David Moenning's Daily State of the Markets: 4/21

Back To The Banks

After spending the better part of six weeks feeling better about the banking system and the economy in general, the bears returned everyone’s attention yesterday to the banks. To be fair, stocks were incredibly overbought and as just about everyone has been saying, overdue for a pullback. So, with stocks having blasted up 28.5% from the March 9th low it wasn’t exactly surprising that the bears were finally able to find a couple pieces of news that they could use to further their cause. After all, even a blind squirrel finds an acorn once in a while.

Since March 9th, the pullbacks have been short and shallow as every dip was bought by institutional investors and a fair number of shorts were seen running for cover. However, we knew that a more significant pullback was coming and that it would likely be accompanied by something that made people question the premise of the rally. And with the banks having been the clear leaders in the movement to the upside, yesterday’s news flow may have done just that.

Although two reports in particular didn’t attract much attention in the mainstream media, there were a number reports out yesterday that were responsible for Monday’s dive to the downside.

First, there was the administration’s latest trial balloon floated on Sunday relating to the idea of exchanging TARP money invested in the banks into common stock. In a clear example of why firms that are in good financial shape want to get the TARP money back in the Treasury’s coffers, the New York Times reported that the White House is considering becoming the largest shareholder in the nation’s biggest banks.

Given that the new administration is prone to telling people how much money they can and can’t make and to changing the rules in the middle of the game, it is little wonder that the banks want to get the government out of their hair as soon as humanly possible. And it also isn’t surprising that this news prompted a message to be sent from Wall Street to the White House – to the tune of a drop of more than -15% in the banking index yesterday.

Next, there was the blog report stating that the results of the “stress tests” had been leaked and that they were anything but positive. While there were no sources cited whatsoever, the report suggested that 16 of the 19 major banks in the U.S. would be technically insolvent assuming the governments “more adverse” scenario of the test. The doom-and-gloom report went on to say the FDIC could be wiped out if any two of the banks failed at the same time and that none of the banks could survive an interruption in cash flow.

Then there was a report from Morgan Stanley (MS) stating that the banks were going to need more capital – a lot more capital. And finally, a closer look at Bank of America’s (BAC) earnings report revealed a fair amount of credit concerns, which led to a plunge of -24.3% in BAC.

So there you have it – the reasons for the -4% manic Monday. However, the question now becomes: Will the shellacking continue? At first blush, our answer would be yes. The severity of the decline as well as the impetus for the fall would seem to indicate that there is more selling ahead. However, we’d really prefer to get a peek at today’s action before passing judgment.

Turning to this morning, we don’t have any economic news to review before the bell but there are a number of big name earnings reports to sift through including IBM (IBM), Texas Instruments (TXN), Caterpillar (CAT), DuPont (DD), and Coca Cola (KO).

Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving lower with the latest quote showing oil trading down by $0.38 to $45.50. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.82%, while the yield on the 3-month T-Bill is trading at 0.12%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 65 points; the S&P’s are down about 5 points, while the NASDAQ looks to be about 4 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Boston Scientific (NYSE: BSX) – Reported $0.19 vs. $0.19
Canadian Natl Railway (NYSE: CNI) – Reported $0.64 vs. $0.60
IBM (NYSE: IBM) – Reported $1.70 vs. $1.68
Packaging Corp (NYSE: PKG) – Reported $0.25 vs. $0.19
Stryker (NYSE: SYK) – Reported $0.71 vs. $0.71
Texas Instruments (NYSE: TXN) – Reported $0.07 vs. $0.01
Zions Bancorp (Nasdaq: ZION) – Reported -$0.39 vs. -$2.15

Today’s Earnings Before the Bell:

TD Ameritrade (Nasdaq: AMTD) – Reported $0.23 vs. $0.23
BJ Services (NYSE: BJS) – Reported $0.15 vs. $0.23
Bank New York Mellon (NYSE: BK) – Reported $0.53 vs. $0.63
Blackrock (NYSE: BLK) – Reported $0.81 vs. $0.81
Caterpillar (NYSE: CAT) – Reported $0.39 vs. $0.02 (Guides year $1.25 vs. $1.76)
Comerica (NYSE: CMA) – Reported -$0.16 vs. -$0.09
Coach (NYSE: COH) – Reported $0.38 vs. $0.36
DuPont (NYSE: DD) – Reported $0.54 vs. $0.52
Quest Diagnostics (NYSE: DGX) – Reported $0.89 vs. $0.82
Brinker Intl (NYSE: EAT) – Reported $0.45 vs. $0.44
Huntington Bancshares (Nasdaq: HBAN) – Reported -$0.06 vs. -$0.09
Jefferies Group (NYSE: JEF) – Reported $0.19 vs. -$0.08
Keycorp (NYSE: KEY) – Reported -$1.09 vs. -$0.20
Coca Cola (NYSE: KO) – Reported $0.65 vs. $0.65
Lexmark (NYSE: LXK) – Reported $0.89 vs. $0.60
Merck (NYSE: MRK) – Reported $0.74 vs. $0.78
Northern Trust (Nasdaq: NTRS) – Reported $0.61 vs. $0.95
Regions Financial (NYSE: RF) – Reported $0.04 vs. -$0.37
Schering Plough (NYSE: SGP) – Reported $0.56 vs. $0.47
State Street (NYSE: STT) – Reported $1.04 vs. $1.02
UnitedHealth Group (NYSE: UNH) – Reported $0.81 vs. $0.67
United Technology (NYSE: UTX) – Reported $0.87 vs. $0.77

Upgrades/Downgrades/Brokerage Research:

Lincoln National (NYSE: LNC) – Upgraded at BAC/MER
Sysco (NYSE: SYY) – Downgraded at Citi
Sony (NYSE: NSE) – Downgraded at Citi
Apollo Group (Nasdaq: APOL) – Downgraded at Credit Suisse
ITT Educational Svcs (NYSE: ESI) – Downgraded at Credit Suisse
Ensco (NYSE: ESV) – Upgraded at Goldman
Halliburton (NYSE: HAL) – Upgraded at Goldman, Downgraded at JP Morgan
Nabors Inds (NYSE: NBR) – Upgraded at Goldman
Patterson UTI (Nasdaq: PTEN) – Upgraded at Goldman
Weatherford Intl (NYSE: WFT) – Upgraded at Goldman
BJ Services (NYSE: BJS) – Upgraded at Goldman
Helmerich & Payne (NYSE: HP) – Upgraded at Goldman
Noble Corp (NYSE: NE) – Downgraded at Goldman
Pride Intl (NYSE: PDE) – Downgraded at Goldman
Transocean (NYSE: RIG) – Downgraded at Goldman
Schlumberger (NYSE: SLB) – Downgraded at Goldman
Diamond Offshore (NYSE: DO) – Downgraded at Goldman
Expeditors Intl (EXPD) – Downgraded at JP Morgan
Shaw Group (NYSE: SGR) – Upgraded at JP Morgan
Zions Bancorp (Nasdaq: ZION) – Debt rating reduced at Moody’s
Archer Daniels Midland (NYSE: ADM) – Estimates reduced at Morgan Stanley
Corning (NYSE: GLW) – Target and estimate increased at UBS
Jacobs Engineering (NYSE: JEC) – Downgraded at UBS
Vail Resorts (NYSE: MTN) – Downgraded at Wachovia

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.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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