David Moenning's Daily State of the Markets 08/30
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Close Call
Good morning. It was a close call yesterday, but our heroes in hooves came away with another solid win. Stocks initially sank on a report that showed Consumer Confidence was weakening badly and for a while, it looked like worries over the economy would spell trouble. However, the cavalry arrived in the form of the minutes from the most recent Fed meeting and stocks reversed course to finish in the green.
Confirming other measures of consumer attitudes, Consumer Confidence in August dropped 7.4 points to 99.6. This is the lowest level since last November (which was a result of the Katrina/Rita double whammy) and well below the consensus estimates for a reading of 102.5. The weakness in the report was broad based as the Present Situation Index plummeted 10.8 points, the Expectations Index dropped 5.1 points to just 83.8, and consumers viewed both Business Conditions and Labor Markets as �less favorable.� In short, the report appears to confirm that consumers have grown increasingly pessimistic about the economy in response to higher energy costs, higher interest rates, and a slumping housing market.
In light of the fact that the consumer is responsible for almost two-thirds of the country�s GDP, it is little wonder that the traders that were present took the report to heart yesterday and knocked 50 points off the Dow in relatively short order.
However, falling oil prices kept the bears at bay until the Fed minutes showed up to save the day. With Ernesto�s path projected to miss the Gulf�s oil installations �wide right,� crude finished lower for the second straight session and closed below the psychological barrier of $70. Lower crude certainly helped the mood as investors held out hope that oil might finally mover lower in earnest.
But the real key to the session was the release of the minutes from the recent Fed meeting. In short, the Fed said that the decision to take a break from the hiking trail was a �close call.� The minutes showed that all members agreed that the statement should include verbiage stating that inflation risks remained dominant and that keeping policy unchanged at the meeting did not necessarily mark the end of the tightening cycle. Though the decision to keep rates unchanged was a "close call" and additional rate hikes might be needed, Fed members anticipated that inflation pressures could quite possible ease gradually over coming quarters and that the current policy stance "could well prove to be consistent with satisfactory economic performance."
Stocks rallied in response to the minutes as traders seemed to latch onto the statement about monetary policy being consistent with the state of the economy. Traders took this to mean that inflation would have to heat up further in order to prompt additional tightenings. And given that the majority of economic data has come in on the punk side lately, the assumption was that the Fed may be out of the way for a while as the likelihood of a rate increase at the November meeting fell to just 28%. And while stocks didn�t exactly blast higher, the bulls will be happy with the reversal as we await the rest of this week's data.
Turning to this morning, we do have some data to digest. In keeping with the recent trend, the ADP Employment change report, which many view as a precursor to the Government�s Jobs report due to be released Friday morning, came in weaker than expected.
In addition, the government's second try at the Q2 GDP numbers came in a little soft. The Preliminary GDP was reported at 2.9% versus expectations for a reading of 3.0%, the Prices component was in line with the consensus at 3.3, and the Core Personal Consumption Expenditures (PCE) was a tenth below estimates at 2.8%.
Running through the rest of the pre-game indicators, with the exception of Japan, the overseas markets are sporting green screens. Gold futures are moving higher by more than $5 this morning and are currently exchanging hands at $642.30. Crude futures are challenging the key $70 level and are trading up by $0.23 to $69.94 at the moment. Interest rates are little changed this morning with the 2-year currently quoted at 4.85% while the 10-yr is trading with a yield of 4.78% right now. And finally, with about an hour before the bell, stock futures in the U.S. only modestly higher. The Dow futures are currently ahead by 13, the S&Ps are up a fraction, and the NASDAQ is sporting an advance of about 2 points.
Stocks "In Play" This Morning:
Costco Wholesale (COST) � Lowers guidance for Q4 and full year
Lockheed Martin (LMT) � Downgraded at Prudential
Harris Corp (HRS) � Downgraded at Prudential
Hovnanian Ent (HOV) � Downgraded at JP Morgan
Express Scripts (ESRX) � Upgraded at Prudential
Travelzoo (TZOO) � Downgraded at Stifel Nicolaus
Priceline (PCLN) � Downgraded at Stifel Nicolaus
Northrop Grumman (NOC) � Upgraded at Friedman, Billings, Ramsey
Marathon Oil (MRO) � Downgraded at AG Edwards
British American Tobacco (BTI) � Upgraded at ABN Amro
Cigna (CI) � Upgraded at AG Edwards
Banco Santander (SAN) � Upgraded at UBS
Con-Way (CNW) � Downgraded at Wachovia
Jetblue (JBLU) � Downgraded at Prudential
Wyeth (WYE) � Mentioned positively at Lehman
Long positions in stocks mentioned: ESRX, MRO
** 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. It was a close call yesterday, but our heroes in hooves came away with another solid win. Stocks initially sank on a report that showed Consumer Confidence was weakening badly and for a while, it looked like worries over the economy would spell trouble. However, the cavalry arrived in the form of the minutes from the most recent Fed meeting and stocks reversed course to finish in the green.
Confirming other measures of consumer attitudes, Consumer Confidence in August dropped 7.4 points to 99.6. This is the lowest level since last November (which was a result of the Katrina/Rita double whammy) and well below the consensus estimates for a reading of 102.5. The weakness in the report was broad based as the Present Situation Index plummeted 10.8 points, the Expectations Index dropped 5.1 points to just 83.8, and consumers viewed both Business Conditions and Labor Markets as �less favorable.� In short, the report appears to confirm that consumers have grown increasingly pessimistic about the economy in response to higher energy costs, higher interest rates, and a slumping housing market.
In light of the fact that the consumer is responsible for almost two-thirds of the country�s GDP, it is little wonder that the traders that were present took the report to heart yesterday and knocked 50 points off the Dow in relatively short order.
However, falling oil prices kept the bears at bay until the Fed minutes showed up to save the day. With Ernesto�s path projected to miss the Gulf�s oil installations �wide right,� crude finished lower for the second straight session and closed below the psychological barrier of $70. Lower crude certainly helped the mood as investors held out hope that oil might finally mover lower in earnest.
But the real key to the session was the release of the minutes from the recent Fed meeting. In short, the Fed said that the decision to take a break from the hiking trail was a �close call.� The minutes showed that all members agreed that the statement should include verbiage stating that inflation risks remained dominant and that keeping policy unchanged at the meeting did not necessarily mark the end of the tightening cycle. Though the decision to keep rates unchanged was a "close call" and additional rate hikes might be needed, Fed members anticipated that inflation pressures could quite possible ease gradually over coming quarters and that the current policy stance "could well prove to be consistent with satisfactory economic performance."
Stocks rallied in response to the minutes as traders seemed to latch onto the statement about monetary policy being consistent with the state of the economy. Traders took this to mean that inflation would have to heat up further in order to prompt additional tightenings. And given that the majority of economic data has come in on the punk side lately, the assumption was that the Fed may be out of the way for a while as the likelihood of a rate increase at the November meeting fell to just 28%. And while stocks didn�t exactly blast higher, the bulls will be happy with the reversal as we await the rest of this week's data.
Turning to this morning, we do have some data to digest. In keeping with the recent trend, the ADP Employment change report, which many view as a precursor to the Government�s Jobs report due to be released Friday morning, came in weaker than expected.
In addition, the government's second try at the Q2 GDP numbers came in a little soft. The Preliminary GDP was reported at 2.9% versus expectations for a reading of 3.0%, the Prices component was in line with the consensus at 3.3, and the Core Personal Consumption Expenditures (PCE) was a tenth below estimates at 2.8%.
Running through the rest of the pre-game indicators, with the exception of Japan, the overseas markets are sporting green screens. Gold futures are moving higher by more than $5 this morning and are currently exchanging hands at $642.30. Crude futures are challenging the key $70 level and are trading up by $0.23 to $69.94 at the moment. Interest rates are little changed this morning with the 2-year currently quoted at 4.85% while the 10-yr is trading with a yield of 4.78% right now. And finally, with about an hour before the bell, stock futures in the U.S. only modestly higher. The Dow futures are currently ahead by 13, the S&Ps are up a fraction, and the NASDAQ is sporting an advance of about 2 points.
Stocks "In Play" This Morning:
Costco Wholesale (COST) � Lowers guidance for Q4 and full year
Lockheed Martin (LMT) � Downgraded at Prudential
Harris Corp (HRS) � Downgraded at Prudential
Hovnanian Ent (HOV) � Downgraded at JP Morgan
Express Scripts (ESRX) � Upgraded at Prudential
Travelzoo (TZOO) � Downgraded at Stifel Nicolaus
Priceline (PCLN) � Downgraded at Stifel Nicolaus
Northrop Grumman (NOC) � Upgraded at Friedman, Billings, Ramsey
Marathon Oil (MRO) � Downgraded at AG Edwards
British American Tobacco (BTI) � Upgraded at ABN Amro
Cigna (CI) � Upgraded at AG Edwards
Banco Santander (SAN) � Upgraded at UBS
Con-Way (CNW) � Downgraded at Wachovia
Jetblue (JBLU) � Downgraded at Prudential
Wyeth (WYE) � Mentioned positively at Lehman
Long positions in stocks mentioned: ESRX, MRO
** 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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