David Moenning's Daily State of the Markets: 09/07
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All About a Rate Cut
Stocks rallied Thursday as it is beginning to look like a rate cut is in the cards later this month. While there is intense debate on the topic of whether or not Mr. Bernanke and Co. should be dropping the Fed Funds rate on September 18th, yesterday’s combination of economic data and comments from Fed Governors Poole and Fisher suggest lower rates are on the way.
Those hoping for a cut in Fed Funds rate are looking for data suggesting that the economy is weakening some, but not too much, and data showing that inflation remains in check. And in short, this is the type of scenario the data has been pointing toward this week.
For example, the Mortgage Bankers Association told us yesterday that the number of homeowners who have had the foreclosure process initiated against them reached a record level in the second quarter. And with nearly 2 million adjustable rate mortgages due to reset to higher rates in the next year alone, the fact that credit conditions have tightened means that mortgage delinquency and foreclosure rates are probably going to continue to climb.
On the other hand, better-than expected sales numbers from some of the nation’s biggest retailers, including Wal-Mart and Target, as well as the ISM Non-Manufacturing Business Index, which came in above expectations, suggest that the economy is doing just fine.
But tipping the scales in favor of a rate cut were comments from St. Louis Fed President William Poole and Dallas Fed President Richard Fisher, who by the way, hasn’t mentioned anything relating to baseball in quite some time. Just before lunchtime, William Poole said in a speech in London that the probability of a recession in the U.S. is higher than it used to be. And while he admitted that the Fed doesn’t yet know the effect of the turmoil on the economy, the Fed expects to reach a judgment on the chances of a recession shortly. Richard Fisher then said later that inflationary pressures are “increasingly well behaved” and that the Fed is “listening carefully” to business conditions.
Reading between the lines of these two statements, it would appear that Poole, who has been an opponent of cutting rates, was making the case that the economy is at risk while Fisher reminded us that inflation doesn’t seem to be much of a problem. Thus, one could argue that these two comments lay the groundwork for a rate cut on the 18th.
The market’s biggest fear at the present time is that Gentle Ben will fall behind the curve with regard to the credit crisis and the mess in mortgages. The thinking is that if the Fed does not cut rates soon in a pre-emptive fashion, the housing market will continue to weaken and the chances for an economic spiral would increase dramatically.
Turning to this morning, we’ve got the big Kahuna of economic numbers – the Employment Report on tap, so let’s get to it. In short, the Jobs report was a shocker. The Labor Department reported that the economy actually lost 4,000 jobs in August, which was the first monthly decline in jobs in 4 years and was obviously well below expectations for an increase of 100,000. In addition, the numbers for both June and July were revised lower, which cut another 81,000 jobs. The Unemployment Rate came in at 4.6%, which was in-line with estimates.
As expected, equities are diving on the news as the report suggests that the economy was much weaker than previously thought before the credit crisis began.
Running through the rest of the pre-game indicators, the overseas markets were once again lower overnight. Crude futures are off by -$0.15 with the latest quote at $76.40. Interest rates are moving lower on the jobs number and the 10-yr is trading at a yield of 4.44% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 90 points; the S&Ps are down by more than 10 points, and the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Bear Stearns (NYSE: BSC) – Downgraded at BofA
Fifth Third Bancorp (Nasdaq: FITB) – Upgraded at Bernstein
Nabors Industries (NYSE: NBR) – Upgraded at Bernstein
Patterson UTI Energy (Nasdaq: PTEN) – Upgraded at Bernstein
Wyeth (NYSE: WYE) – Downgraded at Citi
Occidental Petroleum (NYSE: OXY) – Upgraded at Deutsche Bank
Federated Investors (NYSE: FII) – Upgraded at JP Morgan
Omnicare (NYSE: OCR) – Downgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: None
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.
Stocks rallied Thursday as it is beginning to look like a rate cut is in the cards later this month. While there is intense debate on the topic of whether or not Mr. Bernanke and Co. should be dropping the Fed Funds rate on September 18th, yesterday’s combination of economic data and comments from Fed Governors Poole and Fisher suggest lower rates are on the way.
Those hoping for a cut in Fed Funds rate are looking for data suggesting that the economy is weakening some, but not too much, and data showing that inflation remains in check. And in short, this is the type of scenario the data has been pointing toward this week.
For example, the Mortgage Bankers Association told us yesterday that the number of homeowners who have had the foreclosure process initiated against them reached a record level in the second quarter. And with nearly 2 million adjustable rate mortgages due to reset to higher rates in the next year alone, the fact that credit conditions have tightened means that mortgage delinquency and foreclosure rates are probably going to continue to climb.
On the other hand, better-than expected sales numbers from some of the nation’s biggest retailers, including Wal-Mart and Target, as well as the ISM Non-Manufacturing Business Index, which came in above expectations, suggest that the economy is doing just fine.
But tipping the scales in favor of a rate cut were comments from St. Louis Fed President William Poole and Dallas Fed President Richard Fisher, who by the way, hasn’t mentioned anything relating to baseball in quite some time. Just before lunchtime, William Poole said in a speech in London that the probability of a recession in the U.S. is higher than it used to be. And while he admitted that the Fed doesn’t yet know the effect of the turmoil on the economy, the Fed expects to reach a judgment on the chances of a recession shortly. Richard Fisher then said later that inflationary pressures are “increasingly well behaved” and that the Fed is “listening carefully” to business conditions.
Reading between the lines of these two statements, it would appear that Poole, who has been an opponent of cutting rates, was making the case that the economy is at risk while Fisher reminded us that inflation doesn’t seem to be much of a problem. Thus, one could argue that these two comments lay the groundwork for a rate cut on the 18th.
The market’s biggest fear at the present time is that Gentle Ben will fall behind the curve with regard to the credit crisis and the mess in mortgages. The thinking is that if the Fed does not cut rates soon in a pre-emptive fashion, the housing market will continue to weaken and the chances for an economic spiral would increase dramatically.
Turning to this morning, we’ve got the big Kahuna of economic numbers – the Employment Report on tap, so let’s get to it. In short, the Jobs report was a shocker. The Labor Department reported that the economy actually lost 4,000 jobs in August, which was the first monthly decline in jobs in 4 years and was obviously well below expectations for an increase of 100,000. In addition, the numbers for both June and July were revised lower, which cut another 81,000 jobs. The Unemployment Rate came in at 4.6%, which was in-line with estimates.
As expected, equities are diving on the news as the report suggests that the economy was much weaker than previously thought before the credit crisis began.
Running through the rest of the pre-game indicators, the overseas markets were once again lower overnight. Crude futures are off by -$0.15 with the latest quote at $76.40. Interest rates are moving lower on the jobs number and the 10-yr is trading at a yield of 4.44% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 90 points; the S&Ps are down by more than 10 points, and the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Bear Stearns (NYSE: BSC) – Downgraded at BofA
Fifth Third Bancorp (Nasdaq: FITB) – Upgraded at Bernstein
Nabors Industries (NYSE: NBR) – Upgraded at Bernstein
Patterson UTI Energy (Nasdaq: PTEN) – Upgraded at Bernstein
Wyeth (NYSE: WYE) – Downgraded at Citi
Occidental Petroleum (NYSE: OXY) – Upgraded at Deutsche Bank
Federated Investors (NYSE: FII) – Upgraded at JP Morgan
Omnicare (NYSE: OCR) – Downgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: None
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.
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