David Moenning's Daily State of the Markets: 7/30

All About China?

It is widely accepted that it has been China and not the U.S. that has led the modest global rebound to date. While the rest of the globe has wrestled with negative GDP growth for nearly 18 months, China’s economy has continued to move forward, albeit at a slower rate. In fact, China’s GDP grew at a rate of close to 8% annually last quarter, which is a far cry from the negative numbers seen here and in Europe. And it is partly because of the continued growth in GDP that the Shanghai stock market has soared to gains of more than +80% year-to-date.

However, the fun stopped rather abruptly during Wednesday’s session as the Shanghai index was hit with its worst decline of the year, dropping more than -5%. At issue was a report that two of the country’s largest banks were planning to curtail loan growth in the second half of the year. China Construction Bank in fact confirmed that new loans would decline versus the first six months.

In light of the fact that Chinese bank lending in June had more than doubled May’s total and that year-to-date lending sits at record levels, the news that a couple of banks might want to take things a little slower for a spell isn’t exactly surprising. However, regardless of the country, whenever someone threatens to take the punchbowl away from the party, stocks tend to suffer.

So, with China leading the world’s stock markets up and out of the abyss this year, it also wasn’t exactly surprising to see the bears sit up and take notice yesterday here in the U.S. After all, stocks have been on a tear lately and have become more than a little overbought in the process. And it is at times like these where something negative tends to come out of the woodwork to scare away the buyers.

Speaking of scaring away buyers, the results of the Treasury’s 5-year note auction yesterday caused a bit of a stir. With the bid-to-cover coming in well below the average of the last 10 auctions, the worry was that funding costs might become a problem for the hundreds of billions of dollars the U.S. Government is planning to borrow. Then toss in a weaker-than expected report on orders for durable goods and, well, you’ve got a recipe for some selling.

So, while it wouldn’t have been surprising to see the U.S. get crunched and follow the Chinese market lower, the bears once again went home disappointed yesterday. Sure, the screens were red by the time the closing bell rang. But come on; a drop of 26 Dow points isn’t exactly scary stuff after the recent big run.

Turning to this morning, China’s central bank pledged to stick to a moderately easy monetary policy, which allayed fears and put the bulls back in business both in the far east and here at home. On the economic front, Weekly Jobless Claims came in a bit higher than expected at 584K vs. 575K while continuing claims for unemployment insurance were a bit better than expectations at 6.197M vs. 6.3M.

Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading higher by $0.91 to $64.26. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.70%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open – although the jobless claims number has put a bit of a damper on the early morning fun. The Dow futures are currently ahead by about 80 points; the S&P’s are up by about 11 points, while the NASDAQ looks to be about 16 points above fair value at the moment.

Yesterday’s Earnings After the Bell:

AFLAC (AFL) – Reported $1.20 vs. $1.13
Assurant (AIZ) – Reported $0.84 vs. $1.19
Akamai (AKAM) – Reported $0.40 vs. $0.38
AvalonBay (AVB) – Reported $0.90 vs. $1.16
CB Richard Ellis (CBG) – Reported $0.04 vs. $0.04
Crown Castle (CCI) – Reported -$0.41 vs. -$0.49
Cerner (CERN) – Reported $0.52 vs. $0.53
Choice Hotels (CHH) – Reported $0.44 vs. $0.42
Covance (CVD) – Reported $0.66 vs. $0.63
Dresser-Rand (DRC) – Reported $0.74 vs. $0.58
Digital River (DRIV) – Reported $0.42 vs. $0.41
Callaway Golf (ELY) – Reported $0.10 vs. $0.12
Equity Residential (EQR) – Reported $0.58 vs. $0.54

Express Scripts (ESRX) – Reported $0.88 vs. $0.87
Fiserv (FISV) – Reported $0.90 vs. $0.88
Flextronics (FLEX) – Reported $0.08 vs. $0.06
Hanesbrands (HBI) – Reported $0.42 vs. $0.40
Hartford Financial (HIG) – Reported $1.90 vs. $1.16
Lincoln National (LNC) – Reported $0.81 vs. $0.84
Lam Research (LRCX) – Reported -$0.45 vs. -$0.46
LSI Corp (LSI) – Reported $0.01 vs. -$0.02
Annaly Capital (NLY) – Reported $0.66 vs. $0.60
NutriSystem (NTRI) – Reported $0.28 vs. $0.26
Realty Income (O) – Reported $0.47 vs. $0.45
Owens-Illinois (OI) – Reported $0.94 vs. $0.90
Oceaneering Intl (OII) – Reported $0.87 vs. $0.82
O’Reilly Auto (ORLY) – Reported $0.60 vs. $0.55
Republic Services (RSG) – Reported $0.39 vs. $0.36
Ryland Group (RYL) – Reported -$1.70 vs. -$1.02
Symantec (SYMC) – Reported $0.34 vs. $0.36
Teradyne (TER) – Reported -$0.21 vs. -$0.24
Tesoro (TSO) – Reported -$0.33 vs. -$0.40
Visa (V) – Reported $0.67 vs. $0.64
Varian Medical (VAR) – Reported $0.68 vs. $0.64
Dentsply (XRAY) – Reported $0.47 vs. $0.48

Today’s Earnings Before the Bell:

AmerisourceBergen (ABC) – Reported $0.42 vs. $0.39
Barrick Gold (ABX) – Reported $0.56 vs. $0.37
Automatic Data (ADP) – Reported $0.45 vs. $0.45
Aon Corp (AOC) – Reported $0.76 vs. $0.74
Avon Products (AVP) – Reported $0.38 vs. $0.33
Becton Dickinson (BDX) – Reported $1.30 vs. $1.24
Cigna (CI) – Reported $1.14 vs. $0.96
Cincinnati Financial (CINF) – Reported -$0.03 vs. $0.14
Colgate Palmolive (CL) – Reported $1.07 vs. $1.05
Cummins (CMI) – Reported $0.30 vs. $0.25
CMS Energy (CMS) – Reported $0.26 vs. $0.30
CONSOL Energy (CNX) – Reported $0.62 vs. $0.81
Rockwell Collins (COL) – Reported $0.91 vs. $0.91

Dow Chemical (DOW) – Reported $0.05 vs. -$0.06
Eastman Kodak (EK) – Reported -$0.71 vs. -$0.36
Golfsmith Intl (GOLF) – Reported $0.42 vs. $0.34
Goodyear Tire (GT) – Reported -$0.92 vs. -$0.69
International Paper (IP) – Reported $0.20 vs. $0.00
Iron Mountain (IRM) – Reported $0.25 vs. $0.23
Kellogg (K) – Reported $0.92 vs. $0.82
Kimco Realty (KIM) – Reported $0.31 vs. $0.32
Level 3 (LVLT) – Reported -$0.08 vs. -$0.09
Lubrizol (LZ) – Reported $2.02 vs. $2.02
MasterCard (MA) – Reported $2.67 vs. $2.42
Motorola (MOT) – Reported $0.01 vs. -$0.04
Mylan (MYL) – Reported $0.32 vs. $0.29
Noble Energy (NE) – Reported $0.66 vs. $0.52
NRG Energy (NRG) – Reported $1.56 vs. $0.70
Newell Rubbermaid (NWL) – Reported $0.47 vs. $0.35
NYSE Euronext () – Reported $0.51 vs. $0.45
Omnicare (OCR) – Reported $0.64 vs. $0.64
OfficeMax (OMX) – Reported -$0.04 vs. -$0.08
Parker-Hannifin (PH) – Reported $0.31 vs. $0.23
Revlon (REV) – Reported $0.36 vs. $0.25
Regal Entertainment (RGC) – Reported $0.26 vs. $0.31
The Travelers (TRV) – Reported $1.27 vs. $1.27
Taiwan Semiconductor (TSM) – Reported $0.14 vs. $0.13
Tyco (TYC) – Reported $0.58 vs. $0.45
Waste Management (WMI) – Reported $0.52 vs. $0.53
Xcel Energy (XEL) – Reported $0.25 vs. $0.25
Exxon Mobil (XOM) – Reported $0.84 vs. $1.02
Olympic Steel (ZEUS) – Reported -$3.11 vs. -$0.21

Upgrades/Downgrades/Brokerage Research:

Regions Financial (RF) – Upgraded at– Upgraded at BofA/Merrill
Symantec (SYMC) – Removed from Buy list at Goldman
General Electric (GE) – Upgraded at Goldman
LSI Corp (LSI) – Upgraded at Goldman
Equity Residential (EQR) – Upgraded at JP Morgan
Trustmark (TRMK) – Upgraded at JP Morgan
YUM Brands (YUM) – Upgraded at Morgan Stanley
McDonald’s (MCD) – Downgraded at Morgan Stanley
Deutsche Bank (DB) – Upgraded at Royal Bank of Scotland
Leap Wireless (LEAP) – Downgraded at RW Baird
Standard Pacific (SPF) – Downgraded at UBS
AmeriGas Partners (APU) – Downgraded at UBS
Amazon.com (AMZN) – Initiated Buy at UBS
eBay (EBAY) – Initiated Neutral at UBS
Netflix (NFLX) – Initiated Neutral at UBS
Google (GOOG) – Initiated Buy at UBS

Long positions in stocks mentioned: CERN, ORLY, ESRX, IRM, AMZN, YUM
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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