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Daily State of the Markets Good morning. There are really two ways to look at the first triple-digit decline of the year that occurred on Friday. First, the bulls will argue that after an extended run to the upside, the combination of a long weekend, some weaker-than expected economic news, and the options expiration event created a “stand aside” environment for the buyers. As such, our heroes in horns suggest that Friday’s dance to the downside isn’t anything to get worked up about. On the other side of the aisle though, there appears to be some excitement in the bear camp. Our furry friends can be heard telling their followers that the results out of JPMorgan Chase (JPM) were a harbinger of bad things to come. The thinking is that with JPM being one of the stronger banks, if they are having problems, well, we could be in for a stretch of bad news in the banking sector. For the first time this year, traders actually focused on the bad news. Up until Friday, all news had been considered good news. Anything negative was simply written off as a rearview mirror image as traders were focusing on the future. However, on Friday, it was the good news that was cast aside. One might have thought a strong report out of Intel (INTC) would have triggered a celebration of sorts. But instead, traders went to their dark place after JPM’s report and some data on the economy. The data out of the Reuters/University of Michigan Consumer Sentiment Index really wasn’t all that bad. The headline did show that the Sentiment Index was below expectations with a reading of 72.8 versus 74.0. And the expectations component did sag a little to 67.5 from last month’s level of 68.9. But the good news is the Current Conditions Index came in at 81.0, which was up nicely from 78 in December and the highest level since March 2008. However, we should point out that the Current Conditions index has a long way to go to return to “normal” levels as the low readings from 2001 – 2007 were all above 90. The rest of the day’s flood of data wasn’t terribly negative as the CPI once again confirmed that inflation is not a problem, the Fed’s report on Industrial Production was in line with expectations, and the Empire Manufacturing index (designed to indicate the state of the manufacturing sector in the New York region) actually came in well above expectations. Thus, one has to wonder what might have happened if we weren’t staring a long weekend in the face on Friday. The bottom line on the question of where we go from here is stocks will likely take their cues from the earnings reports. Looking at the week, we’ve got Citi (C) this morning, IBM (IBM) after the close, Bank of America (BAC), Morgan Stanley (MS), and Wells Fargo (WFC) on Wednesday, Goldman Sachs (GS), American Express (AXP), and Google on Thursday, and then General Electric (GE) and McDonald’s (MCD) on Friday. Turning to this morning, we don’t have any economic data here in the U.S. to review before the bell. However, the earnings parade is starting to move forward as Citi reported a loss of $0.33, which was in line with estimates and well above last year’s quarterly loss of $3.40. However, as was the case with JPMorgan Chase (JPM), revenues were well below expectations. On the news front, China moved again toward reining in their monetary policy by raising the rates paid on 1-Year T-Bills for the second auction in a row. Running through the rest of the pre-game indicators, the overseas markets are mostly lower after rising on Monday. Crude futures are down with the latest quote showing oil lower by $0.53 to $77.47 on the back of OPEC’s reduction in demand estimates. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.71%. Next, gold is moving up by $3.50 and the dollar is lower against the Yen and Pound, while higher against the Euro. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a rather flat open. The Dow futures are currently ahead by about 3 points; the S&P’s are within a point of fair value, while the NASDAQ looks to be about 6 points above fair value at the moment.
* Report includes items that make comparisons to the consensus estimate questionable Wall Street Research Summary Upgrades: |
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Host Hotels & Resorts (HST) – BofA/Merrill Companhia Vale do Rio Doce (VALE) – Barclays Express Scripts (ESRX) – Target increased at Bernstein Medco Health (MHS) – Target increased at Bernstein Wynn Resorts (WYNN) – Mentioned positively at Bernstein Philip Morris (PM) – Credit Suisse McDonalds (MCD) – Credit Suisse Equity Residential (EQR) – Deutsche Bank Apartment Investment (AIV) – Deutsche Bank US Steel (X) – Deutsche Bank F5 Networks (FFIV) – Target increased at Jefferies Scripps Networks Interactive (SNI) – Target increased at Morgan Stanley Xilinx (XLNX) – RBC Capital Louisiana-Pacific (LPX) – RBC Capital JDS Uniphase (JDSU) – RBC Capital Cree (CREE) – Estimates increased at ThinkEquity Skyworks (SWKS) – Target increased at ThinkEquity 3M (MMM) – Target increased at UBS
Sunstone Hotel Investors (SHO) – BofA/Merrill Genworth Financial (GNW) – BofA/Merrill Sprint Nextel (S) – Bernstein Baxter (BAX) – Citi Lorillard (LO) – Credit Suisse Burger King Holdings (BKC) – Credit Suisse Kimco Realty (KIM) – Deutsche Bank AK Steel (AKS) – Deutsche Bank Quanta Services (PWR) – FBR Capital Potash (POT) – Target reduced at UBS
Long positions in stocks mentioned: CREE, MMM
Remember to think positive 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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