David Moenning�s Daily State of the Markets: 06/06
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Talking Tough
Good morning. The bulls couldn�t catch a break yesterday. The day started off on a down note in response to tough talk out of Iran with regard to their nuclear program. This, of course, sent oil higher and stocks lower. But just about the time that stocks began to stabilize and it appeared that we might see a sideways drift for a while, Mr. Bernanke did some tough talking of his own on the subject of inflation.
Bernanke�s rather hawkish comments on inflation gave the bears a free pass and stocks finished with a loss of almost 200 points in a session that can best be described as ugly.
As part of a panel discussion with the ECB President and the Bank of Japan�s Deputy Governor, Bernanke first mentioned that slower job growth is consistent with a softer economy. The Fed Chairman went on to say that �moderation in economic growth is under way� and that consumer spending has �decelerated noticeably.� The data dependent crowd took these comments to mean that the Fed sees the economy slowing as a result of the previous 16 rate hikes.
However, it was Mr. Bernanke�s discussion of inflation that got traders riled up. He said that the Fed must anchor long-term inflation expectations and ensure that inflation remains in check. And while these comments didn�t really represent anything new, his suggestion that �the Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained� gave the hawks something to flap their wings about.
When one combines this statement from Mr. Bernanke with other recent comments from Fed officials, it is fairly easy to extrapolate that the Fed may be looking to continue to raise rates. And with this being one of the market�s primary fears, traders hit the sell button repeatedly and the bulls took a walk.
One analyst noted that the bulls may have finally grown tired of �fighting the Fed.� While it remains to be seen if yesterday�s decline will turn into anything more than an ugly afternoon, there is a distinct possibility that the bulls may have run out of gas here. With oil prices back over $72 and the Fed appearing intent on continuing to march merrily down their measured path, you can�t really blame our barnyard buddies for throwing up their hands (oops, I mean hooves) at the moment.
However, we should also point out that Mr. Bernanke�s tough talk on inflation is a requirement of his job. The Fed MUST appear to be intent on keeping inflation in check in order to maintain order in the bond market. Thus, one could also argue that yesterday�s discussion of �remaining vigilant� on the issue of inflation actually provides the Fed the flexibility to pause if the data warrants.
Turning to this morning, stocks were enjoying a solid bounce until we heard from another Fed official. St. Louis Fed President William Poole mentioned that the Fed should have an �upward bias� with regard to interest rates. Poole stated that if inflation does pick up, then a slowing economy alone is unlikely to keep inflation contained. And while these comments haven�t roiled the market, we do get the impression that the Fed is presenting a united front this week.
Running through the rest of the pre-game indicators, overseas markets are lower across the board. Oil futures are moving down this morning as a package of incentives is being delivered to Iran. Oil is currently trading down by $0.55 to $72.05. Gold is off by -$14.2 this morning to $634.50. Interest rates are moving up a bit with the 2-year currently trading at 5.00% while the 10-yr is quoted at 5.05% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a little higher. The Dow futures are currently up by 11 points; the S&Ps are ahead 1.90, while the NASDAQ is sporting a gain of about 2 points.
Stocks �In Play� This Morning:
Anglogold (AU) � Upgraded at Citigroup
Ericsson (ERICY) � Bernstein says decline is buying opportunity
Dollar General (DG) � Downgraded at Deutsche
Dollar Tree Stores (DLTR) � Downgraded at Deutsche
Petmed Express (PETS) � Will replace INM in S&P 600
Google (GOOG) � Will test web-based spreadsheet application
Boeing (BA) � Set to announce $1.5B order from CAL
Advanced Micro Devices (AMD) � Expects 2% market share gain by year-end
Intl Bus Machines (IBM) � Will triple investment in India
Korn Ferry Intl (KFY) � Reports $0.31 vs. $0.29
Hewlett Packard (HPQ) � Revises Q2 Earning per share higher
Motorola (MOT) � Mentioned positively at Bear Stearns
Positions in stocks mentioned: BSC
** 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.
Good morning. The bulls couldn�t catch a break yesterday. The day started off on a down note in response to tough talk out of Iran with regard to their nuclear program. This, of course, sent oil higher and stocks lower. But just about the time that stocks began to stabilize and it appeared that we might see a sideways drift for a while, Mr. Bernanke did some tough talking of his own on the subject of inflation.
Bernanke�s rather hawkish comments on inflation gave the bears a free pass and stocks finished with a loss of almost 200 points in a session that can best be described as ugly.
As part of a panel discussion with the ECB President and the Bank of Japan�s Deputy Governor, Bernanke first mentioned that slower job growth is consistent with a softer economy. The Fed Chairman went on to say that �moderation in economic growth is under way� and that consumer spending has �decelerated noticeably.� The data dependent crowd took these comments to mean that the Fed sees the economy slowing as a result of the previous 16 rate hikes.
However, it was Mr. Bernanke�s discussion of inflation that got traders riled up. He said that the Fed must anchor long-term inflation expectations and ensure that inflation remains in check. And while these comments didn�t really represent anything new, his suggestion that �the Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained� gave the hawks something to flap their wings about.
When one combines this statement from Mr. Bernanke with other recent comments from Fed officials, it is fairly easy to extrapolate that the Fed may be looking to continue to raise rates. And with this being one of the market�s primary fears, traders hit the sell button repeatedly and the bulls took a walk.
One analyst noted that the bulls may have finally grown tired of �fighting the Fed.� While it remains to be seen if yesterday�s decline will turn into anything more than an ugly afternoon, there is a distinct possibility that the bulls may have run out of gas here. With oil prices back over $72 and the Fed appearing intent on continuing to march merrily down their measured path, you can�t really blame our barnyard buddies for throwing up their hands (oops, I mean hooves) at the moment.
However, we should also point out that Mr. Bernanke�s tough talk on inflation is a requirement of his job. The Fed MUST appear to be intent on keeping inflation in check in order to maintain order in the bond market. Thus, one could also argue that yesterday�s discussion of �remaining vigilant� on the issue of inflation actually provides the Fed the flexibility to pause if the data warrants.
Turning to this morning, stocks were enjoying a solid bounce until we heard from another Fed official. St. Louis Fed President William Poole mentioned that the Fed should have an �upward bias� with regard to interest rates. Poole stated that if inflation does pick up, then a slowing economy alone is unlikely to keep inflation contained. And while these comments haven�t roiled the market, we do get the impression that the Fed is presenting a united front this week.
Running through the rest of the pre-game indicators, overseas markets are lower across the board. Oil futures are moving down this morning as a package of incentives is being delivered to Iran. Oil is currently trading down by $0.55 to $72.05. Gold is off by -$14.2 this morning to $634.50. Interest rates are moving up a bit with the 2-year currently trading at 5.00% while the 10-yr is quoted at 5.05% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a little higher. The Dow futures are currently up by 11 points; the S&Ps are ahead 1.90, while the NASDAQ is sporting a gain of about 2 points.
Stocks �In Play� This Morning:
Anglogold (AU) � Upgraded at Citigroup
Ericsson (ERICY) � Bernstein says decline is buying opportunity
Dollar General (DG) � Downgraded at Deutsche
Dollar Tree Stores (DLTR) � Downgraded at Deutsche
Petmed Express (PETS) � Will replace INM in S&P 600
Google (GOOG) � Will test web-based spreadsheet application
Boeing (BA) � Set to announce $1.5B order from CAL
Advanced Micro Devices (AMD) � Expects 2% market share gain by year-end
Intl Bus Machines (IBM) � Will triple investment in India
Korn Ferry Intl (KFY) � Reports $0.31 vs. $0.29
Hewlett Packard (HPQ) � Revises Q2 Earning per share higher
Motorola (MOT) � Mentioned positively at Bear Stearns
Positions in stocks mentioned: BSC
** 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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