David Moenning's Daily State of the Markets: 3/25

“Take Five Everybody”

After working hard for the past two weeks to generate a rally of +21.6% in the S&P 500, it is safe to say that the bulls had earned a rest. And while our heroes in horns put up a good fight for much of the session yesterday, the playbook said Tuesday was likely to be a day for booking some profits. So, with the bulls on a break and standing aside, the sellers simply did their thing into the close.

The excuse du jour was worry over the effectiveness of the P-PIF’s. Now that the details of the plan to marry TARP funds with private money managers have been unveiled, there was a barrage of concerns from economists, strategists, analysts, and bloggers relating to the question of how well the plan will work. The primary focus of the worry was centered on the issue of trusting the government after the recent AIG bonus flap.

However, with PIMCO’s Bill Gross saying he expects returns of 15%+ with very little risk on these investment funds, there is a pretty good chance the big boys will get over their fears sooner rather than later.

On the news front, don’t look now but we got a second straight report from the housing market that was… wait for it… better than expected! After declining for 15 of the last 16 months, the FHFA House Price Index rose by +1.7% in January, which, believe it or not, was a record increase.

Then on the topic of manufacturing, we learned that the Richmond Fed Manufacturing Activity Index jumped a record 31 points to -20 in March. In the process, the index crossed above its 12-month average for the first time in a year, which would seem to indicate that the rate of contraction in the manufacturing sector is slowing.

The entertainment yesterday was provided by the House Financial Services Committee where Treasury Secretary Geithner and Fed Chairman Bernanke were questioned on the government’s intervention in the AIG matter. To which I am compelled to ask the question, how did some of these people get elected or better yet, placed on this committee?

The bottom line on yesterday’s action is it was a pullback that was to be expected. And speaking of being expected, under normal circumstances, we might see more of the same for the next week or so. And personally, we’d like to a retest of the 795 – 800 zone on the S&P 500 in order to put some doubt back in the game. However, with the end of the quarter looming, we have to be on the lookout for some window dressing from underinvested hedge funds. So be sure to stay tuned, this may be interesting.

Turning to this morning, in an interview, Bank of America’s CEO Ken Lewis says he wants to begin repaying the $45B in TARP funds next month, following the completion of the stress test. Lewis says the goal will be to complete the repayment of the funds once the financial system has stabilized, which could occur as early as the 4th quarter of this year.

On the economic front, orders for Durable Goods increased by +3.4% in February, which was WAY above the consensus estimates for a drop of -2.2%. When you strip out orders for transportation, the number was higher by +3.9%, which was again far better than estimates for a drop of -2.1%.

Running through the rest of the pre-game indicators, the overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off $1.63 to $52.35. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.71%, while 3-month LIBOR is at 1.23% and the yield on the 3-month T-Bill is trading at 0.20%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing a bit higher at the moment after the Durable Goods numbers. The Dow futures are currently ahead by about 30 points; the S&P’s are up by about 3 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Stocks “In Play” This Morning:

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

Williams Sonoma (NYSE: WSM) – Downgraded at Barclays
China Telecom (NYSE: CHA) – Downgraded at Citi
Hershey (NYSE: HSY) – Downgraded at Credit Suisse
Kraft Foods (NYSE: KFT) – Target reduced at Credit Suisse
Atmel Corp (Nasdaq: ATML) – Downgraded at Friedman Billings Ramsey
Silicon Laboratories (Nasdaq: SLAB) – Downgraded at Friedman Billings Ramsey
Emerson Electric (NYSE: EMR) – Downgraded at Goldman
Parker Hannifin (NYSE: PH) – Downgraded at Goldman
Pentair Inc (NYSE: PNR) – Downgraded at Goldman
Symantec (Nasdaq: SYMC) – Upgraded at Goldman
Tibco Software (Nasdaq: TIBX) – Upgraded at Goldman
Western Digital (NYSE: WDC) – Upgraded at Goldman
CB Richard Ellis (NYSE: CBG) – Upgraded at JP Morgan
Research In Motion (Nasdaq: RIMM) – Downgraded at JP Morgan
American Express (NYSE: AXP) – Downgraded at JP Morgan
Salesforce.com (NYSE: CRM) – Downgraded at Morgan Stanley
Linear Technology (Nasdaq: LLTC) – Upgraded at Thomas Weisel
PepsiCo (NYSE: PEP) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: AZO

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.TopStockPortfolios.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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