David Moenning's Daily State of the Markets: 1/23

Blame It On Apple (And the ECB)

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

In an attempt to stave off what was beginning to look like a global market meltdown, the bulls’ good friend "Helicopter Ben" made a reluctant appearance yesterday morning. As the story goes, Ben Bernanke earned the nickname "Helicopter Ben" when he suggested to a fellow fed-head that he would "drop money from a helicopter if he had to, in order to fight deflation." And while slashing interest rates by 0.75% couldn’t get stocks turned around completely yesterday, it was good enough for a more than 330 point rebound from the opening low.

The move put the Fed Funds rate at 3.50%, which is the lowest level since August 2005. And much to the chagrin of inflation-hawk William Poole, who will probably be booed out of his neighborhood for dissenting on yesterday's vote, the FOMC also cut the Discount Rate by 0.75% to 4%, which is the lowest rate since June of '05.

In case you didn't catch the intended "shock and awe"of the move, the 75 basis point cut, which was obviously larger than the 50 bp move most analysts expected next week, was the largest reduction since the Fed started targeting the Fund Funds rate back in 1989. And it was the biggest regular cut in the Discount Rate since December 1981.

The FOMC provided an impressive list of reasons for the move including: a weakening economic outlook and in turn, increasing downside risks to growth, deterioration in broader financial market conditions, tighter credit markets, a worsening housing market, some softness in the labor markets, and an expectation that inflation pressures will ease going forward. And then, as a sign that there would probably be more to come, the committee said it would "continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed." In English, this means that we might get another 50 bp move everyone was looking for next week.

If you are wondering why the stock market didn't go into an all-out celebration mode in response to the rate cuts, the answer is that there are still many questions that remain. First and foremost, remember that the markets were tanking daily on the worry that neither the Fed nor a government stimulus package could stop a recession, which may or may not have already begun. So, if you are in the camp that things are already sinking fast, then your argument is this move is "too little, too late."

In addition, there is concern that we might start hearing Fed officials hint that they had "gone big" and are now done. Thus, there are still some questions about what’s next out of the FOMC. Then there is the question of whether or not the world’s central bankers, namely China, the ECB, and the Bank of England will follow suit. And finally, there is a great deal of worry that the consumer has already decided to start spending less time at the mall. So, while it was indeed a moral victory for the bulls to escape the down 464 open with a relatively minor decline, there are still some problems out there to contend with.

Turning to this morning, stocks are plunging once again this morning. Part of the problem is Apple's (Nasdaq: AAPL) earnings report definitely put a damper on the tech markets. While the "king of cool" handily beat this quarter’s estimates, they guided next quarter down a bit, which is not sitting well with investors as the stock is down more than 10% in pre-market trading. The report is also being construed as a negative on the consumer spending front, which got a hand from Motorola's (NYSE: MOT) report that spoke of their recovery taking longer than expected.

And while worrying about the economy has become a national pastime so far in 2008, another huge concern the market has this morning has to do with the central banks across the pond. Stocks in Europe opened higher but are now down sharply after the ECB quashed hopes for a rate cut as the President was heard yammering on about inflation this morning.

Running through the rest of the pre-game indicators; as we have mentioned, the European markets are a sea of red ink while Asia was actually up nicely. Crude futures are lower again so far this morning. Interest rates are plunging again with the 10-yr trading at a yield of 3.31% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to another very tough open. The Dow futures are currently off by almost 270 points; the S&Ps are down by nearly 40, while the NASDAQ looks to be about 68 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Apple (Nasdaq: AAPL) – Reported $1.76. vs. $1.61, Guides lower
Norfolk Southern (NYSE: NSC) – Reported $1.02. vs. $0.91
Texas Instruments (NYSE: TXN) – Reported $0.53 vs. $0.52

Today's Earnings Before the Bell:

Abbott Labs (NYSE: ABT) – Reported $0. vs. $0.92
Allegheny Technologies (NYSE: ATI) – Reported $1.45 vs. $1.40
Coach (NYSE: COH) – Reported $0..69 vs. $0.68
Freeport McMoRan (NYSE: FCX) – Reported $1.36 vs. $1.73
General Dynamics (NYSE: GD) – Reported $1.42 vs. $1.40
Southwest Air (NYSE: LUV) – Reported $0.12 vs. $0.10
Motorola (NYSE: MOT) – Reported $0.14 vs. $0.13
Pfizer (NYSE: PFE) – Reported $0.52 vs. $0.47
United Technologies (NYSE: UTX) – Reported $1.08 vs. $1.07

News, Upgrades/Downgrades/Brokerage Research:

Molson Coors Brewing (NYSE: TAP) – Upgraded at Bank of America
Arch Coal (NYSE: ACI) – Downgraded at Bank of America
Peabody Energy (NYSE: BTU) – Downgraded at Bank of America
Bank of New York (NYSE: BK) – Named top pick in banking sector at Bear Stearns
PetroChina (NYSE: PTR) – Upgraded at Bear Stearns
Dish Network (DISH) – Upgraded at Bear Stearns
Texas Instruments (NYSE: TXN) – Downgraded at Citi
Anglo American (Nasdaq: AAUK) – Upgraded at Citi
DuPont (NYSE: DD) – Upgraded at Deutsche Bank
Kindred Healthcare (NYSE: KND) – Upgraded at Friedman Billings
Northrop Grumman (NYSE: NOC) – Upgraded at Friedman Billings
Alliant Techsystems (NYSE: ATK) – Upgraded at Freidman Billings
China Unicom (NYSE: CHU) – Upgraded at Goldman
Repsol (NYSE: REP) – Upgraded at Lehman
GlaxoSmithKline (NYSE: GSK) – Upgraded at Merrill Lynch
Micron Technology (NYSE: MU) – Upgraded at Morgan Stanley
Apple (Nasdaq: AAPL) – Target reduced at Think Equity
Cisco Systems (Nasdaq: CSCO) – Target and Estimates reduced at Thomas Weisel
Safeco (NYSE: SAF) – Upgraded at UBS
Waters Corp (NYSE: WAT) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: AAPL, BK

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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