Daily State of the Markets 
Thursday Morning – October 15, 2009  

As you are undoubtedly aware by now, the Dow Jones Industrial average moved back above the magical 10,000 level Wednesday afternoon. Amid a modest amount of fanfare, the most popular stock market index regained its missing digit and after a year of misery, most investors seemed to breathe a sigh of relief that the DJIA once again sported a 10-handle.

But probably the most important takeaway from all of yesterday’s hoopla was that it has now been 10 years, six months, and 14 days since the first time the Dow made the big break. And although we’ve mentioned this a time or two recently, it is important to recognize that yesterday also puts an exclamation point on the idea that the DJIA has gone nowhere for more than a decade. So, for those of you who still think that buy-and-hope is a good way to invest, we’d encourage you to please wake up and recognize that this is a buy-and-sell environment.

The impetus for yesterday’s fun in the stock market sun were the earnings reports from Intel (INTC) and JP Morgan Chase (JPM). In short, both of these bellwethers knocked it out of the park on both the top and bottom lines and had good things to say about the future. But in addition to these big names, we also got solid results and/or improved guidance from the likes of Altera (ALTR), CSX Corp (CSX), Abbott Labs (ABT), Host Hotels (HST) and Rio Tinto (RTP).

But getting back to the big show, we’ve gotten several questions about the idea of the current market starting to feel a little like déjà vu all over again. In short, some investors/advisors we work with have suggested that the current run for the roses is eerily similar to the mania surrounded by the first time the Dow cracked the 10,000 barrier.

While there is a certain degree of similarity between now and the stock market scene of a decade ago, it is also important to recognize there are major differences. First and foremost, in 1999, the tech bubble was heating up and analysts busied themselves by inventing new measurements for valuation of internet companies because the old methods were no longer applicable to the “new era.” However, nowadays, analysts are projecting a modest improvement in earnings that may or may not show up. In addition, a healthy dose of hindsight reminds us that a decade ago we were in the midst of a mega bull market that had been running for more than 17 years. And as we pointed out above, this is most certainly NOT the case currently.

So, is it time to party like it’s 1999 again? In a word, no. Sure, stocks can certainly head higher from here, but we’ll bet heavily that we aren’t seeing the beginning of a mania for stocks right now.

Turning to this morning, we’ve got a fairly full plate of economic data to review, so let’s get to it. First up, weekly jobless claims came in a bit below expectations at 514K vs. 520K. Continuing Claims for Unemployment Insurance were 6.0M, which was right on target with the expectations. Next up, the Consumer Price Index for September came in at +0.2%, in line with expectations for +0.2% while the so-called Core CPI (ex food and energy) was reported at +0.2% vs. +0.1%. Finally, the October Empire Manufacturing Index was significantly better than expected at 34.57 vs. the consensus of 17.25 and last month’s reading of 18.88.

Running through the rest of the pre-game indicators, the foreign markets are split by region with Asia up nicely while Europe is fractionally mixed. Crude futures are moving down a smidge with the latest quote showing oil trading off by $0.03 to $75.15. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.47%, while the yield on the 3-month T-Bill is currently at 0.06%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 40 points; the S&P’s are down about 6 points, while the NASDAQ looks to be about 14 points below fair value at the moment.

Yesterday’s Earnings After the Bell:

AptarGroup (ATR) – Reported $0.51 vs. $0.47 Crown Holdings (CCK) – Reported $0.81 vs. $0.80 Xilinx (XLNX) – Reported $0.25 vs. $0.24

Today’s Earnings Before the Bell:

Baxter (BAX) – Reported $0.98 vs. $0.97 Citi (C) – Reported -$0.27 vs. -$0.37 Cypress Semiconductor (CY) – Reported $0.10 vs. $0.06 Fairchild Semiconductor (FCS) – Reported $0.12 vs. $0.08 Goldman Sachs (GS) – Reported $5.25 vs. $4.20 Harley-Davidson (HOG) – Reported $0.11 vs. $0.23 (includes one-time charges) Southwest Air (LUV) – Reported $0.03 vs. $0.01 PPG Industries (PPG) – Reported $0.97 vs. $0.89

Upgrades/Downgrades/Brokerage Research:

Charles Schwab (SCHW) – Downgraded at BofA/Merrill Schlumberger (SLB) – Upgraded at Citi Baker Hughes (BHI) – Downgraded at Citi BJ Services (BJS) – Downgraded at Citi Panasonic (PC) – Upgraded at Credit Suisse JP Morgan (JPM) – Upgraded at Fox-Pitt, Kelton Chicago Bridge (CBI) – Upgraded at Goldman Granite Construction (GVA) – Downgraded at Goldman Hanover Insurance Group (THG) – Removed from Best Ideas list at Keefe, Bruyette & Woods Travelers (TRV) – Upgraded at– Upgraded at Keefe, Bruyette & Woods Sunoco (SUN) – Initiated overweight at Morgan Stanley Kinder Morgan Energy Partners (KMP) – Downgraded at Oppenheimer Lazard (LAZ) – Downgraded at Oppenheimer Invesco (IVZ) – Upgraded at Pali Research DeVry (DV) – Upgraded at RBC Capital Host Hotels & Resorts (HST) – Downgraded at RW Baird PG&E (PCG) – Upgraded at UBS Public Storage (PSA) – Upgraded at UBS

Long positions in stocks mentioned: GS, THG, TRV

Don’t let success go to your head or defeat into your heart, 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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