David Moenning's Daily State of the Markets: 1/28

Bad Bank On The Way?

Stocks moved up a bit yesterday on the back of some decent earnings from the likes of Texas Instruments (TXN), Travelers (TRV), Netflix (NFLX), American Express (AXP), US Steel (X), and Bristol-Myers (BMY). If you’ve been looking at our abbreviated earnings reviews each morning, you may have noted that not every earnings report is a disaster and that there are a great many companies actually making money these days. This, in and of itself, probably isn’t enough to cause much in the way of a celebration on Wall Street as almost nobody in corporate America is singing a happy song about the future. But it does help make the argument that we may be nearing a low from an economic standpoint.

However, despite the green screens and warm fuzzies derived from the earnings reports, our heroes in horns were not able to make much of an impact on a chart basis. And although the S&P did manage to break through its 10-day moving average, it was not accompanied by any of its compatriots, it did so by a mere $0.26, and total volume actually fell on the session.

So, while it “feels” like the market wants to head higher, the cold hard reality of the current economic data and the uncertainty of the future seems to be keeping any upside giddiness in check. For example, the Conference Board’s index of Consumer Confidence fell 0.9 point to 37.7 in January, which was both well below the consensus reading of 39.0 and an all-time record low. Adding to the consumer’s dour mood is likely the fact that home prices remain in a downtrend. The S&P/Case-Shiller Home Price Indices fell hard again in November, which marked the 28th straight month of declining prices.

The bottom line here is that while investors probably believe that the U.S. will eventually get through this mess, the nagging worry about what’s still out there is pushing any thoughts of leaning on the buy button to the back burner.

However, it appears that the increasing talk of instituting a “bad bank” solution to the banking crisis is gaining momentum, which, in turn, might provide the stock market with a nice boost in confidence. If you will recall, in the early 1990’s the government created the RTC, which effectively took over more than 1000 failing banks and S&L’s. The idea was to put the failing institutions into a “bad bank,” which stripped out the bad assets, turned the otherwise solid banks around, and then kicked them out the door.

Given the enormity of the problems still on bank balance sheets, with some research showing that banks are only halfway through the writedown process, this sounds like a sensible plan. And while everyone in the Obama administration continues to resist using the word “nationalize” with regard to the banks, they are starting to talk openly about a “bad bank” solution.

So, since the markets seem to like the “bad bank” concept, we should be on the lookout for additional verbiage out of the administration, the Fed, and the FDIC for signs that this idea will actually come to fruition.

Turning to this morning, there isn’t a single shred of economic data on the calendar today. However, traders around the globe are currently cheering the idea that the government may have decided to take a page out of the history books and sweep the problem banks under the rug so that the problems can be worked out behind closed doors.

Running through the rest of the pre-game indicators, the major foreign markets all are bouncing higher. Crude futures are a bit lower with the latest quote showing oil trading down by $0.11 to $41.47. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.56%, while overnight LIBOR is at 0.22%, and the yield on the 3-month T-Bill is at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 100 points; the S&P’s are up by about 20 points, while the NASDAQ looks to be about 16 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Altera (Nasdaq: ALTR) – Reported $0.28 vs. $0.27
Amylin Pharmaceuticals (Nasdaq: AMLN) – Reported -$0.36 vs. -$0.49

CH Robinson (Nasdaq: CHRW) – Reported $0.52 vs. $0.52
Calamos Asset Mgmt (Nasdaq: CLMS) – Reported -$1.24. vs. $0.05
DeVry (NYSE: DV) – Reported $0.59 vs. $0.59
Callaway Golf (NYSE: ELY) – Reported -$0.05 vs. -$0.24
E*Trade (Nasdaq: ETFC) – Reported -$0.50 vs. -$0.24
Gilead Sciences (Nasdaq: GILD) – Reported $0.60 vs. $0.54
Sun Microsystems (Nasdaq: JAVA) – Reported $0.15 vs. -$0.09
Molex (Nasdaq: MOLX) – Reported $0.20 vs. $0.14
Norfolk Southern (NYSE: NSC) – Reported $1.21 vs. $1.19
RF Micro Devices (Nasdaq: RFMD) – Reported -$0.05 vs. $0.01
STMicroelectronics (NYSE: STM) – Reported -$0.06 vs. $0.02
Stryker (NYSE: SYK) – Reported $0.74 vs. $0.74
Yahoo! (Nasdaq: YHOO) – Reported $0.17 vs. $0.13

Today’s Earnings Before the Bell:

Air Tran Holdings (NYSE: AAI) – Reported -$1.00 vs. -$0.03
Affiliated Managers Group (NYSE: AMG) – Reported $1.30 vs. $1.20
Boeing (NYSE: BA) – Reported -$0.08 vs. $0.78
Becton Dickinson (NYSE: BDX) – Reported $1.26 vs. $1.15
Baker Hughes (NYSE: BHI) – Reported $1.49 vs. $1.25
ConocoPhillips (NYSE: COP) – Reported $1.28 vs. $1.34
Dover Corp (NYSE: DOV) – Reported $0.91 vs. $0.86
General Dynamics (NYSE: GD) – Reported $1.62 vs. $1.58
Hess Corp (Nasdaq: HESS) – Reported -$0.23 vs. $0.30
Legg Mason (NYSE: LM) – Reported -$10.55 vs. -$4.01
McCormick (NYSE: MCK) – Reported $0.62 vs. $0.82
Praxair (NYSE: PX) – Reported $1.01 vs. $0.96
Southern Company (NYSE: SO) – Reported $0.26 vs. $0.25
AT&T (NYSE: T) – Reported $0.64 vs. $0.65
Tyco Electronics (NYSE: TEL) – Reported $0.22 vs. $0.25
Wells Fargo (NYSE: WFC) – Reported -$0.79 vs. $0.32
WellPoint Health (NYSE: WLP) – Reported $1.34 vs. $1.36

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

AFLAC (NYSE: AFL) – Downgraded at Bank of America Merrill Lynch
Best Buy (NYSE: BBY) – Upgraded at Barclays
Freeport-McMoRan (NYSE: FCX) – Upgraded at Canaccord Adams
Carpenter Technology (NYSE: CRS) – Downgraded at Citi
Ciena (Nasdaq: CIEN) – Downgraded at Credit Suisse
AK Steel (NYSE: AKS) – Target reduced at Goldman
US Steel (NYSE: X) – Target reduced at Goldman
Nucor (NYSE: NUE) – Target reduced at Goldman
Steel Dynamics (Nasdaq: STLD) – Target reduced at Goldman
BB&T Corp (NYSE: BBT) – Removed from Conviction Sell list at Goldman
Hershey (NYSE: HSY) – Removed from Conviction Sell list at Goldman
Continental Airlines (NYSE: CAL) – Removed from Conviction Buy list at Goldman
Helmerich & Payne (NYSE: HP) – Downgraded at Goldman
Diamond Offshore (NYSE: DO) – Upgraded at Goldman
Dish Network (Nasdaq: DISH) – Upgraded at Goldman
Weatherford Intl (NYSE: WFT) – Upgraded at JP Morgan
General Electric (NYSE: GE) – Moody’s reviews long term debt rating for possible downgrade
United Parcel Service (NYSE: UPS) – Downgraded at Morgan Stanley
Exxon Mobil (NYSE: XOM) – Downgraded at UBS

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

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.

You May Also Be Interested In

• Verizon planning new round of layoffs this week - Barron’s
• Regenxbio plans $100M common stock public offering
• BNY prices $500M preferred stock depositary share offering