showing oil trading down by $2.60 to $33.91. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.40%, while overnight LIBOR is at 0.14%, and the yield on the 3-month T-Bill is at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 90 points; the S&P’s are down by about 12 points, while the NASDAQ looks to be about 15 points below fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

TD Ameritrade (Nasdaq: AMTD) – Reported $0.31 vs. $0.31
Johnson & Johnson (NYSE: JNJ) – Reported $0.94 vs. $0.92
Parker-Hannifin (NYSE: PH) – Reported $0.96 vs. $0.83
Regions Financial (NYSE: RF) – Reported -$0.35 vs. -$0.20
State Street (NYSE: STT) – Reported $0.15 vs. $1.14
Fastenal (Nasdaq: FAST) – Reported $0.42 vs. $0.41
Forest Labs (NYSE: FRX) – Reported $1.03 vs. $0.86

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Royal Bank of Scotland (NYSE: RBS) – Downgraded at Bank of America Merrill Lynch
Petro Canada (NYSE: PCZ) – Downgraded at Friedman Billings Ramsey
Suncor Energy (NYSE: SU) – Downgraded at Friedman Billings Ramsey
Kansas City Southern (NYSE: KSU) – Downgraded at Goldman
Canadian Nation Railway (NYSE: CNI) – Downgraded at Goldman
Burlington Northern (NYSE: BNI) – Upgraded at Goldman
Union Pacific (NYSE: UNP) – Removed from Conviction Buy list at Goldman
Polo Ralph Lauren (NYSE: RL) – Downgraded at Goldman
L-3 Communications (NYSE: LLL) – Added to Conviction Buy list at Goldman
Motorola (NYSE: MOT) – Upgraded at Goldman
Palm Inc (Nasdaq: PALM) – Upgraded at Goldman, Downgraded at JP Morgan
Bank of America (NYSE: BAC) – Senior debt rating downgraded at Moody's
Wendy’s/Arby’s Group (NYSE: WEN) – Upgraded at Morgan Stanley
Teradyne (NYSE: TER) – Downgraded at Oppenheimer
Research in Motion (RIMM) – Upgraded at RBC Capital
MEMC Electronic Materials (NYSE: WFR) – Downgraded at UBS
BHP Billiton (NYSE: BHP) – Downgraded at UBS
Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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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