David Moenning's Daily State of the Markets 01/18
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Forget About the Fed
Good morning. For the past three years, investors have lived in constant fear of the Fed. More specifically, as each meeting of the FOMC approached, there was a great deal of trepidation as to what Mr. Bernanke would do and say. For a long time, the question on everyone�s mind was: Would they go too far? But last summer, Gentle Ben put those fears to rest when he ended the long hiking campaign.
However, even after spending many months �on hold,� a large contingent of investors remain concerned that the Fed is going to get up off the porch and head back out on the hiking trail. While this is unlikely to occur, Mr. Bernanke�s crew continues to feel it is important to �talk tough� whenever possible on the subject of inflation.
On the other side of the aisle, there has been another camp that has been calling for the Fed to go the other way and actually cut rates. This group has been concerned about the growth rate in the economy and the negative effects of the slowdown in housing. And in reality, history is on their side as the Fed has a record of cutting rates, on average, six months after the end of a rate hike campaign.
However, it�s probably time to just forget about the Fed for a while. The recent data, including yesterday�s stronger-than expected PPI numbers, clearly shows that the economy is neither in dire straits nor in any need of a Fed rescue. In addition, while the Fed can talk tough until the cows come home, unless wage pressures pick up pretty dramatically, there doesn�t appear to be a strong argument for any further rate hikes right now. Yes, the economy is looking a bit stronger than expected. But at least at this juncture, things are not hot enough to warrant further tightenings.
In short, this leaves the Fed on hold for the foreseeable future. And as such, it appears that stocks have stopped hanging on every word Fed officials mutter. For example, the markets barely acknowledged Janet Yellen�s remarks about �upside risks to inflation� yesterday. And the reaction to the Fed�s Beige Book was referred to as �muted.�
So, with the Fed out of the picture, where should we focus our attention? Well, since it�s earnings season and there seems to be some question as to the outcome of current quarter, we might suggest spending some time perusing the quarterly results from the big boys. And while it�s still early in the game, the results from the tech sector are less than inspiring. Intel, for example, disappointed the street and fell more than 5% during yesterday�s session.
Turning to this morning, we�ve got another big batch of economic data to digest today. This morning, the CPI numbers were about as expected. The CPI came in with a gain of +0.5%, which was a tenth higher than some estimates and dead on with others. The Core Rate of inflation last month increased by +0.2%, which was in line with expectations. And on a year-over-year basis, the Core Rate stands at 2.6%, which, while higher than the Fed would prefer, is down from the recent high of 2.9%.
The report on Housing Starts should put a final nail in the coffin of any easing hopes as both Housing Starts and Building Permits came in higher than expected.
Market reaction has been mixed by asset class. While the bond market is sinking on the news, stocks have inched a little higher.
Running through the rest of the pre-game indicators, the foreign markets were higher across the board overnight. Gold futures are a smidge lower this morning with the last trade off $0.30 to $632.00. In the oil pits, crude futures are doing little with the latest quote showing the February futures contract up $0.02 to $52.26. As we mentioned, interest rates are moving back up this morning on the CPI and Housing data and the 10-year is currently trading with a 4.80% yield. And finally, with 45 minutes before the bell, stock futures in the U.S. are looking a little higher. The Dow futures are currently ahead by 23 points; the S&P�s are 2.0 above board, while the NASDAQ looks to be about 3 points below fair value at the moment as traders are not overly thrilled with Apple�s report this morning.
Stocks �In Play� This Morning:
Merrill Lynch (MER) � Reported $2.41 vs. $1.92
Int�l Game Tech (IGT) � Reported $0.35 vs. $0.35
Apple Inc (AAPL) � Reported $1.14 vs. $0.78, Downgraded at Bear Stearns, JP Morgan, JMP Securities
Bank of New York (BK) � Reported $0.58 vs. $0.55
Harley Davidson (HOG) � Reported $0.97 vs. $0.96
Lam Research (LRCX) � Downgraded at Bear Stearns, CIBC Capital Mkts
Sirius Satellite Radio (SIRI) � Upgraded at Bear Stearns
Electronic Arts (ERTS) � Upgraded at Citigroup
Intuit (INTU) � Upgraded at Citigroup
Safeco (SAF) � Downgraded at Friedman, Billings
Target (TGT) � Mentioned positively at Goldman Sachs
Avalon Bay (AVB) � Upgraded at Goldman Sachs
JC Penney (JCP) � Upgraded at JP Morgan
Sovereign Bancorp (SOV) � Downgraded at Merrill Lynch
Pactiv (PTV) � Downgraded at Morgan Stanley
Avaya (AV) � Downgraded at UBS
Disclosure: Long positions is stocks mentioned: GS, BSC, MER, MS, IGT
** 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. For the past three years, investors have lived in constant fear of the Fed. More specifically, as each meeting of the FOMC approached, there was a great deal of trepidation as to what Mr. Bernanke would do and say. For a long time, the question on everyone�s mind was: Would they go too far? But last summer, Gentle Ben put those fears to rest when he ended the long hiking campaign.
However, even after spending many months �on hold,� a large contingent of investors remain concerned that the Fed is going to get up off the porch and head back out on the hiking trail. While this is unlikely to occur, Mr. Bernanke�s crew continues to feel it is important to �talk tough� whenever possible on the subject of inflation.
On the other side of the aisle, there has been another camp that has been calling for the Fed to go the other way and actually cut rates. This group has been concerned about the growth rate in the economy and the negative effects of the slowdown in housing. And in reality, history is on their side as the Fed has a record of cutting rates, on average, six months after the end of a rate hike campaign.
However, it�s probably time to just forget about the Fed for a while. The recent data, including yesterday�s stronger-than expected PPI numbers, clearly shows that the economy is neither in dire straits nor in any need of a Fed rescue. In addition, while the Fed can talk tough until the cows come home, unless wage pressures pick up pretty dramatically, there doesn�t appear to be a strong argument for any further rate hikes right now. Yes, the economy is looking a bit stronger than expected. But at least at this juncture, things are not hot enough to warrant further tightenings.
In short, this leaves the Fed on hold for the foreseeable future. And as such, it appears that stocks have stopped hanging on every word Fed officials mutter. For example, the markets barely acknowledged Janet Yellen�s remarks about �upside risks to inflation� yesterday. And the reaction to the Fed�s Beige Book was referred to as �muted.�
So, with the Fed out of the picture, where should we focus our attention? Well, since it�s earnings season and there seems to be some question as to the outcome of current quarter, we might suggest spending some time perusing the quarterly results from the big boys. And while it�s still early in the game, the results from the tech sector are less than inspiring. Intel, for example, disappointed the street and fell more than 5% during yesterday�s session.
Turning to this morning, we�ve got another big batch of economic data to digest today. This morning, the CPI numbers were about as expected. The CPI came in with a gain of +0.5%, which was a tenth higher than some estimates and dead on with others. The Core Rate of inflation last month increased by +0.2%, which was in line with expectations. And on a year-over-year basis, the Core Rate stands at 2.6%, which, while higher than the Fed would prefer, is down from the recent high of 2.9%.
The report on Housing Starts should put a final nail in the coffin of any easing hopes as both Housing Starts and Building Permits came in higher than expected.
Market reaction has been mixed by asset class. While the bond market is sinking on the news, stocks have inched a little higher.
Running through the rest of the pre-game indicators, the foreign markets were higher across the board overnight. Gold futures are a smidge lower this morning with the last trade off $0.30 to $632.00. In the oil pits, crude futures are doing little with the latest quote showing the February futures contract up $0.02 to $52.26. As we mentioned, interest rates are moving back up this morning on the CPI and Housing data and the 10-year is currently trading with a 4.80% yield. And finally, with 45 minutes before the bell, stock futures in the U.S. are looking a little higher. The Dow futures are currently ahead by 23 points; the S&P�s are 2.0 above board, while the NASDAQ looks to be about 3 points below fair value at the moment as traders are not overly thrilled with Apple�s report this morning.
Stocks �In Play� This Morning:
Merrill Lynch (MER) � Reported $2.41 vs. $1.92
Int�l Game Tech (IGT) � Reported $0.35 vs. $0.35
Apple Inc (AAPL) � Reported $1.14 vs. $0.78, Downgraded at Bear Stearns, JP Morgan, JMP Securities
Bank of New York (BK) � Reported $0.58 vs. $0.55
Harley Davidson (HOG) � Reported $0.97 vs. $0.96
Lam Research (LRCX) � Downgraded at Bear Stearns, CIBC Capital Mkts
Sirius Satellite Radio (SIRI) � Upgraded at Bear Stearns
Electronic Arts (ERTS) � Upgraded at Citigroup
Intuit (INTU) � Upgraded at Citigroup
Safeco (SAF) � Downgraded at Friedman, Billings
Target (TGT) � Mentioned positively at Goldman Sachs
Avalon Bay (AVB) � Upgraded at Goldman Sachs
JC Penney (JCP) � Upgraded at JP Morgan
Sovereign Bancorp (SOV) � Downgraded at Merrill Lynch
Pactiv (PTV) � Downgraded at Morgan Stanley
Avaya (AV) � Downgraded at UBS
Disclosure: Long positions is stocks mentioned: GS, BSC, MER, MS, IGT
** 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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