David Moenning�s Daily State of the Markets: 04/28
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Bernanke Brightens the Mood
Fed Chairman Ben Bernanke brightened what was beginning to look like a dark day on Wall Street yesterday. Stocks initially followed Europe�s lead lower on the heels of China�s unexpected rate hike (the announcement came after Asian markets had closed). The move reminded traders that more and more countries are joining the U.S. in a tightening mode and everybody knows that unless central banks are �removing excess accommodation,� rising rates are generally not a positive development for stock prices.
However, Mr. Bernanke put a spring in the bulls step by suggesting that the Fed is going to pause soon, perhaps after the May meeting. Traders had been looking for some kind of a hint as to when the Fed might call it a day, but the Fed Chairman�s testimony before Congress sounded more like a statement than a hint. This was music to the ears of the bullishly inclined since the markets had begun to fear that the recent strong economic news might keep the Fed on the measured path longer than anticipated.
In short, Bernanke�s testimony overshadowed all other issues on the day including earnings, oil, geopolitical concerns, and the Chinese rate increase. Stocks rebounded from a drop of -75 points on the Dow and the big caps finished the day in the plus column on strong volume. However, weakness in the oil patch kept the small caps and mid caps hamstrung.
Much of what the Chairman had to say was a rehash of prior FOMC statements. Mr. Bernanke said that the pace of economic growth has been strong, due, at least in part, to worker productivity gains. He suggested that the slack in jobs market was being used up and employment remains an area to watch closely. On the subject of energy prices, the Chairman said the higher oil remains a concern and poses a risk to both the economy and inflation. Bernanke reiterated that the current tightening cycle, which is now 22 months old, was designed to remove the excess accommodation that was put on earlier in the decade to combat economic weakness. He also reminded us that future monetary policy will remain dependent on the economic data and stressed the importance of employment and inflation.
The key point that the market locked in on were the words ��Even if in the Committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook." Mr. Bernanke went on to warn that the upcoming pause does not necessarily mean that the tightening cycle has ended and that the Fed must remain vigilant with regard to inflation. Traders took this to mean that the Fed is likely to pause soon and wait for more data before deciding to hike rates any further.
Turning to this morning, we�ve got some economic data to review, but it isn�t exactly the type of data that Mr. Bernanke was referring to yesterday. Everybody expected that the first quarter�s GDP numbers would be strong and many worried that the data might show an economy that is beginning to overheat. However, the report came in pretty close to expectations and was actually good news on the inflation front.
The Advanced Q1 GDP report (remember, the government will take two more cracks at this number before it is final) showed the economy grew by +4.8%, which was a bit below expectations of +4.9%. The GDP Price Index rose by +3.3%, which was much higher than the +2.7% consensus and is sure to cause some fretting about inflation. However, the Employment Cost Index should help offset those concerns as the numbers came in below expectations at +0.6% versus +0.9%.
Running through the rest of the pre-game indicators, overseas were markets are lower in both Asia and Europe this morning. Oil futures are currently trading up a smidge to $71.12. Natural Gas is trading lower by $0.04 to $6.84. Gold is moving up this morning to $641.60. Interest rates are little changed this morning with the 2-year currently trading at 4.90% and the 10-yr is at 5.09%. And finally, stock futures in the U.S. are pointing to a modestly lower open with the Dow futures down 15 points, the S&Ps are lower by -1.9 points, and the NASDAQ futures are down by -7.80.
Stocks �In Play� This Morning:
Microsoft (MSFT) � Reported $0.32 vs. $0.33, Revenues $10.9B vs. $11.04B, Downgraded at Morgan Stanley
Crown Castle (CCI) � Upgraded at Merrill
Southern Copper (PCU) � Upgraded at Bear Stearns
Affiliated Computer Services (ACS) � Downgraded at Citigroup
AMR Corp (AMR) � Mentioned cautiously in Barron�s
Tribune Co (TRB) � Business Week suggests company is cheap and takeover target
MPS Group (MPS) � Downgraded at Deutsche
Zimmer Holdings (ZMH) � Upgraded at Morgan Stanley and JMP Securities
Columbia Sportswear (COLM) � Reported $0.52 vs. $0.45, Revenues $260.2M vs. $249M
Gateway (GTW) � Reported $0.00 vs. $0.02, Revenues $2.62B vs. $2.71
KLA Tencor (KLAC) � Reported $0.63 vs. $0.56, Revenues $518.3M vs. $509.8M
Metlife (MET) � Reported $1.33 vs. $1.09, Revenues $11.59B vs. $12.19B, Raises guidance
Freeport McMoran (FCX) � Upgraded at UBS
Chevron (CVX) � Reported $1.80 vs. $1.78, Revenues $53.5B vs. $54.5
Taiwan Semiconductor (TSM) � Downgraded at Credit Suisse and AmTech
Legg Mason (LM) - Upgraded at Prudential
McAfee (MFE) - Upgraded at Prudential
Disclosure: Long positions in stocks mentioned: MER, BSC, ACS
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.
Fed Chairman Ben Bernanke brightened what was beginning to look like a dark day on Wall Street yesterday. Stocks initially followed Europe�s lead lower on the heels of China�s unexpected rate hike (the announcement came after Asian markets had closed). The move reminded traders that more and more countries are joining the U.S. in a tightening mode and everybody knows that unless central banks are �removing excess accommodation,� rising rates are generally not a positive development for stock prices.
However, Mr. Bernanke put a spring in the bulls step by suggesting that the Fed is going to pause soon, perhaps after the May meeting. Traders had been looking for some kind of a hint as to when the Fed might call it a day, but the Fed Chairman�s testimony before Congress sounded more like a statement than a hint. This was music to the ears of the bullishly inclined since the markets had begun to fear that the recent strong economic news might keep the Fed on the measured path longer than anticipated.
In short, Bernanke�s testimony overshadowed all other issues on the day including earnings, oil, geopolitical concerns, and the Chinese rate increase. Stocks rebounded from a drop of -75 points on the Dow and the big caps finished the day in the plus column on strong volume. However, weakness in the oil patch kept the small caps and mid caps hamstrung.
Much of what the Chairman had to say was a rehash of prior FOMC statements. Mr. Bernanke said that the pace of economic growth has been strong, due, at least in part, to worker productivity gains. He suggested that the slack in jobs market was being used up and employment remains an area to watch closely. On the subject of energy prices, the Chairman said the higher oil remains a concern and poses a risk to both the economy and inflation. Bernanke reiterated that the current tightening cycle, which is now 22 months old, was designed to remove the excess accommodation that was put on earlier in the decade to combat economic weakness. He also reminded us that future monetary policy will remain dependent on the economic data and stressed the importance of employment and inflation.
The key point that the market locked in on were the words ��Even if in the Committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook." Mr. Bernanke went on to warn that the upcoming pause does not necessarily mean that the tightening cycle has ended and that the Fed must remain vigilant with regard to inflation. Traders took this to mean that the Fed is likely to pause soon and wait for more data before deciding to hike rates any further.
Turning to this morning, we�ve got some economic data to review, but it isn�t exactly the type of data that Mr. Bernanke was referring to yesterday. Everybody expected that the first quarter�s GDP numbers would be strong and many worried that the data might show an economy that is beginning to overheat. However, the report came in pretty close to expectations and was actually good news on the inflation front.
The Advanced Q1 GDP report (remember, the government will take two more cracks at this number before it is final) showed the economy grew by +4.8%, which was a bit below expectations of +4.9%. The GDP Price Index rose by +3.3%, which was much higher than the +2.7% consensus and is sure to cause some fretting about inflation. However, the Employment Cost Index should help offset those concerns as the numbers came in below expectations at +0.6% versus +0.9%.
Running through the rest of the pre-game indicators, overseas were markets are lower in both Asia and Europe this morning. Oil futures are currently trading up a smidge to $71.12. Natural Gas is trading lower by $0.04 to $6.84. Gold is moving up this morning to $641.60. Interest rates are little changed this morning with the 2-year currently trading at 4.90% and the 10-yr is at 5.09%. And finally, stock futures in the U.S. are pointing to a modestly lower open with the Dow futures down 15 points, the S&Ps are lower by -1.9 points, and the NASDAQ futures are down by -7.80.
Stocks �In Play� This Morning:
Microsoft (MSFT) � Reported $0.32 vs. $0.33, Revenues $10.9B vs. $11.04B, Downgraded at Morgan Stanley
Crown Castle (CCI) � Upgraded at Merrill
Southern Copper (PCU) � Upgraded at Bear Stearns
Affiliated Computer Services (ACS) � Downgraded at Citigroup
AMR Corp (AMR) � Mentioned cautiously in Barron�s
Tribune Co (TRB) � Business Week suggests company is cheap and takeover target
MPS Group (MPS) � Downgraded at Deutsche
Zimmer Holdings (ZMH) � Upgraded at Morgan Stanley and JMP Securities
Columbia Sportswear (COLM) � Reported $0.52 vs. $0.45, Revenues $260.2M vs. $249M
Gateway (GTW) � Reported $0.00 vs. $0.02, Revenues $2.62B vs. $2.71
KLA Tencor (KLAC) � Reported $0.63 vs. $0.56, Revenues $518.3M vs. $509.8M
Metlife (MET) � Reported $1.33 vs. $1.09, Revenues $11.59B vs. $12.19B, Raises guidance
Freeport McMoran (FCX) � Upgraded at UBS
Chevron (CVX) � Reported $1.80 vs. $1.78, Revenues $53.5B vs. $54.5
Taiwan Semiconductor (TSM) � Downgraded at Credit Suisse and AmTech
Legg Mason (LM) - Upgraded at Prudential
McAfee (MFE) - Upgraded at Prudential
Disclosure: Long positions in stocks mentioned: MER, BSC, ACS
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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