David Moenning's Daily State of the Markets 03/16

M&A Carries the Day (But For How Long?)

Good morning. M&A carried the day on Thursday as traders were encouraged by the slate of deals making headlines. The upbeat mood helped the indices overcome several punk economic reports and pushed the Dow higher for a second straight day. However, the pressing question now becomes: With so many economic concerns these days, how long can M&A alone continue to carry the load?

While there were green screens at the close, yesterday’s economic data wasn’t exactly music to the bulls’ ears. The PPI report came in hotter than expected and this alone is probably enough to keep the Fed from talking about cutting rates any time soon. The Empire Manufacturing Survey showed that business conditions in New York State slowed to a crawl in March. Then the Philadelphia Fed General Business Activity Index wound up falling -0.4%, which was below consensus expectations. And it didn’t help that pricing measures within the report showed increases on both sides of the equation.

Alan Greenspan also chipped in some not-so positive comments on the economy yesterday. In a prepared speech, Mr. Greenspan said that the subprime problem is “not a small issue” and that he does expect the situation to spill over into other loans. He went on to say that the problem has not affected consumer spending – yet. Not surprisingly, traders used the former Fed chairman’s remarks to do a little selling.

But through it all, the bulls kept a stiff upper lip and remained resolutely focused on the positives. In short, we’ve got to give our horned heroes some credit for not crumbling yesterday. Sure, volume was light and the 26 point gain didn’t do much to change the outlook. However, with the battle for the bottom raging, the bulls will take any victory they can get.

Turning to this morning, after yesterday’s hotter than expected PPI results, all eyes are on the inflation numbers once again – so let’s get to the data. The Consumer Price Index for February came in with gain of +0.4%, which was a tenth hotter than the expected increase of +0.3% but nowhere near the heat we saw in yesterday’s PPI headline. When you strip out food and energy, the numbers were in line with expectations at +0.2%.

Stock futures have improved a bit on the news as traders may be breathing a sigh of relief that there were no big surprises in today’s numbers.

Running through the rest of the pre-game indicators, the gold futures are trading higher by $4.40 this morning to $651.50. In the oil pits, crude futures are up $0.24 this morning and the latest quote is at $57.79. Interest rates are moving a little higher this morning in reaction to the CPI data, with the yield on the 10-year currently trading at 4.56%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a little lower. The Dow futures are currently off by about 24 points; the S&P’s are down about 3 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play” This Morning:

Newmont Mining (NYSE: NEM) – Mentioned positively in Business Week
CB Richard Ellis (NYSE: CBG) - Mentioned positively in Business Week
Anheuser Busch (NYSE: BUD) – Upgraded at Bear Stearns
Molson Coors Brewing (NYSE: TAP) – Upgraded at Bear Stearns
Deutsche Bank (NYSE: DB) – Upgraded at Citigroup
CBOT Holdings (NYSE: BOT) – Downgraded at Deutsche Bank
Starbucks (Nasdaq: SBUX) – Added to Conviction Buy List at Goldman Sachs
McDonalds (NYSE: MCD) – Removed from Conviction Buy List at Goldman Sachs
Franklin Resources (NYSE: BEN) – Downgraded at Goldman Sachs
Countrywide Financial (NYSE: CFC) – Upgraded at Keefe, Bruyette & Woods
TDK Corp (NYSE: TDK) – Upgraded at Lehman
Schering Plough (NYSE: SGP) – Upgraded at Merrill Lynch
Total (NYSE: TOT) – Upgraded at Morgan Stanley
Moody’s (NYSE: MCO) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS

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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