|
Daily State of the Markets |
Good morning. The bulls enjoyed a solid advance to start the week, but the bottom line is the end result wasn’t nearly as positive as it could have been. While the indices all finished with gains of at least 1.25% (the Russell popped +1.7%), the rally stopped short of new-cycle high territory for all the indices save the Dow.
Although the Dow managed to break on through to the other side to new-high ground for this cycle yesterday, the S&P and NASDAQ appeared to bump their heads on important resistance zones. Thus, the question of the day becomes: Will the rest of the indices play follow the leader or is the Dow setting us up once again for the dreaded “breakout fakeout?”
The session got started off on the right note on the back of some reassuring Fedspeak and the corresponding negative response by the dollar (yes, the inverse relationship between stocks and the greenback is still in play). First, in a speech in New York over the weekend, St. Louis Fed President James Bullard said that the Fed should consider extending its quantitative easing program (the direct purchase of bonds and debt securities by the Fed) in an effort to give the Fed flexibility to ward off any potential future weakness in the economy. And then, Chicago Fed President Evans told the Financial Times that the FOMC may not start raising rates until “late 2010, perhaps later in terms of 2011.”
The bulls also got a little help from the economic data. After a string of disappointing headlines on the economic front last week, the housing recovery theme got a shot in the arm from yesterday’s report on Existing Home Sales. Sales in October jumped up 10.1% to an annualized rate of 6.1M units, which was the best since February 2007 and also well above the consensus estimates. It was also positive that inventories pulled back a bit as the number of months of supply on the market fell to 7 from 8 in September.
In addition to the reassuring Fedspeak, dollar bears/stock bulls were also treated to a large auction of 2-year notes yesterday. While the auction seemed to go reasonably well, the fact that the government is planning to sell a record $118 Billion in notes this week is likely to keep any rally in the dollar under wraps for a while longer.
However, just about the time the bulls seemed to be readying a rousing rendition of Happy Days are Here Again, Standard & Poors stepped in and spoiled the fun. Although the report didn’t get much press, the rally stalled out the moment S&P released a report saying that according to their new metric of Risk Adjusted Capital, most banks in the U.S. are undercapitalized given the current environment.
So, will the rest of the indices follow the Dow’s lead? Frankly, with the holiday-shortened week upon us, it is hard to tell. But from a technical standpoint, this is the most important part of the game at the present time.
Turning to this morning, the Government is out with its second stab at U.S. GDP for the third quarter. The report shows GDP rose by 2.8% during the July through September period, which was in line with the consensus estimate for a reading of 2.8%, but below the first read of 3.5%. Next up, Personal Consumption (a measure of consumer activity) was reported up 2.9% during the quarter; well below the consensus for 3.2% and the first read of 3.4%. The GDP Price Index, which is a measure of price inflation, came in at +0.5%; below the consensus expectations for +0.8%. And finally, the Core PCE (Personal Consumption Expenditures) increased by +1.3%; below the consensus for 1.4%.
Running through the rest of the pre-game indicators, with the exception of London, the foreign markets are lower across the board. Crude futures are lower with the latest quote showing oil trading down by $0.21 to $77.35. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.33%, while the yield on the 3-month T-Bill is currently at 0.04%. In addition, gold is up $2.90 and the dollar is lower against the Yen and Pound but fractionally higher against the Euro. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 19 points; the S&P’s are down less than a point, while the NASDAQ looks to be about 5 points below fair value at the moment.
| Yesterday’s Earnings After The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Analog Devices | ADI | $0.36 | $0.26 |
| Atwood Oceanics | ATW | $0.75 | $0.68 |
| Brocade | BRCD | $0.15 | $0.13 |
| Hewlett-Packard | HPQ | $1.14 | $1.13 |
| Nuance Communications | NUAN | $0.32 | $0.29 |
| Earnings Before The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| American Eagle | AEO | $0.21 | $0.21 |
| Barnes & Noble | BKS | -$0.30 | -$0.28 |
| Cracker Barrel | CBRL | $0.78 | $0.62 |
| Dollar Tree | DLTR | $0.76 | $0.66 |
| DSW Inc | DSW | $0.60 | $0.46 |
| Heinz | HNZ | $0.76 | $0.69 |
| Hormel Foods | HRL | $0.77 | $0.68 |
| Medtronic | MDT | $0.77 | $0.77 |
| Warner Music | WMG | -$0.03 | $0.04 |
| Zale | ZLC | -$1.80 | -$2.02 |
Wall Street Research Summary
Upgrades:
Hertz Global (HTZ) – Argus Research National Semiconductor (NSM) – Added to Top Picks Live at Citi Eastman Chemical (EMN) – Deutsche Bank DR Horton (DHI) – Mentioned positively at Goldman Cephalon (CEPH) – Jefferies General Electric (GE) – Mentioned positively at JP Morgan Acuity Brands (AYI) – Oppenheimer Tellabs (TLAB) – Soleil Securities Adobe Systems (ADBE) – Mentioned positively at UBS Wal-Mart (WMT) – Estimates and target increased at UBS Reliance Steel (RS) – UBS Prudential Financial (PRU) – Wells Fargo
Interpublic (IPG) – Argus Research Zions Bancorp (ZION) – Mentioned cautiously at Citi Illumina (ILMN) – Target reduced at Goldman Ciena (CIEN) – Jefferies Union Pacific (UNP) – UBS
Long positions in stocks mentioned: none
* Report includes items that make comparisons to the consensus estimate questionable
Try doing something nice for someone today (for no reason at all) 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
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
