David Moenning's Daily State of the Markets: 3/31

A Quarter's Worth of Problems


Here's a link to listen to an Audio Version of the report:

As the first quarter finally comes to a close today, most investors are probably anxious to turn the page and move on. The quarter's problems have been well documented and I probably don’t need to rehash them this morning. However, on Friday it was a problem totaling a quarter that created another day of difficulty.

In short, word from JC Penney (JCP) that their first quarter earnings were going to come in around $0.50 versus the Reuters Consensus of $0.75 gave investors reason to pause. It wasn't so much that JCP warned that earnings might come in a little light. No, it was the size of the expected miss – a quarter to be exact – that allowed the bears to do their thing.

Since everybody knows the economy is a little on the punk side these days, an announcement that a retailer was guiding down a few cents would have gone largely unnoticed. However, a miss of $0.25 is a horse of a different color as fears that the economy is worse than anyone has projected returned to the forefront.

With the Fed having effectively put a stop to the liquidity crisis and the government working on putting a floor under the housing market, the bulls have been arguing that we’ve seen the worst. So, why does one report from one retailer matter? After all, shouldn’t this type of news from a serial disappointer such as JCP already be baked in?

Unfortunately, we all need to care about this report - regardless of whether or not the symbol JCP can be found in your portfolio. And the reason is simple. JC Penney blamed weak consumer activity on their quarter's problems. And since the consumer is responsible for two-thirds of the country’s GDP, if the consumer is going to start spending less time at the mall, the economic slowdown could become worse than analysts have been expecting.

And frankly, any news showing the economy is worse than expected, gives the bears a fresh reason to get busy.

It also didn't help on Friday that Oppenheimer poured cold water on the idea that the financials may have turned the corner. Oppenheimer opined that the earnings from the big banks can't support the current level of dividend payouts. And since anyone still holding financials is probably doing so because of the dividend, well, you get the idea.

Turning to this morning, we don't have any economic data before the bell but we will get the Chicago Purchasing Managers report at 9:45. Then at 10:00 Hank Paulson will speak on the administration's plans to overhaul regulation of banks and financial markets. In addition, we will hear San Francisco Fed President Janet Yellen talk about foreclosures at noon eastern.

Running through the rest of the pre-game indicators; the foreign markets were lower across the board. Crude futures are moving down a bit on word that the pipeline in Iraq was not damaged. The latest quote shows crude off $0.41 to $105.21. Interest rates are moving down with the 10-yr trading at a yield of 3.43% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flattish. The Dow futures are currently ahead by about 10 points; the S&P's are up by about a point, while the NASDAQ looks to be about 7 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Schering Plough (NYSE: SGP) – Downgraded at Cowen, Goldman, Lehman
Google (Nasdaq: GOOG) – Target reduced from $625 to $600 at Citi
Mobile TeleSystems (NYSE: MBT) – Upgraded at Credit Suisse
Ryanair Holdings (RYAAY) – Removed from Conviction Buy list at Goldman
Philip Morris (NYSE: PM) – Initiated overweight at Lehman
Merck (NYSE: MRK) – Target reduced at Lehman
Boeing (NYSE: BA) – Target reduced at Lehman
Iron Mountain (NYSE: IRM) – Upgraded at Merrill
Vodafone (NYSE: VOD) – Downgraded at Morgan Stanley
BT Group (NYSE: BT) – Upgraded at Morgan Stanley
Las Vegas Sands (NYSE: LVS) – Target reduced at UBS

Mr. Moenning holds Long positions in stocks mentioned: MBT

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.


David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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