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Running Out of Steam?

Daily State of the Markets 
Thursday Morning - April 22, 2010

Good morning. After a session that can only be described as lackluster, the bears tell us that the current rally appears to be running out of steam. Although most of the indices, save the S&P 500, managed to finish in the green on Wednesday, there is some energy building in the bear camp in response to the idea that strong earnings may be already baked into the cake.

While Apple (NASDAQ:AAPL) was able to once again hit it out of the park with their earnings report and companies such as EMC (EMC), Boeing (NYSE:BA), United Technologies (NYSE:UTX), Lockheed Martin (NYSE:LMT), Huntington Bancshares (NASDAQ:HBAN), and Morgan Stanley (NYSE:MS) put up impressive numbers, worries over Greece and new sovereign credit concerns in places like Portugal seemed to offset the better-than-expected quarterly results.

Like an unwelcome houseguest, the sovereign debt situation just won't seem to go away. While there wasn't much in the way of incremental news on the Greece story, the fact that the EU and IMF initiated a 10-day meeting on the situation reminded investors that this situation is far from over. In addition, anxiety began to rise yesterday about the level of Portugal's debt and the country's ability to finance its deficits going forward.

The bulls contend that none of this is new and that any lack of upside momentum at this stage would most likely lead to a period of consolidation and not a scary decline. Our heroes in horns remind us that there has been no selling pressure to speak of for more than two months now. Therefore, the glass-is-half-full gang suggests that unless something new comes out of the woodwork, they would expect the market to trade in a range between 11,000(ish) and 11,150 or so on the Dow.

Turning to this morning... The markets are on the defensive as sovereign debt fears are back in response to (a) a report showing that the debt ratio in the EuroZone countries is double what it should be and (b) Fitch's comments that Japan's credit rating may be at risk due to, yep - you guessed it, high debt levels.

On the economic front, initial claims for unemployment insurance for the week ending April 17th fell by 24,000 to 456K, which was above the expectations for a reading of 450K. Continuing Claims for unemployment for the week ending April 10th were above consensus at 4.646M vs. expectations for 4.60M.

In addition, the Labor Department reported the Producer Price Index (an indication of inflation at the wholesale level) for March rose by +0.7%, which was above the consensus estimate for an increase of +0.5% and February’s reading of -0.6%. When you strip out food and energy, the so-called Core PPI came in up +0.1%, which in line with the consensus for +0.1% (and January’s +0.1%). On a year-over-year level, the March increase was a bit above expectations to 5.8%.

Running through the rest of the pre-game indicators, the major overseas markets are lower on worries over sovereign debt. Crude futures are down $1.09 to $82.59. On the interest rate front, the yield on the 10-yr is currently trading at 3.74%. Next, gold is down $7.90 to $1141.00 and the dollar is higher against the Yen, Euro and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a much weaker open. The Dow futures are currently off by about 48 points; the S&P’s are down by 8 points, while the NASDAQ looks to be about 20 points below fair value at the moment.

Finally, be sure to take time to breathe today...

Yesterday's Earnings After The Bell

Company

Symbol

EPS
Reuters
Estimate
Americredit ACF $0.45 $0.27
Amgen AMGN $1.30 $1.24
Citrix Systems CTXS $0.40 $0.40
eBay EBAY $0.42 $0.41
E*Trade ETFC -$0.02 -$0.03
Hudson City Bancorp HCBK $0.30 $0.28
Legett & Platt LEG $0.27 $0.19
Lam Research LRCX $0.94 $0.82
Massey Energy MEE $0.39 $0.27
Novellus NVLS $0.47 $0.42
Pactiv Corp PTV $0.38 $0.40
Qualcomm QCOM $0.59 $0.56
Starbucks SBUX $0.29 $0.25
SLM Corp SLM $0.39 $0.28
SanDisk SNDK $0.95 $0.57
Vertex Pharmaceuticals VRTX -$0.70 -$0.80

Earnings Before The Bell

Company

Symbol

EPS
Reuters
Estimate
AmerisourceBergen ABC $0.63 $0.55
Autonation AN $0.34 $0.32
Air Products APD $1.23 $1.20
Baxter BAX $0.93 $0.93
BB&T Corp BBT $0.27 $0.23
Peabody Energy BTU $0.52 $0.41
Danaher DHR $0.96 $0.88
Diamond Offshore DO $2.09 $1.93
Fifth Third FITB -$0.09 -$0.17
Goodrich GR $0.86 $0.93
Hershey HSY $0.64 $0.47
Janus Capital JNS $0.17 $0.18
Kimberly-Clark KMB $1.14 $1.15
L-3 Communications LLL $1.87 $1.77
Southwest Air LUV $0.03 $0.03
Marriott MAR $0.22 $0.20
Pepsico PEP $0.76 $0.75
ProLogis PLD $0.05 $0.12
Philip Morris PM $0.90 $0.93
PNC Bank PNC $0.66 $0.49
Raytheon RTN $1.27 $1.10
Sherwin-Williams SHW $0.40 $0.40
Sigma-Aldrich SIAL $0.84 $0.79
Textron TXT $0.05 -$0.03
Union Pacific UNP $1.01 $0.93
Verizon VZ $0.56 $0.56
Zimmer Holdings ZMH $1.02 $1.01

* Report includes items that make comparisons to the consensus estimate questionable

Wall Street Research Summary

Upgrades:

  • CH Robinson (NASDAQ:CHRW) - BofA/Merrill
     
  • Viacom (VIA.B) - BMO Capital
     
  • BlackRock (NYSE:BLK) - Citi
     
  • Boeing (BA) - Credit Suisse
     
  • Adobe Systems (NASDAQ:ADBE) - Added to Conviction Buy at Goldman
     
  • Alcoa (NYSE:AA) - HSBC
     
  • Chipotle Mexican Grill (NYSE:CMG) - Jefferies, Oppenheimer
     
  • SunTrust Banks (NYSE:STI) - Keefe, Bruyette & Woods
     
  • MGIC Investment (NYSE:MTG) - Keefe, Bruyette & Woods
     
  • Huntington Bancshares (HBAN) - Keefe, Bruyette & Woods
     
  • H&R Block (NYSE:HRB) - Macquarie Research
     
  • Gilead Sciences (NASDAQ:GILD) - Morgan Stanley
     
  • Genzyme (GENZ) - Piper Jaffray
     
  • Ann Taylor (NYSE:ANN) - Estimates and target increased at UBS

     

    Downgrades:

  • Amgen (NASDAQ:AMGN) - BofA/Merrill
     
  • Time Warner (NYSE:TWX) - BMO Capital
     
  • Beazer Homes (NYSE:BZH) - Citi
     
  • EMC (EMC) - Removed from Conviction Buy at Goldman
     
  • SunTrust Banks (STI) - Oppenheimer
     
  • KeyCorp (NYSE:KEY) - RBC Capital
     
  • Hovnanian (NYSE:HOV) - UBS
     
  • Elan Corp (NYSE:ELN) - UBS

     

    Long positions in stocks mentioned: AAPL, MEE, ABC, GR, PLD

    For more "top stock" portfolios and research, visit TopStockPortfolios.com

     


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Disclosure: ACF, AAPL, MEE, ABC, GR, PLD