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Daily State of the Markets |
After a pullback that might have shaken the confidence of any Johnny-come-lately’s to the stock market party, all was right with the world again yesterday as stocks rebounded 2% or so. The big bounce came on the heels of a GDP report that was better than expected and the return of the demise of the dollar trade.
Frankly, it makes little sense that the dollar would fall on the back of a stronger than expected economic report and a pretty decent pop higher in interest rates. However, if you’ve been paying attention lately you’ll recognize that the buck has been inversely linked to stocks – at least from a program trading standpoint – for some time now. Thus, with the better economic news came a return of the odd couple trade: buy stocks and sell the dollar.
Although things don’t always make sense in the markets (like the dollar falling on a day when interest rates rise), it is important to remember that our goal each morning is to identify the drivers of the market action. If we can stay in tune with what traders are doing from a short-term perspective, our hope is that we are unlikely to be fooled by anything that happens from a bigger-picture standpoint.
The good news is that things did make sense yesterday from a stock market perspective. Word that the economy expanded for the first time in a year and that the rate of growth for the third quarter (+3.5%) was actually stronger than analysts had expected (consensus was set at +3.2%) was welcome news to the bull camp. And to hear our heroes in horns tell it, the fact that the better-than-expected data on the economy was driven by PCE (personal consumption expenditures), which increased by the highest amount since Q1 2007, means that there is hope for the consumer – and the holiday shopping season.
The bulls also hope that yesterday’s romp to the upside will be enough to send the bears back into hibernation for a while. Although there was some damage inflicted to the market internals on the way down in terms of momentum and the fact that the Russell 2000 put in a “lower low” on the chart, the glass-is-half-full crowd points to the fact that the venerable DJIA did not ever breach its 50-day moving average (although the S&P, NASDAQ, and Russell did) during the selloff and has now moved back above its 25 dma. Why do we care, you ask? Because in short, traders tend to use these two popular moving averages to define the trend from an short and intermediate-term standpoint.
However, before anyone breaks into song over yesterday’s pop higher (Happy Days are Here Again seems to be the appropriate lyrical analogy), we should probably keep in mind that there are still a lot of questions about the sustainability of the economic advance. Most of the analysts I respect contend that what looks like a “V” right now may turn into something shaped more like a square-root sign in the coming months. So, while it is okay to enjoy yesterday’s fun in the sun, this is no time to get complacent.
Turning to this morning, the reports on Personal Income and Spending came in right in line with the consensus estimates. Incomes were unchanged while spending fell by -0.5% in September. In addition, the Employment Cost Index confirmed what everybody already knows – there is no inflation in the pipeline (especially on the wages front) at the present time.
Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asia higher and Europe fractionally lower. Crude futures are moving down with the latest quote showing oil trading lower by $0.45 to $79.42. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.45%, while the yield on the 3-month T-Bill is currently at 0.05%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 45 points; the S&P’s are down by about 5 points, while the NASDAQ looks to be about 4 points below fair value at the moment.
| Yesterday’s Earnings After The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| BMC Software | BMC | $0.66 | $0.58 |
| Bally Technologies | BYI | $0.53 | $0.53 |
| Camden Property | CPT | $0.68 | $0.69 |
| Denny’s | DENN | $0.10 | $0.07 |
| DTE Energy | DTE | $0.95 | $0.99 |
| Callaway Golf | ELY | -$0.25 | -$0.24 |
| Genworth Financial | GNW | $0.18 | -$0.02 |
| Harman Intl | HAR | -$0.05 | -$0.23 |
| Hertz Global | HTZ | $0.31 | $0.21 |
| Imperial Oil | IMO | $0.64 | $0.60 |
| KLA-Tencor | KLAC | $0.15 | $0.01 |
| Las Vegas Sands | LVS | -$0.03 | -$0.01 |
| MetLife | MET | $0.87 | $0.87 |
| McAfee | MFE | $0.62 | $0.60 |
| Mohawk | MHK | $0.64 | $0.61 |
| Morningstar | MORN | $0.45 | $0.43 |
| Manitowoc | MTW | -$0.04 | $0.07 |
| Maxim Integrated | MXIM | $0.16 | $0.14 |
| PerkinElmer | PKI | $0.30 | $0.27 |
| Powerwave | PWAV | $0.00 | $0.00 |
| SBA Communications | SBAC | -$0.43 | -$0.26 |
| Tessera Technologies | TSRA | $0.37 | $0.40 |
| Universal Health | UHS | $1.03 | $0.87 |
| Varian Medical | VAR | $0.78 | $0.74 |
| Varian Semiconductor | VSEA | $0.10 | $0.05 |
| Today’s Earnings Before The Bell | |||
| Arch Coal | ACI | $0.16 | $0.06 |
| Amerigroup | AGP | $0.43 | $0.45 |
| Apartment Investment | AIV | $0.41 | $0.38 |
| Aon Corp | AOC | $0.65 | $0.66 |
| Constellation Energy | CEG | $1.23 | $1.07 |
| Cummins | CMI | $0.56* | $0.36 |
| Coventry Health Care | CVH | $0.66 | $0.55 |
| Chevron | CVX | $1.72* | $1.47 |
| Dominion | D | $0.99 | $0.91 |
| Duke Energy | DUK | $0.40 | $0.38 |
| Estee Lauder | EL | $0.85 | $0.34 |
| NICOR | GAS | $0.30 | $0.04 |
| ITT Corporation | ITT | $1.03 | $0.90 |
| NYSE Euronext | NYX | $0.53 | $0.46 |
| Progress Energy | PGN | $1.22 | $1.19 |
| Sony | SNE | -$0.29* | -$0.43 |
| Simon Properties | SPG | $1.38 | $1.32 |
| Weyerhaeuser | WY | -$0.26 | -$0.47 |
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
Upgrades:
Barnes & Noble (BKS) – BofA/Merrill Automatic Data (ADP) – Bernstein Texas Instruments (TXN) – Bernstein Monotype Imaging (TYPE) – Canaccord Adams Kellogg (K) – Citi Equity Residential (EQR) – Citi Toll Brothers (TOL) – Citi Research in Motion (RIMM) – Mentioned positively at Credit Suisse Time Warner (TWX) – Credit Suisse OfficeMax (OMX) – Goldman Coach (COH) – Jefferies Zumiez (ZUMZ) – Jefferies Ternium (TX) – Morgan Stanley SunTrust Banks (STI) – Morgan Stanley McAfee (MFE) – RW Baird AvalonBay (AVB) – RW Baird MEMC Electronic Materials (WFR) – Soleil Securities Barrick Gold (ABX) – TD Newcrest AK Steel (AKS) – UBS
99 Cents Only (NDN) – BofA/Merrill VMware (VMW) – Goldman Investment Technology Group (ITG) – JP Morgan Monsanto (MON) – Soleil Securities
Long positions in stocks mentioned: GS,
Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more “top stock” portfolios and research, visit TopStockPortfolios.com
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