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Daily State of the Markets Traders spent most of Monday waiting on confirmation that the recent undoing of at least a portion of the April-June correction was appropriate. With the debate currently raging over whether or not the current joyride to the upside can continue, a day or two of waffling in front of earnings season was reasonable. And for once, even the HFT gang couldn’t find a reason to push the market very far in either direction Monday. Thus, after four days and 500 Dow points, it was apparently time to take a little break and wait for some additional inputs. We’re of the mind that the premise for the more than two months worth of corrective action, which knocked the S&P down -16% on a closing basis, is now being reevaluated. Although nobody on the planet expects to see the economy roar ahead in the second half of 2010 and jobs may still be tough to come by at the start of 2011, it is becoming clear now that a recession is not necessarily a sure thing and that all those scary issues traders fretted about in April, May, and June may have been overblown a bit. So, with earnings from the likes of Alcoa (AA), CSX Corp (CSX), GE (GE), Intel (INTC), Bank of America (BAC), Citi (C), JPMorgan Chase (JPM), Advanced Micro (AMD), and Google (GOOG) coming up this week, it wasn’t exactly surprising to see traders basically sit on their hands on Monday. Despite the temptation to perhaps skip work and hit either the beach or the golf course, there were a couple of stories that kept traders interested on Monday. For starters, a decent-sized merger took a lot of people by surprise as AON Corp (AOC) announced it will acquire Hewitt Associates (HEW) in a cash and stock deal worth 41% more that Hewitt’s closing price on Friday. But that was the only deal in play as Hugh Hefner is talking about taking PLA private and a handful of other deals were bandied about. And as you are probably aware, the fact that companies are willing to put up their cold hard cash to make a purchase is always a positive sign. In addition, the story out of the Gulf of Mexico seemed to take on a more positive tone Monday. BP (BP) talked about selling $10 billion in assets and capping the well ahead of schedule. And although neither the GoM story or the M&A deals were monumental, both stories did wind up leading to a generally upbeat mood in the market. Although the Dow and S&P finished with green on the screen for a fifth consecutive day, we need to keep in mind that the downtrend that began back on April 23rd remains intact. And as we’ve mentioned, we will need to see a meaningful close above 1080 (or 1100, depending on which way you like to draw your trendlines) in order to begin seeing the charts in a moderately positive light again. Turning to this morning… Stocks across the pond are moving up nicely on the back of Alcoa’s uncharacteristic earnings beat. This has helped stock futures here in the U.S. to move up nicely in the early going. On the economic front, the U.S. reported that the U.S. trade deficit in May fell to -42.27 billion versus estimates for -39.1 billion. Finally, don’t let success go to your head or defeat into your heart… Pre-Game Indicators Here are the important indicators we review each morning before the opening bell…
Wall Street Research Summary Upgrades: |
Norfolk Southern (NSC) – BofA/Merrill Rockwell Collins (COL) – BofA/Merrill Aon Corp (AON) – BofA/Merrill Textron (TXT) – BofA/Merrill Illinois Tool (ITW) – Deutsche Bank British American Tobacco (BTI) – Goldman Sachs PPD Inc (PPDI) – Goldman Sachs Patterson-UTI (PTEN) – Morgan Stanley Sunstone Hotel Investors (SHO) – RW Baird LaSalle Hotel (LHO) – RW Baird Northeast Utilities (NU) – UBS Wisconsin Energy (WEC) – UBS
Ameristar Casinos (ASTR) – BofA/Merrill Marvell (MRVL) – Estimates reduced at Citi Hewitt Associates (HEW) – Deutsche Bank Ann Taylor (ANN) – Goldman Sachs Urban Outfitters (URBN) – Goldman Sachs Aon Corp (AOC) – RBC Capital American Electric Power (AEP) – UBS PG&E (PCG) – UBS Goldman Sachs (GS) – Estimates reduced at Wells Fargo Morgan Stanley (MS) – Estimates reduced at Wells Fargo
| Yesterday’s Earnings | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Alcoa | AA | $0.13 | $0.12 |
| CSX Corp | CSX | $1.07 | $0.97 |
| Novellus | NVLS | $0.66 | $0.60 |
| Earnings Before The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Fastenal | FAST | $0.47 | $0.44 |
| Infosys | INFY | $0.57 | $0.57 |
* Report includes items that make comparisons to the consensus estimate questionable
Long positions in stocks mentioned: None
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