Daily State of the Markets 
Wednesday Morning – August 26, 2009  

Before the bell yesterday, we learned that at least one person wasn’t going to lose their job during this recession as President Obama saw fit to reappoint Ben Bernanke as Chairman of the Federal Reserve. While there are lots of people pointing fingers and employing a keen sense of 20/20 hindsight in order to suggest what Mr. Bernanke should have done during the early stages of the crisis or even before the crisis got started, there is no denying that the Fed Chairman was creative and did a fine job guiding us through the credit quagmire and the near collapse of the banking system.

Although the news was viewed as a positive by many analysts, this was an outcome that was largely expected. So, while it would be easy to point to the Bernanke nomination as the reason for yesterday’s early strength in the stock market, that explanation might also be a little misleading.

No, the real reason the bulls enjoyed yet another day in the sun – although the skies did appear to be clouding up by the time the closing bell rang – was the economic data on the day once again came in better than expected. We got a report suggesting that we shouldn’t assume the consumer is dead, good news on the housing front, and more data showing that the recession is ending.

The biggest surprise of the day was the Consumer Confidence Index, which rebounded 6.7 points to a reading of 54.1 in August. It was highest reading since May and well above the consensus, which was for a much smaller increase to 47.0. Digging into the report, we find that the Present Situation index rose a modest 1.6 points, led by an improvement in the jobs market. And then, the Expectations component jumped 10.1 points to 73.5, its highest level since December 2007. Finally, the six-month outlook for business conditions and the labor market improved significantly, recording their best readings in at least two years.

We also got some encouraging news out of the Case-Shiller House Price Index. Although prices were still down on a year-over-year basis, it was nice to see that house prices actually rose in June for the first time since May 2006. The report showed that of the 20 metropolitan areas surveyed, 75% saw seasonally-adjusted price increases. In short, it doesn’t take a PhD in Economics to recognize that an improvement – even a small improvement – in the housing market would go a long way toward stabilizing the net worth of the consumer, which would, in turn, perhaps put a floor under the current level of consumer spending.

While the bulls were able to go home happy after a sixth straight day of gains, in all fairness, we do need to point out that the action once again wasn’t all that hot. For the second day in a row, the high of the day occurred in the first half-hour and then prices wound up fading rather precipitously into the close. This would seem to suggest that short-covering and perhaps a little buying came in on the back of the positive news, but that no one seemed too terribly interested in making any big commitments from there.

The calendar may certainly have something to do with the lackluster effort. However, the extent of the recent advance may also, as the S&P has gained +16.93% since the July 10th low. So, let’s all make a pledge to not be terribly surprised if the bears come to call sometime soon.

Turning to this morning, thanks to orders for aircrafts, orders for Durable Goods came in with a gain of +4.9%, which was higher the expectations for an increase of 3.0% and last month’s drop of -2.2%. But when you strip out transportation, the numbers were a smidge below the consensus as orders gained +0.8% vs. +0.9%. Finally, don’t forget about July New Home sales at 10:00 am or the Government’s auction of 5-year notes today at 1:00 pm.

Running through the rest of the pre-game indicators, the major overseas markets are mixed with Asia up and Europe down. Crude futures are moving a bit lower with the latest quote showing oil trading off by $0.50 to $71.55. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.44%, while the yield on the 3-month T-Bill is trading at 0.15%. And 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 11 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about a point below fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

Myriad Genetics (MYGN) – Upgraded at Canaccord Adams Fiserv (FISV) – Initiated Buy at Citi Affiliated Managers (AMG) – Upgraded at Credit Suisse Comcast (CMCSA) – Initiated overweight at JP Morgan Time Warner Cable (TWC) – Initiated overweight at JP Morgan HealthSouth (HLS) – Initiated Outperform at RW Baird Health Management (HMA) – Initiated neutral at RW Baird Burlington Northern (BNI) – Initiated Outperform at RW Baird CSX Corp (CSX) – Initiated Outperform at RW Baird Norfolk Southern (NSC) – Initiated neutral at RW Baird Union Pacific (UNP) – Initiated neutral at RW Baird St. Jude Medical (STJ) – Upgraded at Wells Fargo

Long positions in stocks mentioned: none

Regardless of the color on the screen, make every effort to enjoy the day 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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