David Moenning�s Daily State of the Markets: 03/08
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All About Bonds
As stocks continue to struggle with interest rates and the outlook for the economy, it is important to remember that the reason for January�s outsized gains was the view that the Fed was about to end their hike down the measured path. However, since then, that view has been called into question and until traders can get some clarity as to how far rates are going to rise, a choppy market is about all one can hope for.
Tuesday�s trading was once again dictated by movements in the bond pits. Sure, the crummy update from Texas Instruments had an impact (and not the good kind) on the technology sector, but in the bigger picture, it was all about bonds. As we detailed yesterday, the fear is that higher global rates will lead to higher rates and more inflation here in the U.S., which, in turn, will put pressure on the economy. And then there�s the issue of the inverted yield curve, which by itself hasn�t always led to a recession, but it HAS usually preceded a slowdown in the economy.
Speaking of the economy, yesterday�s economic data was uninspiring and also caused some concern about the strength of the economy going forward. Worker productivity was revised up a smidge, but was well below expectations and remained at the weakest level since the first quarter of 2001. And for the calendar year 2005, Unit Labor Costs grew by 2.6%, which was the most in five years. So when you do the market math of lower productivity, higher costs for labor, and rising interest rates both here and abroad, it�s tough to stay overly bullish on stocks or bonds.
However, at the end of the day, things did not appear all that bad. St. Louis Fed President William Poole, who, by the way, is not a voting member of the FOMC this year, gave the bond market a boost with some hawkish comments. Mr. Poole said that, �Should we get the data in coming months that are consistently strong, particularly if there are substantial upside surprises, then that says we�re going to have to step a little harder on the brakes.� This statement makes it clear that the Fed will not hesitate to become more aggressive with rate hikes should the pace of the economy continue strong or if the rate of inflation ticks higher.
Bonds rallied in response and helped push the DJIA into positive territory on the day. While traders were busy taking the leaders out behind the woodshed in response to China making noise about having enough of just about everything, there was a bit of a shift to some of the Dow�s more stodgy defensive names. In addition, the banking sector benefited from rising rates on the long end of the curve and the view that rates may rise further. And although the yield curve remains inverted, rising long-term rates help banks� bottom lines.
Turning to this morning, there is no economic data due for release before the bell, or during the day for that matter. Stocks are looking lower before the bell without any real impetus other than some confusion on Google�s outlook.
Traders will be watching oil as the weekly inventory numbers are due out at 10:00 a.m. and OPEC is meeting in Vienna. The discussions from the meetings so far suggests that while some OPEC members fear a price drop if production levels are maintained, the cartel is unlikely to make any official changes to production levels at this time. In addition, there is a Reuters report that the U.N Security Council is likely to demand a halt to Iran�s nuclear activity or �face consequences.�
Running through the pre-market indicators an hour before the bell, overseas markets are lower across the board by sizable amounts. Oil futures are moving lower this morning with crude currently trading -$0.43 to $61.15. Natural Gas is quoted down by -$0.05 at $6.63 right now. Gold futures are getting crunched -$7.60 to $546.90. Bond yields holding steady this morning with the 2-yr yield currently quoted at 4.74% while the 10-yr is at 4.73%. And finally, stock futures in the U.S. are pointing lower at the moment with the Dow currently -29, the S&Ps are -4.40, and the NASDAQ is lower by -9.
Stocks "In Play" This Morning:
ALL � PRU to purchase ALL�s VA unit for $580.5M
WAG � Barron�s says WAG should outperform competitors
GOOG � Says recent projections were inadvertent and company policy of no guidance intact
MATK � Reports $0.18 vs. $0.13 Revenues of $62.9M vs. 59.6M, Raises guidance
CVS � Added to Credit Suisse Focus List
MOT � DigiTimes reports company launched 3G RAZR V3x in Taiwan
FRK � Will replace IMDC in S&P Mid Cap 400 Index
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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.
As stocks continue to struggle with interest rates and the outlook for the economy, it is important to remember that the reason for January�s outsized gains was the view that the Fed was about to end their hike down the measured path. However, since then, that view has been called into question and until traders can get some clarity as to how far rates are going to rise, a choppy market is about all one can hope for.
Tuesday�s trading was once again dictated by movements in the bond pits. Sure, the crummy update from Texas Instruments had an impact (and not the good kind) on the technology sector, but in the bigger picture, it was all about bonds. As we detailed yesterday, the fear is that higher global rates will lead to higher rates and more inflation here in the U.S., which, in turn, will put pressure on the economy. And then there�s the issue of the inverted yield curve, which by itself hasn�t always led to a recession, but it HAS usually preceded a slowdown in the economy.
Speaking of the economy, yesterday�s economic data was uninspiring and also caused some concern about the strength of the economy going forward. Worker productivity was revised up a smidge, but was well below expectations and remained at the weakest level since the first quarter of 2001. And for the calendar year 2005, Unit Labor Costs grew by 2.6%, which was the most in five years. So when you do the market math of lower productivity, higher costs for labor, and rising interest rates both here and abroad, it�s tough to stay overly bullish on stocks or bonds.
However, at the end of the day, things did not appear all that bad. St. Louis Fed President William Poole, who, by the way, is not a voting member of the FOMC this year, gave the bond market a boost with some hawkish comments. Mr. Poole said that, �Should we get the data in coming months that are consistently strong, particularly if there are substantial upside surprises, then that says we�re going to have to step a little harder on the brakes.� This statement makes it clear that the Fed will not hesitate to become more aggressive with rate hikes should the pace of the economy continue strong or if the rate of inflation ticks higher.
Bonds rallied in response and helped push the DJIA into positive territory on the day. While traders were busy taking the leaders out behind the woodshed in response to China making noise about having enough of just about everything, there was a bit of a shift to some of the Dow�s more stodgy defensive names. In addition, the banking sector benefited from rising rates on the long end of the curve and the view that rates may rise further. And although the yield curve remains inverted, rising long-term rates help banks� bottom lines.
Turning to this morning, there is no economic data due for release before the bell, or during the day for that matter. Stocks are looking lower before the bell without any real impetus other than some confusion on Google�s outlook.
Traders will be watching oil as the weekly inventory numbers are due out at 10:00 a.m. and OPEC is meeting in Vienna. The discussions from the meetings so far suggests that while some OPEC members fear a price drop if production levels are maintained, the cartel is unlikely to make any official changes to production levels at this time. In addition, there is a Reuters report that the U.N Security Council is likely to demand a halt to Iran�s nuclear activity or �face consequences.�
Running through the pre-market indicators an hour before the bell, overseas markets are lower across the board by sizable amounts. Oil futures are moving lower this morning with crude currently trading -$0.43 to $61.15. Natural Gas is quoted down by -$0.05 at $6.63 right now. Gold futures are getting crunched -$7.60 to $546.90. Bond yields holding steady this morning with the 2-yr yield currently quoted at 4.74% while the 10-yr is at 4.73%. And finally, stock futures in the U.S. are pointing lower at the moment with the Dow currently -29, the S&Ps are -4.40, and the NASDAQ is lower by -9.
Stocks "In Play" This Morning:
ALL � PRU to purchase ALL�s VA unit for $580.5M
WAG � Barron�s says WAG should outperform competitors
GOOG � Says recent projections were inadvertent and company policy of no guidance intact
MATK � Reports $0.18 vs. $0.13 Revenues of $62.9M vs. 59.6M, Raises guidance
CVS � Added to Credit Suisse Focus List
MOT � DigiTimes reports company launched 3G RAZR V3x in Taiwan
FRK � Will replace IMDC in S&P Mid Cap 400 Index
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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