|
Daily State of the Markets |
Good morning. Let’s see a show of hands if you thought Friday’s news that the Unemployment Rate jumped to 10.2% would wind up being a good thing for stocks. And no, you don’t get to use hindsight or think about it for a while. No, I’m looking for your immediate reaction to the news. If you are anything like me, I’m guessing that you probably didn’t yell, “Buy ‘em!” Instead, most people probably went with something more along the lines of “Wow, that doesn’t sound good.”
The government and economists alike have been warning us for a while now that we should expect to see the unemployment rate hit 10% or higher before things started to improve. After all, the unemployment rate is indeed a lagging indicator and everybody knows that the jobs market has been more than a little weak. And with the rate sitting at 9.832% as of the end of September, it probably wouldn’t have been terribly surprising to see the rate move up to 9.9% or maybe even 9.95%. But 10.2% – now that was surprising.
Logic would seem to dictate that the unemployment rate skipping right over 9.9%, 10.0%, and instead leaping straight to 10.2% (the highest rate in more than 26 years) would be viewed as a negative. And sure enough, the Dow did drop 70 points or so in the first five minutes of trading. But from there, a funny thing happened on the way to the Bears’ victory party. Somebody, somewhere figured out that the news was actually a good thing for the “risk trade” that has become so popular these days.
About the only good thing you can say about the jobs report, besides the fact that the job losses are continuing to be “less bad” each month, is that an unemployment rate of 10.2% will surely keep the Fed from commencing with any discussions of “exit strategies” or higher rates for some time yet. Almost immediately after the report was released, we started to hear speculation about how many months this report would keep the Fed on the sidelines, with the consensus coming in somewhere between three and six. Thus, it would appear that we might be coming into a market where bad news is actually a good thing again.
What this means is that it’s “Party on, Wayne” for anyone involved with the Dollar Carry Trade (meaning just about everyone in the hedge fund industry around the world). With the job market as weak as it is and the economic recovery still in a fairly fragile state, traders realized that Mr. Bernanke isn’t likely to start talking about increasing interest rates anytime soon. Therefore, the game of borrowing at 0% and investing in stocks, commodities and emerging markets, while at the same time, betting on a falling dollar, is still on.
So, while Nouriel Roubini may be expecting a “global market crash” when this “mother of all carry trades” begins to unwind, it looks like Dr. Doom may have to wait a while longer for his next big bear call to come to fruition.
Turning to this morning, we don’t have any economic data to review before the bell. However, the markets have a positive tone as Asian markets closed up following a positive reaction to the G20 governments agreeing to maintain stimulus measures and European markets are up nicely across the pond.
Running through the rest of the pre-game indicators, as we mentioned, the foreign markets are up across the board. Crude futures are higher with the latest quote showing oil trading up by $0.62 to $78.05. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.51%, while the yield on the 3-month T-Bill is currently at 0.05%. The U.S. Dollar is currently lower and finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 70 points; the S&P’s are up by about 9 points, while the NASDAQ looks to be about 16 points above fair value at the moment.
| Earnings Before The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| DISH Network | DISH | $0.18* | $0.42 |
| Nordic American Tanker | NAT | -$0.26 | -$0.15 |
| Rockwell Automation | ROK | $0.37 | $0.27 |
| Warner Chilcott | WCRX | $0.42 | $0.41 |
| Windstream | WIN | $0.18 | $0.22 |
Wall Street Research Summary
Upgrades:
Shanda Interactive (SNDA) – Citi Radio Shack (RSH) – Credit Suisse Abercrombie & Fitch (ANF) – Credit Suisse, Goldman Hercules Offshore (HERO) – Credit Suisse Questar (STR) – Goldman Salesforce.com (CRM) – Goldman WMS Industries (WMS) – Goldman Adobe Systems (ADBE) – Goldman Northrop Grumman (NOC) – Jefferies AstraZeneca (AZN) – JP Morgan Blackstone Group (BX) – Keefe, Bruyette & Woods Merck (MRK) – Leerink Swann Energizer (ENR) – Morgan Stanley
Gap (GPS) – Barclays Charles River Laboratories (CRL) – Barclays Lexmark (LXK) – Added to Conviction Sell at Goldman EOG Resources (EOG) – Goldman Verisign (VRSN) – Goldman Red Hat (RHT) – Goldman
Long positions in stocks mentioned: GS, RHT
* Report includes items that make comparisons to the consensus estimate questionable
Remember, we are all in this together… 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.
