Seeking Alpha

David Moenning's  Instablog

David Moenning
Send Message
David Moenning is a the Chief Investment Officer at Heritage Capital Management. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987.... More
My company:
StateoftheMarkets.com
My blog:
Daily State of the Markets
  • Things Don't Matter Until They Do. But Then... 1 comment
    Nov 9, 2012 8:18 AM

    Daily State of the Markets
    Friday, November 9, 2012

    Publishing Note: I am attending a conference and/or have early meetings Monday through Thursday. Thus, Daily State of the Markets reports will be published as time permits next week.

    Good morning. With the stock market having a bit of a problem this week, I've been getting a lot of questions about why stocks are going down. One colleague asked, "Is it really the election?" Another wondered aloud if the 'fiscal cliff' was finally catching up to stock prices. A friend phoned to ask if Europe in general and Greece in particular were to blame for the weakness. And still another caller suggested in no uncertain terms that Apple's (AAPL) demise was the premise for the market's sudden swoon.

    While all of the above are certainly worthy excuses for the quick dance to the downside, which has been good for 435 points on the DJIA so far, I'm thinking that a simpler question might be plaguing the market. As I explained to my son, who has a degree in economics and now more than five years of stock market experience, the issue appears to growth - as in, where is it going to come from in the future?

    My son's comeback was swift and almost terse. He suggested that there have been no new developments on the "growth slowing" theme this week and, in his words, "Anybody with half a brain knows that - especially after the latest round of earnings reports." So, why would that matter now, he wanted to know. In short, it was clear that my suggestion did not appear to satisfactorily answer the question of why stocks were acting like the sky was falling.

    I began with one of my favorite stock market clichés that I myself may have actually come up with years ago. "In the stock market, things don't matter until they do. But then they matter a lot," I said. My point was that the concept of growth and earnings slowing has been around for many months. However, up until just recently, the stock market had looked past the recent soft patch in the economy as well as the relatively punk earnings parade. My point was that since the stock market looks forward, traders had been looking ahead to brighter days. Remember, Mario Draghi had come up with a plan recently to put the kibosh on the rate contagion that was happening in Europe and then Ben Bernanke and the gang had mounted up their white horses again. And then when the economic data actually started to perk up a bit recently, well, there was a reason to be optimistic about the future.

    However, the election brought the question of "Where's the growth going to come from?" back to the forefront. The key here is that after all the campaigning, all the ads, the debates, the mudslinging, etc. nothing actually changed. And then with the rating agencies effectively firing warning shots over the capitol dome immediately following the election, the elephant in the room suddenly reappeared.

    The Obama administration is hell bent on the idea of "raising revenues" and taxing the rich. In addition, those new health care taxes (yes, the Supreme Court called them taxes) are going to kick in soon. And, given that the administration isn't likely to shrink either the size of government itself or government spending; it doesn't take a PhD in economics to see that the economy isn't going to get any stimulus anytime soon. And given that the Fed is clearly out of bullets, we come back to my question of where the growth is going to come from.

    While this is simply my opinion, I believe THIS is likely the reason that traders are suddenly more than a little pessimistic. You see, the message from the current earnings season is that while companies continue to find a way to "beat" the EPS estimates (70% of the S&P 500 companies beat their EPS numbers), only 40% of them were able to exceed the revenue projections. Put another way, 60% of the S&P 500 companies reported revenues that were lower than expectations. And then a great many "guided lower" by cutting their estimates on the amount of dough the companies expect to bring in during the 4th quarter.

    Mickey D's was a microcosm of the problem yesterday. McDonalds (MCD) reported that its "same-store sales" (sales from stores that have been open for at least 13 months) fell last month. While this may not sound like a big deal, it was the first such monthly decline in, wait for it... nine years. And while you can blame the competition or the weather, the bottom line is this type of data is NOT encouraging in terms of the outlook for growth going forward.

    Even Apple (AAPL) and Google (GOOG) are falling victim to the question of where is the growth going to come from? While I can argue that much of the recent selling in the two names is tied to tax selling and/or piling on by the hedgies, there are also concerns in the market about what comes next for both companies.

    So, if you are looking for a reason that the S&P has fallen -3.6% in two days, look no further than our question of the day. And remember, things don't matter until they do - but then they matter a lot.

    Turning to this morning... The overnight news flow was extremely light and is not having much of an impact on the markets. Once again, Asian markets followed Wall Street lower - although not dramatically so. Across the pond, the European markets are also struggling this morning. Here at home, the ongoing rise in the dollar means stock futures are currently pointing to a modestly lower open on Wall Street.

    On the Economic front... We will get reports on Import/Export Prices, University of Michigan Sentiment, and Wholesale Inventories this morning.

    Thought for the day... Make sure your worst enemy doesn't live between your own two ears. -Laird Hamilton

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    • Major Foreign Markets:
      • Shanghai: -0.12%
      • Hong Kong: -0.85%
      • Japan: -0.90%
      • France: -0.25%
      • Germany: -0.98%
      • Italy: -0.72%
      • Spain: -0.95%
      • London: -0.45%
    • Crude Oil Futures: -$0.53 to $84.56
    • Gold: +$5.50 to $1731.50
    • Dollar: higher against the yen, euro, and pound
    • 10-Year Bond Yield: Currently trading at 1.597%
    • Stock Futures Ahead of Open in U.S. (relative to fair value):
      • S&P 500: -4.46
      • Dow Jones Industrial Average: -42
      • NASDAQ Composite: -4.01

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave

    Download our Special Report on our New "Adaptive" Active Risk Management System for the Stock Market


    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. One 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 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.

Back To David Moenning's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (1)
Track new comments
  • Election over. Bernanke put enforcers get some well deserved vacation.
    9 Nov 2012, 08:23 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.