Daily State of the Markets 
Monday Morning – September 14, 2009  

Stocks paused on Friday as the nation recognized the 8th anniversary of the 9/11 attacks. And it appears that stocks will head lower out of the gate this morning on another anniversary as it was one year ago today that Lehman collapsed into bankruptcy. Well, in reality, stocks are down this morning on news that the U.S. has fired the first salvo in a trade dispute with China, which is definitely NOT what the doctor ordered for the health of the bulls recent run to higher ground.

The indices initially moved higher Friday morning on the back of some pretty solid economic news out of China as well as an upbeat guidance report out of FedEx (FDX). The rosy forecast from FedEx is important to market players as the company is seen as a barometer for the health of the overall economy. In short, if business is good then companies will need FedEx to ship more stuff and vice versa. Thus, word that the company will earn $0.58 per share this quarter versus the prior range of $0.30 to $0.45 was definitely seen as a good thing.

However, with the indices looking to make it six straight days of green screens, some confusion about reports over the Coast Guard’s activity on the Potomac reminded investors on the anniversary of 9/11 just how fragile the recovery could be. At first, we got reports from CNN that the Coast Guard had fired shots at a “suspicious” boat in the Potomac. And what made the report credible at the time was the fact that the incident took place near a bridge where President had been speaking.

Although we learned later that the “incident” was really just a training exercise and that there had not been any shots fired, the damage to the market’s psyche had been done. And as a quick side note, why anyone in their right mind would schedule such an exercise on the anniversary of 9/11 escapes us.

So, despite the upbeat news from FedEx and the University of Michigan’s report that Consumer Confidence came in better than expected at 70.2 vs. 67.5, traders decided that it was time to take a break on Friday as stocks finished lower across the board.

It didn’t help that the leaders of the recent pop higher – the semis – got hit with a bout of profit taking, or the news that Fifth Third Bancorp (FITB) is seeing a rather odd personnel change, or word out of Steel Dynamics (STLD) that the outlook for the fourth quarter remains uncertain. And while the selling was less than robust, Friday’s action did sow the seeds for the potential of a breakout fakeout.

Turning to this morning, stocks are lower around the world in response to the decision by the U.S. to impose trade penalties on Chinese tires. Beijing responded by calling the move “protectionist” and complained that the U.S. had violated global trade rules. This obviously isn’t sitting well with investors as U.S. – Chinese trade is seen as a key link to the recovery of the global economy.

Running through the rest of the pre-game indicators, as mentioned, with the exception of Shanghai, the foreign markets are down about 1% or so across the board. Crude futures are moving lower with the latest quote showing oil trading down by $0.46 to $68.83. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.37%, 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 lower open. The Dow futures are currently off by about 70 points; the S&P’s are down about 8 points, while the NASDAQ looks to be about 12 points below fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

Microsoft (MSFT) – Upgraded at AURIGA Sealed Air (SEE) – Upgraded at BofA/Merrill Sonoco Products (SON) – Upgraded at BofA/Merrill Potlatch (PCH) – Downgraded at BofA/Merrill Campbell Soup (CPB) – Downgraded at BofA/Merrill Owens-Illinois (OI) – Target increased at Citi E*Trade (ETFC) – Upgraded at Citi Blue Nile (NILE) – Downgraded at Citi Mosaic (MOS) – Downgraded at Citi Potash (POT) – Downgraded at Citi Waste Management (WM) – Downgraded at Credit Suisse UPS (UPS) – Upgraded at Credit Suisse Thomson Reuters (TRI) – Upgraded at Deutsche Bank Baidu (BIDU) – Target increased at Goldman Under Armour (UA) – Upgraded at Goldman El Paso Electric (EE) – Downgraded at Goldman OfficeMax (OMX) – Downgraded at Goldman Allegheny Energy (AYE) – Downgraded at Jefferies Cabela’s (CAB) – Downgraded at JP Morgan Computer Sciences (CSC) – Upgraded at Kaufman Bros Carbo Ceramics (CRR) – Upgraded at Morgan Stanley UBS (UBS) – Upgraded at Nomura Securities Boston Scientific (BSX) – Downgraded at UBS Motorola (MOT) – Upgraded at UBS

Long positions in stocks mentioned: GS, MSFT

Be sure to keep everything in perspective 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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