|
Daily State of the Markets |
At this stage of the game, one could argue that it’s all about confidence. For example, part of the reason traders love to see M&A activity is it demonstrates confidence in the environment, the current pricing in the market, and the outlook for the future. In addition, if the bulls are going to win their argument that the stock market should head higher over the next six months, buyers will need to have a fair amount of confidence in the economy, the earnings picture, and the consumer before placing those buy orders.
And it was the issue of confidence, or in this case, a lack thereof, that tripped up stock prices yesterday on the next-to-last day of the third quarter. So, while reviewing economic reports and industry surveys may not be everyone’s cup of tea, staying in tune with what people are thinking and how they are feeling is a necessary evil these days.
There were three different reports on confidence levels yesterday: Consumer Confidence, the CEO Outlook, and the Discover Small Business Index. So, let’s do a quick review of each and see what we see.
The Consumer Confidence Index fell 1.4 points in September to a reading of 53.1. This was down from the August reading of 54.5 and well below the consensus expectation for a reading of 57.0. And unfortunately, while a reading of 57 might sound decent, it is, in fact, well below average as the index stood at approximately 112 in 2007 and 150ish in 2001.
The Present Situation component of the report fell 2.7 points, while Expectations dropped 0.5 points. As a result, Ned Davis Research reports that their confidence spread (the difference between the present situation and expectations components) fell to -50.6, the lowest level since January 1993. This is likely due to the fear of a “jobless recovery.”
Next up, we got some good news from the Business Roundtable CEO Economic Outlook. Their Index jumped 26.4 points in the third quarter, which was the most in the history of the survey. The Index rose to a reading of 44.9, its highest level in a year. It was also positive to see that the number of executives who see the economy deteriorating in the next six months fell once again.
Finally, the Discover Small Business Watch Index fell 2.1 points in September, which was the first decline in the last four months, to 87.7. Unfortunately, more than 2/3 of small business owners believe the recession is not over yet. Half of those surveyed reported plans to actually reduce capital expenditures and just below half of the respondents reported experiencing cash flow problems. However, the index has gained 13.1 points over the past year, which is the most since records began in 2006.
Turning to this morning, ADP reported that the private sector lost -254K jobs in September, which was above the consensus for -200K. However, it was the smallest number of job losses for the private sector since July 2008. In addition, the final result for the second quarter’s GDP came in with a decline of -0.7%, which was better than expectations for -1.2%. Traders apparently like this news as the futures are moving up on the data.
Running through the rest of the pre-game indicators, the foreign markets are fractionally mixed. Crude futures are moving higher with the latest quote showing oil trading up by $0.95 to $66.04. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.32%, while the yield on the 3-month T-Bill is currently at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 50 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 7 points above fair value at the moment.
Yesterday’s Earnings After the Bell:
Darden Restaurants (DRI) – Reported $0.67 vs. $0.66 Jabil Circuit (JBL) – Reported $0.16 vs. $0.08 Allscripts-Misys (MDRX) – Reported $0.15 vs. $0.14 Micron (MU) – Reported -$0.10 vs. -$0.18 Nike (NKE) – Reported $1.04 vs. $0.97 Worthington (WOR) – Reported $0.11 vs. $0.04
Upgrades/Downgrades/Brokerage Research:
Target (TGT) – Started with Outperform rating at Bernstein Costco (COST) – Started with Market Perform rating at Bernstein Wal-Mart (WMT) – Started with Market Perform rating at Bernstein Global Crossing (GLBC) – Downgraded at Citi Goldman Sachs (GS) – Estimates and target increased at Credit Suisse Morgan Stanley (MS) – Estimates reduced at Credit Suisse Huntington Bancshares (HBAN) – Upgraded at Deutsche Bank Covidien (COV) – Initiated Conviction Buy at Goldman Nuvasive (NUVA) – Initiated Buy at Goldman Zimmer Holdings (ZMH) – Initiated Buy at Goldman Molex (MOLX) – Initiated Buy at Goldman Becton Dickinson (BDX) – Initiated Sell at Goldman St. Jude Medical (STJ) – Initiated Sell at Goldman AmerisourceBergen (ABC) – Upgraded at Goldman Nike (NKE) – Upgraded at Goldman Olympic Steel (ZEUS) – Estimates and target increased at Jefferies Micron Technology (MU) – Mentioned positively at Morgan Stanley General Dynamics (GD) – Target increased at Oppenheimer Dollar Tree (DLTR) – Initiated Outperform at RBC Capital Target (TGT) – Downgraded at UBS Affiliated Computer (ACS) – Downgraded at UBS
Long positions in stocks mentioned: GS, MU
Be sure to breathe 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.
