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Adjusting The Focus?

Daily State of the Markets 
Friday Morning – June 4, 2010

After spending nearly every waking moment since April 26th focused on the macroeconomic issues relating to the debt mess in Europe, it appears that traders may be shifting their focus back to the issues here at home. With this morning's jobs report expected to be strong, stocks may be embracing the reality that the domestic economy isn't half bad right now.

Perhaps we have Mr. Buffett to thank for this as the Oracle of Omaha opined this week that the U.S. economy appears to be "picking up steam" and that the problems in Europe do not appear to be having an impact on things here at home right now. And whether or not Buffett actually originated the idea that Europe's problems are, well, Europe's problems; the bottom line is that refrain has been sung a fair amount this week.

The economic calendar was fairly heavy on Thursday. And while not every report was worthy of a ticker-tape parade, there was enough good news to keep traders focused on the data in the good 'ol USofA. For example, while ADP reported that private-sector job growth was a bit below expectations, the gain of 55K jobs coupled with the revision to April's numbers was encouraging. Next up, the report on Weekly Jobless Claims showed that the labor market continues to move forward, albeit at a snail's pace. And finally, the Institute for Supply Managers report on the state of the services sector showed that things outside of the manufacturing biz continue to improve here in the U.S.

So, with an abundance of data supporting the idea that the economy here at home remains in pretty decent shape and most analysts expecting the jobs data to be good, we'll suggest that maybe, just maybe, traders will be able to adjust their focus - even if for just a little while.

Although things can change at a moment's notice these days, we find it modestly encouraging that the Nasdaq just might be resuming a leadership role this week. If you will recall, right up until things went to heck in a hand basket in late-April, it was the tech-heavy Nasdaq that had been leading the parade higher. Thus, the fact that the Nasdaq Composite appears to have broken above the important resistance that seems to be keeping the rest of the indices trapped is a good sign.

However, from a chart perspective, the bottom line is the major indices are positioned at the top of the recent trading range and right at important resistance. Thus, it would appear that the market is positioned to break out on a good jobs number and return to the range if the number is not as hot as advertised.

Turning to this morning... Unfortunately, the attention has shifted back across the pond in the pre-market as Hungary is talking about it becoming the next Greece and France's Prime Minister has said that another 20% decline in the Euro against the greenback would be a good thing.

On the economic front... the Big Kahuna of economic reports was a BIG disappointment. The Labor Department reported that Nonfarm Payrolls, which is arguably the most important gauge of the state of the economy at the present time, grew in the month of May by 431,000. This total was below the consensus estimates of economists surveyed for an increase of 536,000 jobs. Census hiring was responsible for 411K new jobs during the month. The private sector (aka the household survey) showed gains of just 41,000 jobs, which was well below the estimates for 180,000.

The nation’s Unemployment Rate fell 0.2% to 9.7%, which was below expectations for a reading of 9.8 and April’s level of 9.8%. Average hourly earnings were up +0.3% on a month-over-month basis which was above expectation.

The bottom line is that given all the hype for a big positive surprise, this was a very disappointing report and stocks have sold off hard on the news.

Finally, best of luck on what could be a wild Friday... and regardless of the outcome, be sure to enjoy your weekend!

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -0.75%
       
    • Shanghai: +0.04%
       
    • Hong Kong: -0.03%
       
    • Japan: -0.13%
       
    • France: -1.22%
       
    • Germany: -0.35%
       
    • London: -0.58%

     

  • Crude Oil Futures: -$1.59 to $73.02
     
  • Gold: -$6.50 to $1203.50
     
  • Dollar: Lower against Yen, Euro,and Pound
     
  • 10-Year Bond Yield: Currently trading lower at 3.34%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -20.8
       
    • Dow Jones Industrial Average: -176
       
    • NASDAQ Composite: -38

       

Wall Street Research Summary

Upgrades:

  • FirstEnergy (NYSE:FE) - Citi
     
  • Public Service (NYSE:PEG) - Citi
     
  • Joy Global (JOYG) - Longbow Research
     
  • Cheesecake Factory (NASDAQ:CAKE) - Initiaged Positive at Susquehanna
     
  • Darden Restaurants (NYSE:DRI) - Initiaged Positive at Susquehanna
     
  • Brinker (NYSE:EAT) - Initiaged Positive at Susquehanna
     
  • McDonald's (NYSE:MCD) - Initiaged Positive at Susquehanna
     
  • YUM! Brands (NYSE:YUM) - Initiaged Positive at Susquehanna
     
  • STMicroelectronics (NYSE:STM) - UBS
     
  • Alcatel-Lucent (ALU) - UBS
     
  • LM Eicsson (NASDAQ:ERIC) - UBS

     

    Downgrades:

  • Concho Resources (NYSE:CXO) - BofA/Merrill
     
  • U.S. Steel (NYSE:X) - Removed from Conviction Buy at Goldman Sachs
     
  • Hornbeck Offshore (NYSE:HOS) - JPMorgan
     
  • Nalco Holding (NYSE:NLC) - JPMorgan
     
  • Research in Motion (RIMM) - Target reduced at UBS

     

    Long positions in stocks mentioned: None

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

     


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