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Questioning The Premise

Daily State of the Markets 
Thursday Morning - April 1, 2010

It hasn't been a very complex game on Wall Street lately as the most effective strategy since February 8th has been to buy and then buy some more. And while the bulls will argue that yesterday's sloppy action was just a little end-of-quarter profit-taking, the bears could be heard telling anyone that would listen that Wednesday's data flow was a game-changer.

Cutting to the chase, our furry friends suggest that the ADP Payroll data should cause anyone who has been buying stocks based on the idea that the economy is on the mend and about to create jobs to question their premise. While analysts had expected the private sector to create 40,000 new jobs last month, the report showed that the job market continued to shrink as private payrolls fell by 23K.

Sure, the ADP data does not include any jobs created by the government. And it is easy to see that most of the upbeat expectations surrounding Friday's Jobs report are derived from the fact that government has hired a couple hundred thousand people to work the census (reports show that total census workers will top out at about 650K in May). The problem here is that there has been a fair amount of talk recently about the idea that the economy would begin creating jobs last month. Yet, the ADP report shows that the private sector continued to do just the opposite.

The other piece of data that could be viewed as damaging to the bull case was the Chicago Purchasing Managers Index. Designed to gauge the state of the manufacturing sector in the Chicago area, the index came in below expectations at 58.8. This was not only below the expectations for a reading of 61.0, but also below last months' 62.6. Digging into the report, we see that the Production component declined to 60.5 from 65.2, New Orders fell to 61.8 from 62.2, and Inventories increased to 52.4 from 42.4.

Although the bears' argument is fairly sound, the bottom line in this business is, "It's not the news, but how the market reacts to the news that counts." Thus, the fact that yesterday's modest pullback did not push the indices below any support zones or even the 10-day moving average, tells us that this was not exactly a game-changer from a chart perspective. In short, the indices appear to be in the midst of a sideways consolidation phase and until one of the teams can break on through to the other side, we should probably continue to give the bulls the benefit of the doubt.

Turning to this morning... On the employment front, we've got a good news/bad news story. The bad news is that Challenger, Grey & Christmas report planned job cuts for March increased to 67.1K. This is an increase of 25.01K from February’s 42.09K. However, the good news is the Monster Employment Index rose 1 point in March to a reading of 125. Compare to year-ago level of 118.

In addition, it is also good news that the Labor Department reported initial claims for unemployment insurance for the week ending March 27th fell by 6,000 to 439K, which was just below the expectations for a reading of 440K. Continuing Claims for unemployment for the week ending March 20th were above consensus at 4.662M vs. expectations for 4.618M. For comparison purposes, last week’s revised total was 4.668M.

Running through the rest of the pre-game indicators, Asian markets were up nicely while European bourses are also smartly higher to start the new quarter. Crude futures are up $0.59 to $84.35. On the interest rate front, the yield on the 10-yr is currently trading at 3.85%. Next, gold is moving up $1.70 to $1116.20 and the dollar is lower against the Yen and Euro, while higher against the Euro. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a stronger open. The Dow futures are currently ahead by about 69 points; the S&P’s are up about 7 points, while the NASDAQ looks to be about 9 points above fair value at the moment.

Wall Street Research Summary


  • Acuity Brands (NYSE:AYI) - BB&T Capital Markets
  • Finish Line (NASDAQ:FINL) - FBR Capital
  • Foot Locker (NYSE:FL) - FBR Capital
  • Longtop Financial Technologies (NYSE:LFT) - Goldman
  • Ann Taylor (NYSE:ANN) - Jefferies
  • Janus Capital (NYSE:JNS) - Keffe, Bruyette & Woods
  • Legg Mason (NYSE:LM) - Keffe, Bruyette & Woods
  • Ameteck (NYSE:AME) - Target increased at Oppenheimer
  • Research In Motion (RIMM) - Estimates and target increased at UBS
  • IntercontinentalExchange (NYSE:ICE) - Estimates increased at UBS
  • Omnicare (NYSE:OCR) - UBS



  • BlackRock (NYSE:BLK) - Deutsche Bank
  • Research In Motion (RIMM) - Goldman
  • DreamWorks (NASDAQ:DWA) - Morgan Stanley


    Long positions in stocks mentioned: none

    Embrace an “attitude of gratitude” today and enjoy the long weekend...

    David D. Moenning

    For more "top stock" portfolios and research, visit


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