Daily State of the Markets
Wednesday Morning – October 26, 2011
Good morning. As we’ve discussed over the last week, I’m of the mind that despite the fact that earnings season is now running at full tilt and the economic data continues to come in on both sides of the fence, “the plan” is really all that matters right now. And yes, given that this market is stricken with a severe case of ADHD, there is a decent chance that traders will move on to something else within moments after EU leaders release the details of the Greek writedowns, the bank recapitalizations, and the makeup of the new and improved EFSF. But for now, it’s all about the plan.
Support and resistance zones? Fageddaboudit. Moving averages and trend lines? Don’t bother even looking. And even for the high falutin’ Fibonacci followers, my advice is to find something else to do. You see, until we find out whether the Eurozone leaders have built a bazooka or a pea shooter, the rest of it can be tossed out the window.
In case you aren’t quite up to speed on your EU Plan primer, there are three key areas to the plan. First, there is what to do with Greece’s debt. For eighteen months now, officials have tried to build a wall around Greece so that the contagion wouldn’t spread. And so far at least, these attempts have failed miserably. So much so that the only thing left to do is to default. Well, except the EU leaders won’t be using such a nasty legal term. No, instead of a “default” the powers-that-be will be talking about a “voluntary debt exchange” with “haircuts” to net present value of 50% – 60%. Ouch.
Next up is the issue of the European banks. Due to the fact that there is sure to be more of these de facto defaults (oops, I mean voluntary debt exchanges) from sovereign nations, the banking regulators have decided that they might want to actually include sovereign debt in their so-called stress tests this time around. Remember it’s not a test if everybody passes! And this time, more than 60 banks are likely to fail the exam; meaning that they will have to go out and round up some fresh capital for their balance sheets.
And finally, there is the question of the day… Will they bring the bazooka or the pea shooter to the contagion fight? While the consensus expectations are for the EFSF bailout fund to be supercharged by marrying the concepts of first-loss insurance on new bonds with a public/private partnership fund designed to attract private sector capital and lever the thing up, the key question is how big will the EFSF become? Although it has been made clear to the folks in France and Germany that they need to go big or stay home here, the worry is that the leaders will once again try to put out the fire that is threatening to burn down the global economy with a garden hose.
So, while the market has been acting fairly well lately (basically on the hope that this time the leaders in Europe won’t blow it), the key to the next move more than likely lies with the plan. I think I speak for everyone holding any kind of long positions when I say, here’s hoping they bring out the bazooka later today.
Turning to this morning… Word that China may get involved with the EFSF’s public/private partnership fund has lifted spirits heading into the open.
On the Economic front… The Commerce Department reported that Durable Goods orders declined by -0.8% during the month, which was better than the consensus expectations for -1.0%. When you strip out the volatile orders for transportation, orders rose by +1.7%, which was above the consensus for +0.3%. The August reading was revised to -0.4% from -0.4%. The positive in the report was the proxy for capital spending rose by +2.4%.
We’ll also get the report on New Home Sales at 10:00 am.
Thought for the day… As the Great One said, “You miss 100% of the shots you don’t take”…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: +0.31% Shanghai: +0.74% Hong Kong: +0.52% Japan: -0.12% France: +0.55% Germany: +0.54% Italy: +0.72% Spain: +0.25% London: +0.33%
- Australia: +0.31%
- Shanghai: +0.74%
- Hong Kong: +0.52%
- Japan: -0.12%
- France: +0.55%
- Germany: +0.54%
- Italy: +0.72%
- Spain: +0.25%
- London: +0.33%
- Crude Oil Futures: +$0.16 to 93.33
- Gold: +$5.10 to $1705.50
- Dollar: higher against the Yen, higher vs. Euro and Pound
- 10-Year Bond Yield: Currently trading at 2.134%
- Stock Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +7.70 Dow Jones Industrial Average: +90 NASDAQ Composite: +5.50
- S&P 500: +7.70
- Dow Jones Industrial Average: +90
- NASDAQ Composite: +5.50
Wall Street Research Summary
- Albemarle (ALB) – Bank of America Merrill Lynch
- Valspar (VAL) – Citi
- F5 Networks (FFIV) – MKM Partners
- CH Robinson (CHRW) – Bank of America Merrill Lynch
- DTE Energy (DTE) – Barclays
- Celanese (CE) – Citi
- New York Times (NYT) – Citi
- Radio Shack (RSH) – Goldman Sachs
- Canadian Pacific (CP) – JPMorgan
- DeVRY (DV) – JPMorgan
- Tellabs (TLAB) – JPMorgan
Yesterday’s Earnings After The Bell
Estimate ACE Limited ACE $2.22 $1.78 Arch Capital Group ACGL $0.78 $0.62 Arthur J. Gallagher AJG $0.41 $0.44 Amazon.com AMZN $0.14 $0.24 C.R. Bard BCR $1.62 $1.60 Broadcom BRCM $0.82 $0.76 Chicago Bridge CBI $0.72 $0.65 Cabot Corp CBT $0.66 * $0.64 Crown Castle CCI $0.15 * $0.12 Chemed CHE $1.20 $1.13 C.H. Robinson CHRW $0.70 $0.70 Canadian National Railway CNI $1.38 $1.32 DeVRY DV $0.83 $0.96 DreamWorks Animation DWA $0.23 $0.22 Express Scripts ESRX $0.79 $0.77 F5 Networks FFIV $1.06 $0.97 FMC Technologies FTI $0.50 $0.46 Human Genome HGSI ($0.45) ($0.38) McKesson MCK $1.63 $1.39 Manitowoc MTW $0.18 $0.17 Nabors Industries NBR $0.44 $0.40 Panera Bread PNRA $0.97 $0.94 RF Micro Devices RFMD $0.11 $0.10 Robert Half RHI $0.31 $0.28 Range Resources RRC $0.28 $0.23 RadioShack RSH $0.15 $0.35 Trinity Industries TRN $0.40 $0.41 Websense WBSN $0.44 $0.41 Western Union WU $0.40 $0.39
Today’s Earnings Before The Bell
Estimate Automatic Data ADP $0.61 $0.61 American Electric Power AEP $1.17 $1.13 Arrow Electronics ARW $1.20 $1.17 Allegheny Technologies ATI $0.63 $0.61 Boeing BA $1.46 $1.10 BE Aerospace BEAV $0.64 $0.55 Bemis BMS $0.56 $0.58 ConocoPhillips COP $2.52 $2.17 Dr Pepper Snapple DPS $0.71 $0.70 Brinker EAT $0.30 $0.27 Ford F $0.46 $0.48 General Dynamics GD $1.83 $1.77 Corning GLW $0.46 $0.42 Hudson City Bancorp HCBK $0.17 $0.18 Hess Corporation HES $0.88 * $1.40 Hospira HSP $0.66 $0.72 JetBlue Airways JBLU $0.12 $0.13 Lockheed Martin LMT $2.06 $1.81 LPL Financial LPLA $0.46 $0.45 The Medicines Company MDCO $0.17 $0.19 Meredith MDP $0.48 $0.46 Medco Health MHS $1.07 $1.05 Meadwestvaco MWV $0.70 $0.65 Mylan MYL $0.55 $0.51 Nasdaq OMX Group NDAQ $0.67 $0.67 Northrop Grumman NOC $1.63 $1.68 Owens Corning OC $0.90 $0.77 ProLogis PLD $0.44 $0.39 Pentair PNR $0.58 $0.58 Praxair PX $1.40 $1.39 Sprint Nextel S ($0.10) ($0.22) Sealed Air SEE $0.48 $0.49 Southern Company SO $1.07 $1.04 Thermo Fisher Scientific TMO $1.07 $1.07 Tupperware TUP $0.83 $0.83 Vitamin Shoppe VSI $0.40 $0.33 WellPoint Health WLP $1.77 $1.68 Wyndham Worldwide WYN $0.94 $0.88* Report includes items that make comparisons to the consensus estimate questionable
Long positions in stocks mentioned: PNRA
For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com
The opinions and forecasts expressed herein are those of Mr. David Moenning 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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.