David Moenning's Daily State of the Markets: 2/1
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Mr. Softie Gets Hostile
Thursday started off like most other days so far this year with bad news on the subprime and economic fronts causing stocks to dive nearly 200 points right out of the gate. The rather surprising increase in weekly jobless claims coupled with a report from S&P saying that we should expect something
like $70B in additional writedowns appeared to give the ball back to the bears. And after Wednesday's big reversal following the Fed's big news, it felt like the retest of the lows was on.
But a funny thing happened on the way to the slaughter - it just didn't happen. A conference call with bond insurer MBIA Inc (MBI) appeared to turn the tide against our furry friends as the company said that it expects to maintain its triple-A rating. This news, coupled with the Fed's big bang, some short-covering, and some chatter about the big value players getting interested in prices here allowed the bulls to not only retain possession, but advance the ball nicely up field.
Although January would up being one of the worst months in years, the Fed-induced rally over the last seven days certainly took some of the sting out of the decline. And there is no denying that yesterday's 208 point rally allowed most investors to go home happy. But with stocks quickly approaching an overbought condition and some overhead resistance in the short-term, it will be interesting to see if the big fund buyers will step in flying the Don't-Fight-The-Fed flag.
Turning to this morning, we have the Big Kahuna of economic data to review. But for a change, it's the corporate news that is dominating the action in the early going. First, Motorola (MOT) announced that it is exploring a strategic restructuring of its businesses, which leads most investors to believe that the company will divest itself of its mobile phone business.
Next up, Google (GOOG), which is the poster child for growth, appears to have stumbled as their latest earnings report missed just about every number. For example, earnings per share fell short of expectations at $4.43 vs. the Reuters consensus of $4.47, EBITA was $1.98 billion versus $2.07
billion, and profit margins were 58.2% versus 58.6%.
But the big corporate news of the day is Microsoft's (MSFT) hostile takeover bid for Yahoo! (YHOO) for $31 per share or approximately $44.6 billion. This has people revved up because YHOO closed yesterday at $19.18, which means that Bill Gates & Co. feel that the market has it wrong in terms of Yahoo's stock price - to the tune of 62%. It is also interesting to note that Microsoft says the deal is NOT contingent on any financing.
The potential deal is huge for two reasons. First, it shows that stock prices have fallen far enough to make deals interesting to buyers. And second, the fact that no financing is needed means that we don't necessarily need the easy money to get a deal done.
Finally, let's get back to the economy. The government reported that Nonfarm Payrolls increased by, oops, scratch that, Nonfarm payrolls FELL by 17,000 in January, which was far below the expectations for an increase of 55,000. The Unemployment Rate came in at 4.9% and Hourly Earnings increased by 0.2%, which was a tenth light. It is also important to note that we got big revisions to the prior month's reports as December was revised higher by 64,000 and November lower by 56,000. However, probably the most important thing to take away from this report is that the economy's momentum is indeed
slowing.
Running through the rest of the pre-game indicators; except for Japan, the overseas markets are mostly higher on the Microsoft news. Crude futures are down a bit this morning. Interest rates are moving down on the weaker economic data with the 10-yr trading at a yield of 3.59% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are well off their highs and are now pointing to a flat The Dow futures are currently about even; the S&Ps are up only a fraction of a point, while the NASDAQ looks to be about 11 points above fair value at the moment.
Stocks "In Play" This Morning:
Yesterday's Earnings After the Bell:
Affiliated Computer Svcs (NYSE: ACS) - Reported $0.81 vs. $0.83
CR Bard (NYSE: BCR) - Reported $1.01 vs. $1.00
Columbia Sportswear (Nasdaq: COLM) - Reported $1.12 vs. $1.00
Google (Nasdaq: GOOG) - Reported $4.43 vs. $4.47
Intuitive Surgical (Nasdaq: ISRG) - Reported $1.24 vs. $1.04
McKesson (NYSE: MCK) - Reported $79 vs. $0.80
Monster Worldwide (Nasdaq: MNST) - Reported $41 vs. $0.38
Safeco (NYSE: SAF) - Reported $1.51 vs. $1.43
Verisign (Nasdaq: VRSN) - Reported $0.30 vs. $0.29
Today's Earnings Before the Bell:
Automatic Data Processing (NYSE: ADP) - Reported $0.55 vs. $0.53
Cummins (NYSE: CMI) - Reported $1.00 vs. $1.05
NYMEX Holdings (NYSE: NMX) - Reported $0.67 vs. $0.67
News, Upgrades/Downgrades/Brokerage Research:
Flowserve (NYSE: FLS) - Upgraded at Bear Stearns
PepsiAmericas (NYSE: PAS) - Upgraded at Bear Stearns
DirecTV (NYSE: DTV) - Upgraded at Bernstein
Motorola (NYSE: MOT) - To explore realignment, Upgraded at Citi
Lowes (NYSE: LOW) - Downgraded at Citi
Bristol Myers Squibb (NYSE: BMY) - Upgraded at Cowen
Owens Illinois (NYSE: OI) - Upgraded at Deutsche Bank
TiVo (TIVO) - Downgraded at Friedman Billings
Simon Property Group (NYSE: SPG) - Added to Conviction Buy list at Goldman
Prologis (PLD) - Removed from Conviction Buy list at Goldman
Google (GOOG) - Downgraded at Jefferies
KB Homes (NYSE: KBH) - Downgraded at Merrill
Lennar (NYSE: LEN) - Downgraded at Merrill
Centex (NYSE:CTX) - Downgraded at Merrill
Cablevision (NYSE: CVC) - Upgraded at Morgan Stanley
Noble Corp (NYSE: NE) - Upgraded at Morgan Stanley
Wells Fargo (NYSE: WFC) - Downgraded at Morgan Stanley
Wachovia (NYSE: WB) - Downgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: ISRG, PAS
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.
Thursday started off like most other days so far this year with bad news on the subprime and economic fronts causing stocks to dive nearly 200 points right out of the gate. The rather surprising increase in weekly jobless claims coupled with a report from S&P saying that we should expect something
like $70B in additional writedowns appeared to give the ball back to the bears. And after Wednesday's big reversal following the Fed's big news, it felt like the retest of the lows was on.
But a funny thing happened on the way to the slaughter - it just didn't happen. A conference call with bond insurer MBIA Inc (MBI) appeared to turn the tide against our furry friends as the company said that it expects to maintain its triple-A rating. This news, coupled with the Fed's big bang, some short-covering, and some chatter about the big value players getting interested in prices here allowed the bulls to not only retain possession, but advance the ball nicely up field.
Although January would up being one of the worst months in years, the Fed-induced rally over the last seven days certainly took some of the sting out of the decline. And there is no denying that yesterday's 208 point rally allowed most investors to go home happy. But with stocks quickly approaching an overbought condition and some overhead resistance in the short-term, it will be interesting to see if the big fund buyers will step in flying the Don't-Fight-The-Fed flag.
Turning to this morning, we have the Big Kahuna of economic data to review. But for a change, it's the corporate news that is dominating the action in the early going. First, Motorola (MOT) announced that it is exploring a strategic restructuring of its businesses, which leads most investors to believe that the company will divest itself of its mobile phone business.
Next up, Google (GOOG), which is the poster child for growth, appears to have stumbled as their latest earnings report missed just about every number. For example, earnings per share fell short of expectations at $4.43 vs. the Reuters consensus of $4.47, EBITA was $1.98 billion versus $2.07
billion, and profit margins were 58.2% versus 58.6%.
But the big corporate news of the day is Microsoft's (MSFT) hostile takeover bid for Yahoo! (YHOO) for $31 per share or approximately $44.6 billion. This has people revved up because YHOO closed yesterday at $19.18, which means that Bill Gates & Co. feel that the market has it wrong in terms of Yahoo's stock price - to the tune of 62%. It is also interesting to note that Microsoft says the deal is NOT contingent on any financing.
The potential deal is huge for two reasons. First, it shows that stock prices have fallen far enough to make deals interesting to buyers. And second, the fact that no financing is needed means that we don't necessarily need the easy money to get a deal done.
Finally, let's get back to the economy. The government reported that Nonfarm Payrolls increased by, oops, scratch that, Nonfarm payrolls FELL by 17,000 in January, which was far below the expectations for an increase of 55,000. The Unemployment Rate came in at 4.9% and Hourly Earnings increased by 0.2%, which was a tenth light. It is also important to note that we got big revisions to the prior month's reports as December was revised higher by 64,000 and November lower by 56,000. However, probably the most important thing to take away from this report is that the economy's momentum is indeed
slowing.
Running through the rest of the pre-game indicators; except for Japan, the overseas markets are mostly higher on the Microsoft news. Crude futures are down a bit this morning. Interest rates are moving down on the weaker economic data with the 10-yr trading at a yield of 3.59% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are well off their highs and are now pointing to a flat The Dow futures are currently about even; the S&Ps are up only a fraction of a point, while the NASDAQ looks to be about 11 points above fair value at the moment.
Stocks "In Play" This Morning:
Yesterday's Earnings After the Bell:
Affiliated Computer Svcs (NYSE: ACS) - Reported $0.81 vs. $0.83
CR Bard (NYSE: BCR) - Reported $1.01 vs. $1.00
Columbia Sportswear (Nasdaq: COLM) - Reported $1.12 vs. $1.00
Google (Nasdaq: GOOG) - Reported $4.43 vs. $4.47
Intuitive Surgical (Nasdaq: ISRG) - Reported $1.24 vs. $1.04
McKesson (NYSE: MCK) - Reported $79 vs. $0.80
Monster Worldwide (Nasdaq: MNST) - Reported $41 vs. $0.38
Safeco (NYSE: SAF) - Reported $1.51 vs. $1.43
Verisign (Nasdaq: VRSN) - Reported $0.30 vs. $0.29
Today's Earnings Before the Bell:
Automatic Data Processing (NYSE: ADP) - Reported $0.55 vs. $0.53
Cummins (NYSE: CMI) - Reported $1.00 vs. $1.05
NYMEX Holdings (NYSE: NMX) - Reported $0.67 vs. $0.67
News, Upgrades/Downgrades/Brokerage Research:
Flowserve (NYSE: FLS) - Upgraded at Bear Stearns
PepsiAmericas (NYSE: PAS) - Upgraded at Bear Stearns
DirecTV (NYSE: DTV) - Upgraded at Bernstein
Motorola (NYSE: MOT) - To explore realignment, Upgraded at Citi
Lowes (NYSE: LOW) - Downgraded at Citi
Bristol Myers Squibb (NYSE: BMY) - Upgraded at Cowen
Owens Illinois (NYSE: OI) - Upgraded at Deutsche Bank
TiVo (TIVO) - Downgraded at Friedman Billings
Simon Property Group (NYSE: SPG) - Added to Conviction Buy list at Goldman
Prologis (PLD) - Removed from Conviction Buy list at Goldman
Google (GOOG) - Downgraded at Jefferies
KB Homes (NYSE: KBH) - Downgraded at Merrill
Lennar (NYSE: LEN) - Downgraded at Merrill
Centex (NYSE:CTX) - Downgraded at Merrill
Cablevision (NYSE: CVC) - Upgraded at Morgan Stanley
Noble Corp (NYSE: NE) - Upgraded at Morgan Stanley
Wells Fargo (NYSE: WFC) - Downgraded at Morgan Stanley
Wachovia (NYSE: WB) - Downgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: ISRG, PAS
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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