David Moenning's Daily State of the Markets: 10/06

A Long Road Ahead?

Here’s a link to listen to an Audio Version of the report:�

After appearing to get exactly what they wanted in terms of the bailout bill finally passing the House on Friday, traders quickly turned their attention to the economy. And unfortunately this led to sell buttons being pressed repeatedly into the close. Although it would be easy to argue that there was a fair amount of “selling the news” happening here, the bottom line on Friday was investors recognized that the credit markets remain frozen and as such, the road to recovery may be a long one.

It would have been natural to expect a big rally after the politicians in the House finally got their act together on Friday. And in fact, stocks did rally in anticipation of a positive result this time around and then again after the House vote was announced. But unfortunately, after another crummy jobs report, there was really no time to celebrate the bailout because things on the economic front were suddenly looking weaker than expected.

Friday’s jobs report showed that the economy lost another 159,000 jobs in September, which was more than the expectations for a drop of about 105K and the 9th consecutive monthly decline. And then on the household side of the report, the number of employed individuals fell by 222,000. So, in short, it appears that the labor markets are even weaker than the headlines suggest. While this data would seem to argue in favor of a Fed rate cut at the end of the month the surprising weakness is not a welcome sign at this stage of the game.

In addition, the credit markets remained stagnant on Friday with no signs available as to when lending levels might improve. Given that this is really the source of the problem at the present time, until Mr. Paulson can start spending the cash that has been approved by Washington, there is really no reason to expect much anything to change for the next couple of weeks.

But enough about Friday, we’ve got new problems to worry about this morning as the foreign markets plunged overnight in response to the realization that the credit crisis is no longer just a problem here at home. And despite each country scrambling to do whatever it can to quell the fears, there is a great deal of red ink in both Europe and Asia. For example, Germany announced that it will insure all bank deposits and is going to soon be offering up an umbrella plan to shield the banking sector from further problems. European leaders are talking about a coordinated plan to thaw the credit markets. And then here at home, the Fed will start paying interest on bank deposits and is trying to quickly get a market established to trade Credit Default Swaps.

But unfortunately, the measures are having little effect as Hong Kong fell -5%, Japan dropped -4.25%, Russia plunged -14%, France is off -5.4%, Germany is down -5.1%, while the FTSE 100 in London is lower by -2.61%.

Running through the rest of the pre-game indicators, the foreign markets are a problem. Crude futures are lower on worries over a global economic slowdown with the latest quote showing oil trading down $4.10 to $89.78. As expected, interest rates are lower again with the yield on the 10-yr currently trading at 3.56% while the yield on the 30-day T-Bill is just 0.09%. And finally, with about 60 minutes before the bell, the futures are pointing to another bumpy open. The Dow futures are currently off by about 200 points; the S&P’s are down by about 21 points, while the NASDAQ looks to be about 36 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

AES Corp (AES) – Downgraded at Barclays
Amylin Pharmaceuticals (AMLN) – Upgraded at Citi, Downgraded at Credit Suisse
Fairchild Semi (FCS) – Downgraded at Citi
RF Microdevices (RFMD) – Downgraded at Citi
Intersil (ISIL) – Downgraded at Citi
ArcelorMittal (MT)�– Downgraded at Deutsche Bank
Coca Cola (KO) – Downgraded at Deutsche Bank
Novo Nordisk (NVO) – Upgraded at Deutsche Bank
Advanced Micro Devices (AMD) – Estimates and target reduced at Friedman Billings
Linear Technology (LLTC) – Estimates and target reduced at Friedman Billings
Silicon Labs (SLAB) – Estimates and target reduced at Friedman Billings
Adobe Systems (ADBE) – Downgraded at Friedman Billings
Prologis (PLD) – Downgraded at Goldman
Vulcan Materials (VMC) – Downgraded at Goldman
Monsanto (MON) – Upgraded at JP Morgan
Standard Pacific (SPF) – Downgraded at JP Morgan
Dollar Tree (DLTR) – Upgraded at JP Morgan
UBS (UBS) – Estimates reduced at Oppenheimer

Disclosure: Mr. Moenning and/or related firms hold long positions in: DLTR

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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