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Daily State of the Markets After a brief, albeit annoying, commercial message sponsored by our furry friends in the bear camp, we were returned to our regularly scheduled program yesterday. Stocks advanced for a second straight session on the back of easing fears over the sovereign debt mess, another improvement in weekly jobless claims, and the usual batch of better-than-expected earnings. And don’t look now fans, but the venerable DJIA is back to within a mere 38 points of its recent high water mark. The bull camp contends that after the requisite scary pullback, which was based on worries about credit contagion in Europe, all is right with the world again. With a plan coming together to provide loans to Greece – and soon – and a much stronger-than-expected auction in Italy, traders were able to push aside fears that the combination of too much debt, not enough income, and no willing lenders would continue to wreak havoc on the economies of the EU for years to come. Sure, it is a decent bet that this problem isn’t likely to go away anytime soon. But at least for now, traders assume that the EU/IMF band-aid will allow them to focus on what is happening here at home. Speaking of good things happening here in the good ol’ USofA, a host of earnings reports pushed the likes of MOT, BIDU, AKAM, FSLR, FTI, HOT, TWC, BMY, K, AVB, HRS, and ILMN up strongly yesterday. In the financial sector, which has definitely lagged a bit during the recent run for the roses, the banks enjoyed a strong outing on the back of the idea that clarity out of Washington on regulatory reform will allow everyone to move forward. Oh, and the chatter that the new legislation may not include a requirement for banks to spin off their prop trading desks definitely helped. So, after a quick drop and a fairly spirited rebound, where does this leave us? In looking at the charts for clues we see that the line in sand around Dow 11,000(ish) held during the selling. And with the indices pushing back toward their recent highs, the question now becomes whether we will see a trading range environment for a while or just a return to the game of onward and upward. In light of the fact that the small and midcap indices had been the clear leaders up until the pullback began, we would continue to watch these indices for guidance. So, although the Dow is back to within spitting distance of its recent highs, we’d keep the champagne on ice until the leaders can break free of last week’s highs. Turning to this morning… The government’s advance report (i.e. first guess) on the nation’s first quarter GDP shows the economy grew at an annualized rate of 3.2% in the first quarter, which was below the expectations for a growth rate of 3.6%, and below the 5.6% growth rate seen in the fourth quarter. Next, the Personal Consumption component of the report came in above expectations with a gain of 3.6%, which was ahead of the estimates for 3.2% and last quarter’s reading of 1.6%. On the inflation front, the GDP Price index was in line with expectations at 0.9%, the Employment Cost Index was a tenth higher than consensus at +0.6%, and the Core PCE rose by 0.6% vs. the consensus of 0.5%. In sum, the economy continued to grow in the first quarter of the year. However, as expected, the pace of the recovery slowed a bit. Running through the rest of the pre-game indicators, with the exception of Germany and the UK, the major overseas markets are all higher. Crude futures are up $0.04 to $85.57. On the interest rate front, the yield on the 10-yr is currently trading at 3.74%. Next, gold is up $6.50 to $1175.30 and the dollar is lower against the Yen and Euro but higher against the Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly higher open. The Dow futures are currently ahead by about 25 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about 4 points above fair value at the moment. Finally, enjoy your Friday and have a pleasant weekend…
* Report includes items that make comparisons to the consensus estimate questionable Wall Street Research Summary Upgrades: |
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Spirit AeroSystems (SPR) – Credit Suisse Kilroy Realty (KRC) – Deutsche Bank Varian Semiconductor (VSEA) – Deutsche Bank Trimble Navigation (TRMB) – Deutsche Bank American Electric Power (AEP) – Jefferies El Paso Electric (EE) – Jefferies SAP (SAP) – JPMorgan Wynn Resorts (WYNN) – Macquarie Research Harman International (HAR) – RW Baird Commscope (CTV) – RW Baird Thoratec (THOR) – Wells Fargo
Goldman Sachs (GS) – BofA/Merrill Andersons (ANDE) – BB&T Capital Markets Mead Johnson (MJN) – Credit Suisse Equity Residential (EQR) – Deutsche Bank Halliburton (HAL) – FBR Capital Transocean (RIG) – FBR Capital Jarden (JAH) – Goldman Sachs McAfee (MFE) – Target reduced at ISI Group, Downgraded at Wells Fargo Oshkosh (OSK) – JPMorgan PPL Corp (PPL) – UBS
Long positions in stocks mentioned: GNW, AVP, MJN
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