Daily State of the Markets 3/31: Watching The Clock

Good morning. With the traders who are actually at their desks this week spending most of their time waiting for the quarter to end, the jobs report, or for their vacations to start, it is little wonder that the action was a little subdued yesterday. In short, with this traditionally being a vacation week on Wall Street, it is difficult to discern whether the sideways action we're seeing is terribly meaningful.

The bulls seemed to have things going their way in the early going on the back of reports from the Case-Shiller house price index and the Conference Board's Consumer Confidence index. While not exactly a stellar result, the Case-Shiller report showed that home prices rose +0.3% from December to January and the year-over-year decline of -0.7% was the smallest in nearly three years. The fact that housing prices may be stabilizing seems to have put consumers in a better mood as the Consumer Confidence index came in above expectations for a change.

In addition, the upside preannouncement from Danaher (DHR) gave the manufacturing sector a boost while word that Apple (AAPL) has an iPhone on the drawing board for Verizon (VZ) helped keep the sentiment positive in the early going. While rumors constantly swirl around what Mr. Jobs and company will or won't do next, the fact that the WSJ reported Apple was planning to release an iPhone for the CDMA market definitely got people's attention. The news gave Verizon a boost while exclusivity concerns dogged AT&T.

While things appeared to be going along swimmingly in the first hour, suddenly out of nowhere, the major indices turned tail and ran lower. At first blush, the coincidence that stocks moved lower as President Obama began to espouse the wonders of the latest entitlement program was not lost on market commentators. There was some discussion about the idea that this so-called reform did not address the cost side of health care and that the market was voting with its feet. However, in reality, it was a failed auction in Greece that moved the market from green to red in relatively short order.

The situation in Greece wasn't actually as bad as it sounds due to the fact that the attempted auction was thrown together at the last minute. The Greeks tried to raise an additional 5 billion Euros via 20-year reopened notes. However, they were only able to sell 390 million Euros worth of paper. So, while investors were willing to participate in Monday's well-planned 7-year auction, yesterday's result showed that people are not exactly falling all over themselves to get into Greek debt these days.

On a chart basis, it appeared that the Dow and S&P had broken out of the little trading range that had developed over the past week or so. However, the selling associated with Greece's failed auction put the range back in play. And with traders spending most of their time watching the clock, there was little incentive to push prices much higher in the afternoon.

Turning to this morning... ADP reports that the private sector job market continued to shrink in March. The ADP report shows the private sector lost 23,000 jobs in March, which was well below the consensus expectations for a gain of 40,000. As a reminder, the ADP report does not include government jobs. Thus, the census hiring, which has been estimated to be as high as 200k this month, is not included in this report. However, most analysts had been expecting to see job growth outside of the census hiring, so the ADP results are a disappointment.

Running through the rest of the pre-game indicators, Asian markets are lower while European bourses are hovering around breakeven. Crude futures are up $0.92 to $83.29. On the interest rate front, the yield on the 10-yr is currently trading at 3.83%. Next, gold is moving up $8.50 to $1113.00 and the dollar is lower against the Euro, Pound, and the Yen. 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 35 points; the S&P’s are downabout 4 points, while the NASDAQ looks to be about 5 points below fair value at the moment.

Wall Street Research Summary

Upgrades:

WellPoint Health (WLP) - BMO Capital
Viacom (VIA.B) - Target increased at Deutsche Bank
Digital River (DRIV) - FBR capital

New Coverage:
Frontier Oil (FTO) - Initiated outperform at Macquarie Research
Tesoro (TSO) - Initiated outperform at Macquarie Research
Western Refining (WNR) - Initiated outperform at Macquarie Research
Holly Corp (HOC) - Initiated neutral at Macquarie Research
Sunoco (SUN) - Initiated neutral at Macquarie Research
Valero (VLO) - Initiated neutral at Macquarie Research
Alon USA Energy (ALJ) - Initiated underperform at Macquarie Research

Downgrades:

Cephalon (CEPH) - BofA/Merrill
Psychiatric Solutions (PSYS) - Piper Jaffray
Calpine (CPN) - Target reduced at UBS
RRI Energy (RRI) - Target reduced at UBS
Dynegy (DYN) - Target reduced at UBS
Mirant (MIR) - Target reduced at UBS
NRG Energy (NRG) - Target reduced at UBS
SAIC (SAI) - Wells Fargo

Long positions in stocks mentioned: none

Be sure to keep everything in perspective and

David D. Moenning
Founder TopStockPortfolios.com

For more "top stock" portfolios and research, visit www.TopStockPortfolios.com

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