David Moenning's Daily State of the Markets: 04/25

Macro vs. Micro

Good morning. Stocks were officially “mixed” yesterday as the Dow and the NASDAQ managed to advance while the S&P 500, Small-Cap, and Mid-Cap indices were all slightly lower. And while the media trumpeted the Dow’s new intraday high of 12,989.86 and the ever increasing proximity to the 13,000 level (we are now, just 46.06 points away), the real story was that earnings trumped the economic data and the bulls once again sidestepped a possible problem.

Yesterday’s action made it clear that traders prefer to focus on the micro view (i.e. company earnings) over the macro view (economic data) right now. And since it was macro worries that caused the quick 5% subprime decline a while back, this is music to the bulls’ ears.

The economic news wasn’t exactly stellar yesterday. For starters, Existing Home Sales plunged 8.4% to an annual rate of 6.12 million units, which was the lowest since June 2003 and well below expectations for a rate of 6.4 million units. Single-family home sales plummeted 9.5%, which was the biggest decline since January 1989 and the lowest level in more than three years. In addition, prices continued to decline, albeit at a slower pace.

Next up, the Conference Board’s Consumer Confidence Index fell 4.2 points to 104 in April. This was below the consensus estimate for a reading of 105 and the lowest level since last August. And while this isn’t exactly a disastrous reading, we should keep in mind that the consumer represents more than two-thirds of the economy and that the public’s confidence has been waning lately.

Finally, the Richmond Fed Manufacturing Activity Index contracted in April by 11 points, which was below expectations for a drop of 6 points. From a macro point of view, this report suggests that the sluggishness in the manufacturing sector continues.

However, the micro view continues to brighten as company after company has come in with better than expected earnings. And since beating the estimates is the name of the game, traders rewarded the likes of DuPont, Whirlpool, and Texas Instruments, which of course helped the Dow to advance.

So with the Dow just a buy program away from another big round number, the question of the day is if the micro view will continue to carry the day.

Turning to this morning, we’ve got some macro data to review, so let’s get to it. March Durable Goods came in stronger than expected with an increase of 3.4%, which was better than the consensus of 2.5%. In addition, last month’s numbers were revised higher from 1.7% to 2.4% and the Ex-Transportation numbers also came in a bit better than expected.

And while we’ve still got a big number to come – the New Home Sales report – at 10:00 am, so far it looks like the bulls are having their cake and eating it too on the question of macro versus micro.

Running through the rest of the pre-game indicators, the major foreign markets were mixed by region with Asian markets modestly lower and European markets higher. Gold futures are moving up a dime this morning and are trading at $687.80. In the oil pits, crude futures are higher by $0.27 with the latest quote at $64.85. Interest rates are a moving up this morning on the stronger economic news as the yield on the 10-year is currently trading at 4.64%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to move higher at the open. The Dow futures are currently ahead by 35 points; the S&P’s are about 6 points above board, while the NASDAQ also looks to be about 6 points ahead of fair value at the moment

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell
AFLAC (NYSE: AFL) – Reported $0.82 vs. $0.79
Ameriprise (NYSE: AMP) – Reported $0.90 vs. $0.88
Amazon.com (NASDAQ: AMZN) – Reported $0.26 vs. $0.15, Upgraded at C, Cowen, Piper
CR Bard (NYSE: BCR) – Reported $0.95 vs. $0.91
Rockwell Collins (NYSE: COL) – Reported $0.82 vs. $0.79
Sun Micro (NASDAQ: SUNW) – Reported $0.04 vs. $0.01

Today’s Earnings Before the Bell:

AmerisourceBergen (NYSE: ABC) – Reported $0.67 vs. $0.67
Allegheny Technologies (NYSE: ATI) – Reported $1.92. vs. $1.83
Boeing (NYSE: BA) – Reported $1.13 vs. $1.01
Black & Decker (NYSE: BDK) – Reported $1.61. vs. $1.60
Baker Hughes (NYSE: BHI) – Reported $1.17 vs. $1.10
Colgate Palmolive (NYSE: CL) – Reported $0.77 vs. $0.77
General Dynamics (NYSE: GD) – Reported $1.07. vs. $1.05
Corning (NYSE: GLW) – Reported $0.28 vs. $0.26
Manor Care (NYSE: HCR) – Reported $0.67 vs. $0.65
Pepsico (NYSE: PEP) – Reported $0.65 vs. $0.61
Reynolds American (NYSE: RAI) – Reported $1.11. vs. $1.02
Silicon Labs (NASDAQ: SLAB) – Reported $0.19 vs. $0.16
T. Rowe Price (NASDAQ: TROW) – Reported $0.51 vs. $0.53
United Parcel Service (NYSE: UPS) – Reported $0.96 vs. $0.96

News, Upgrades/Downgrades/Brokerage Research:

McDonald’s (NYSE: MCD) – Price target increased at BofA
JetBlue Airways (NASDAQ: JBLU) – Downgraded at Bear Stearns
Whirlpool (NYSE: WHR) – Upgraded at Citigroup
Forest Labs (NYSE: FRX) – Downgraded at First Albany
Alcatel-Lucent (NYSE: ALU) – Upgraded at Goldman Sachs
Brinker Intl (NYSE: EAT) – Upgraded at JP Morgan
Canadian Pacific (NYSE: CP) – Upgraded at JP Morgan, Merrill Lynch
American Standard (NYSE: ASD) – Upgraded at Lehman
Burlington Northern (NYSE: BNI) – Downgraded at Prudential, Bear Stearns

Mr. Moenning holds Long positions in stocks mentioned: GS, COL, ATI, HCR

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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