David Moenning Daily State of the Markets: 01/04
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Fed Trumps Oil (For Now, Anyway)
If the first session of the year is a precursor, we may be in for a wild ride in 2006. Stocks opened higher on strong overseas action and it looked like the feared January selling might not happen this year. However, it didn�t take long for traders to note that oil was moving up again and, as has been the pattern for quite some time now, stocks once again succumbed to selling pressure.
With the DJIA quickly in the red after just an hour of trading, fears of another �January Defect� were on the rise. But then at 10:00 a.m. traders finally got some economic data to chew on and provide direction.
Frankly, the ISM Index was a bit of a disappointment as the index fell 3.9 points to 54.2 in December. While not a huge decline, the result was below the consensus expectation for 57.2 and basically indicated a slowdown in manufacturing growth. One might have expected stocks to drop on the news, but actually the opposite occurred on account of the fact that the Prices Paid component (an indicator of inflation) dropped a whopping 11 points. Add in November�s big drop in prices and you get the first back-to-back double-digit decline since 1957!
The good news on the inflation front was enough to pull the bulls up off of the mat, but with the Fed minutes looming, the match quickly became a stalemate. However, the sideways action became a romp higher once the minutes from the December 13th Fed meeting were released.
The minutes indicated that FOMC members thought their policy outlook was becoming considerably less certain (a good thing) and that policy decisions going forward would depend more and more on incoming economic data. But the key to the statement was the members believed that "the number of additional firming steps required probably would not be large." This, of course, is Fed-speak for �we�re about done here.�
Almost immediately, stocks celebrated the idea that the Fed was about ready to call it a day, and within an hour of the report, the Dow was enjoying a triple-digit gain. The sigh of relief rally caught on across the board, and despite the fact that oil prices soared $1.96 to $63.14, stocks finished up strong on heavy volume. So for one day at least, the Fed�s news trumped oil prices.
In addition, the good inflation news uninverted (is that a word?) the yield curve. With less concern about inflation going forward, bond traders bought the short-end of the curve and some normalcy returned. The yield on the 2-yr finished at 4.33% while the 10-yr closed at 4.37%. So for now at least, the fears of an inverted yield-curve can be moved to the back burner.
Turning to this morning, unlike yesterday�s hysterics, things appear pretty quiet in the early going. There is no economic news before the bell, although we will reports on Vehicle Sales and Factory Orders later this morning.
Running down the morning indicators, overseas markets are higher across the board on the Fed news here in the U.S. Gold continues to march higher by $2.20 to $534.70. If the yellow metal finishes on an up note, it would be the 8th straight day of gains. Crude oil is dropping this morning on lower demand for heating oil. Oil futures are currently trading lower by -$0.79 to $62.75. Natural Gas is continuing its dive on the warmer weather and is down -$0.506 to $10.12. Bonds are little changed with the yield on the 10-yr at 4.36%, while the 2-yr is at 4.31%. And finally, stock futures are a little weak at the moment (Dow -11, S&P -0.60, and NASDAQ +1).
Stocks "In Play" This Morning:
BR � Downgraded to Hold at Jeffries
LOW � Downgraded to neutral at JP Morgan
C � Downgraded to neutral at Banc of America
IBM � Banc of America concerned about Q4 bookings
LUV � Reported December loads up 7.5% from last year
XLNX � Estimates raised at AmTech
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: IBM
To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI
If the first session of the year is a precursor, we may be in for a wild ride in 2006. Stocks opened higher on strong overseas action and it looked like the feared January selling might not happen this year. However, it didn�t take long for traders to note that oil was moving up again and, as has been the pattern for quite some time now, stocks once again succumbed to selling pressure.
With the DJIA quickly in the red after just an hour of trading, fears of another �January Defect� were on the rise. But then at 10:00 a.m. traders finally got some economic data to chew on and provide direction.
Frankly, the ISM Index was a bit of a disappointment as the index fell 3.9 points to 54.2 in December. While not a huge decline, the result was below the consensus expectation for 57.2 and basically indicated a slowdown in manufacturing growth. One might have expected stocks to drop on the news, but actually the opposite occurred on account of the fact that the Prices Paid component (an indicator of inflation) dropped a whopping 11 points. Add in November�s big drop in prices and you get the first back-to-back double-digit decline since 1957!
The good news on the inflation front was enough to pull the bulls up off of the mat, but with the Fed minutes looming, the match quickly became a stalemate. However, the sideways action became a romp higher once the minutes from the December 13th Fed meeting were released.
The minutes indicated that FOMC members thought their policy outlook was becoming considerably less certain (a good thing) and that policy decisions going forward would depend more and more on incoming economic data. But the key to the statement was the members believed that "the number of additional firming steps required probably would not be large." This, of course, is Fed-speak for �we�re about done here.�
Almost immediately, stocks celebrated the idea that the Fed was about ready to call it a day, and within an hour of the report, the Dow was enjoying a triple-digit gain. The sigh of relief rally caught on across the board, and despite the fact that oil prices soared $1.96 to $63.14, stocks finished up strong on heavy volume. So for one day at least, the Fed�s news trumped oil prices.
In addition, the good inflation news uninverted (is that a word?) the yield curve. With less concern about inflation going forward, bond traders bought the short-end of the curve and some normalcy returned. The yield on the 2-yr finished at 4.33% while the 10-yr closed at 4.37%. So for now at least, the fears of an inverted yield-curve can be moved to the back burner.
Turning to this morning, unlike yesterday�s hysterics, things appear pretty quiet in the early going. There is no economic news before the bell, although we will reports on Vehicle Sales and Factory Orders later this morning.
Running down the morning indicators, overseas markets are higher across the board on the Fed news here in the U.S. Gold continues to march higher by $2.20 to $534.70. If the yellow metal finishes on an up note, it would be the 8th straight day of gains. Crude oil is dropping this morning on lower demand for heating oil. Oil futures are currently trading lower by -$0.79 to $62.75. Natural Gas is continuing its dive on the warmer weather and is down -$0.506 to $10.12. Bonds are little changed with the yield on the 10-yr at 4.36%, while the 2-yr is at 4.31%. And finally, stock futures are a little weak at the moment (Dow -11, S&P -0.60, and NASDAQ +1).
Stocks "In Play" This Morning:
BR � Downgraded to Hold at Jeffries
LOW � Downgraded to neutral at JP Morgan
C � Downgraded to neutral at Banc of America
IBM � Banc of America concerned about Q4 bookings
LUV � Reported December loads up 7.5% from last year
XLNX � Estimates raised at AmTech
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: IBM
To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI
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