David Moenning's Daily State of the Markets: 9/25

Let's Make a Deal

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

While there actually were a couple other stories during Wednesday’s session, the hearings on the government’s proposed $700 Billion bailout plan garnered the vast majority of traders’ attention yesterday. Sure, it was great to see Warren Buffett put some cash on the table for Goldman Sachs (GS) and it was both interesting and a bit distressing to see the deal that Mr. Buffett was able make. But the market’s focal point right now continues to be political wrangling taking place in order to keep the bailout plan from getting bogged down.

Blue chip stocks actually finished little changed after an up-and-down session. Unfortunately, the positive vibe created from the Buffett news was quickly erased by the stress still evident in the credit markets. For example, one-month Libor rates surged 22 basis points yesterday to their highest levels since January, the yield on the 2-year T-Note pushed below 2%, the spread on credit-default swaps on 10-Year Treasury debt widened to the highest level ever, and the Fed hinted that it may need to expand its efforts to provide liquidity.

So with the Dow bouncing back and forth and the markets appearing to be on hold until the deal gets done in Congress, most traders spent their time yesterday listening to the hearings on Capitol Hill. And while I try my darndest to keep politics out of this forum, the lack of understanding displayed by some of the members of the Joint Economic Committee is truly astounding. Granted, this crisis is probably the most complex in history and is not easy to understand, even for those considered pro’s in the investment business. However, it is clear that our elected representatives have not done much in the way of homework on the topic of the day.

While it didn’t attract much attention, it was modestly positive that the report on Existing Home Sales showed that inventories of homes for sale fell by 7% last month, which was the biggest drop since December 2006. The report itself, which showed that sales fell and prices have fallen by 9.5% over the past year, wasn’t exactly upbeat. However, it does appear that the trend of home prices appears to be stabilizing.

Turning to this morning, the good news is that a deal on the bailout package appears to be close at hand. The bad news is that General Electric (GE) issued a profit warning. GE says that earnings for the third quarter are likely to be in a range between $0.43 and $0.48, which is down considerably from the prior guidance of $0.50 - $0.54. In addition, Microsoft’s (MSFT) Steve Ballmer felt it necessary to announce that software might not be immune to an economic slowdown this time around.

On the economic front, both of this morning’s reports are on the discouraging side. Orders for Durable Goods fell by -4.5% in August, which was well below the estimates for a drop of -1.9%. And when you strip out the big-ticket transportation items, the song remains the same as orders dropped -3.0% versus the consensus for a decline of -0.5%. Finally, Jobless Claims continue to rise as 493,000 claims were made last week, which is above the estimates for 450K and up from last weeks’ reading of 461K. However, since the story of the day continues to be the bailout, the futures are still looking up.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asia down and Europe up. Crude futures are moving down with the latest quote showing oil trading lower by $1.95 to $103.80. Interest rates are higher on the potential bailout, which would increase supply, with the yield on the 10-yr currently trading at 3.80%. And finally, with about 60 minutes before the bell, we’ve got some green on the screens of the U.S. stock futures, but they are off their best levels. The Dow futures are currently ahead by about 95 points; the S&P’s are up by about 13 points, while the NASDAQ looks to be about 15 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

General Electric (NYSE: GE) – Guides Q3 EPS to $0.43 - $0.48 vs. prior $0.50 - $0.54
National Financial Partners (NYSE: NFP) – Downgraded at Citi
Carnival Corp (NYSE: CCL) – Downgraded at Deutsche Bank
Washington Mutual (NYSE: WM) – Downgraded at Fitch
Choice Hotels (NYSE: CHH) – Downgraded at JP Morgan
Starwood Hotels (NYSE: HOT) – Downgraded at JP Morgan
JC Penney (NYSE: JCP) – Downgraded at Merrill Lynch
AmerisourceBergen (NYSE: ABC) – Downgraded at Morgan Stanley

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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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