Daily State of the Markets 
Monday Morning – October 19, 2009  

While it remains VERY early in the game, the question foremost on traders’ minds these days is: Which is the better bellwether? Should investors be taking their cue from the trio of terrific reports offered by Goldman Sachs (GS), Intel (INTC), and Google (GOOG) or focusing on the less than stellar results from the likes of Bank of America (BAC), IBM (IBM), and General Electric (GE)?

Since it’s probably been at least a day or two since we’ve discussed this concept, stocks have advanced to new highs recently based on the idea that the economy is on the mend and that improved earnings won’t be far behind. And while we probably shouldn’t expect a whole lot of improvement at this stage of the game on the revenue side, this is the direction the game is heading soon. But make no mistake about it; traders are now listening intently for anything relating to improvement in revenues or the outlook for the coming quarter.

It was the hopeful outlook for the future that made the results from Intel and Google so encouraging. And while it’s been a while since a single stock could carry the market, word that things were looking up at these two tech bellwethers did just that on the back of their revenue expectations and talk of a brighter future.

Speaking of expectations, it was the reports from both Bank of America and GE that made traders stop and think a bit on Friday. While the drop of 67 points was hardly anything to get excited about, the fact that GE’s revenues came in below expectations and that BAC’s results were subpar to say the least, gave investors reason to wonder if stock prices have indeed gotten ahead of the fundamentals at this stage of the game.

Bank of America lost more than $2.2 billion in the third quarter, wrote down more than $10 billion in bad loans (which was up $1 billion or so from the second quarter), and saw delinquencies increasing. None of which bodes well for the much-ballyhooed consumer recovery that is expected in coming quarters.

Adding fuel to the bear argument relating to the state of the consumer was the preliminary reading from the University of Michigan’s Consumer Sentiment index. The report for October showed that sentiment fell to 69.4 from 73.5 in September, which was well below the expectations for a reading of 73.1. Current conditions slipped to 72.1 from 73.4 while the expectations component took a big dive down to 67.6 from 73.4. According to the survey, it was the outlook for employment that remains the big problem weighing on consumers.

So, the bears will suggest that the earning reports late in the week argue that stocks have gotten ahead of themselves. However, with a barrage of earnings coming in the next two weeks, it might be best to wait and see which group of early reports was the better bellwether.

Turning to this morning, we do not have any economic data on the calendar today. And looking ahead, there is a decent chance that traders will be looking ahead to the reports from Apple (AAPL), Texas Instruments (TXN), and Zions Bancorp (ZION) after the close.

Running through the rest of the pre-game indicators, with the exception of Australia and Japan, the foreign markets are up nicely. Crude futures are pulling back from Friday’s big move with the latest quote showing oil trading off by $0.21 to $78.32. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.43%, while the yield on the 3-month T-Bill is currently at 0.07%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 30 points; the S&P’s are up about 3 points, while the NASDAQ looks to be about 2 points above fair value at the moment.

Today’s Earnings Before the Bell:

BB&T Corp (BBT) – Reported $0.23 vs. $0.23 Eaton (ETN) – Reported $1.21 vs. $0.92 Hasbro (HAS) – Reported $0.99 vs. $0.92 Gannett (GCI) – Reported $0.44 vs. $0.40 McMoRan Exploration (MMR) – Reported -$0.60 vs. -$0.58 PetMed Express (PETS) – Reported $0.28 vs. $0.28 Weatherford Intl (WFT) – Reported $0.13 vs. $0.12

Upgrades/Downgrades/Brokerage Research:

Par Pharmaceutical (PRX) – Downgraded at BofA/Merrill Potash (POT) – Mentioned as takeover target at BofA/Merrill American Express (AXP) – Upgraded at FBR Capital Air Tran Holdings (AAI) – Upgraded at JP Morgan Southwest Air (LUV) – Downgraded at JP Morgan Fannie Mae (FNM) – Downgraded at Keefe, Bruyette & Woods Freddie Mac (FRE) – Downgraded at Keefe, Bruyette & Woods Sanderson Farms (SFM) – Downgraded at KeyBanc SunPower (SPWRA) – Upgraded at Macquarie Research First Solar (FSLR) – Downgraded at Macquarie Research Suntech Power (STP) – Downgraded at Macquarie Research Motorola (MOT) – Target increased at Oppenheimer Viacom (VIA.B) – Upgraded at RBC Capital Estee Lauder (EL) – Upgraded at RBC Capital Dr. Pepper Snapple (DPS) – Estimates and target increased at UBS Tellabs (TLAB) – Downgraded at UBS

Long positions in stocks mentioned: GS, GOOG, AAPL, AAI, DPS

Remember to take time to enjoy your 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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