Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

A Major Disagreement?

Daily State of the Markets 
Friday Morning – August 6, 2010

Good morning. The nice thing about an early August session where most investors spent the day simply biding their time in front of this morning's jobs report, is it gave us plenty of time to ponder the big picture. For me, it was a call from a long-time friend and a pretty decent market watcher that drew my attention to what appears to be a fairly important disagreement between Ms. Market and Mr. Bond.

Generally speaking, there is usually a message provided by the stock and bond markets. And as I've mentioned a time or thirteen over the years, I tend to side with the bond market on matters involving the economy because bond investors have less to worry about. But with the current message coming from these two markets appearing to be diametrically opposed, I find myself inclined to listen to both sides of the discussion.

With the stock market up +10.1% from its early July lows - lows that were put in due to fear that the economy was going to soon dip back into recession - one can easily argue that stocks are looking forward to better days ahead and that the risk of recession appears to be off the table. And as we've reported several times recently, there have even been a handful of economic reports from both sides of the Atlantic that have actually come in above expectations. So, with the tone of the market having clearly improved, it would appear that stocks may be able to move up - as long as things don't fall off of a cliff, of course.

However, the bond market appears to be painting an entirely different picture as the yield on the 10-year finished Thursday just a hair more than two basis points from its lowest level of the year. What is interesting here is that the low of the year also happens to be the lowest yield seen since the funeral for the banking industry was called off in March of 2009. So, this is kind of a big deal in the bond pits.

The argument can be made that Mr. Bond seems to be suggesting that the economy is not exactly in great shape at the present time and isn't likely to improve much in the near-term. This, again, is just about the polar opposite of the "message" from the stock market.

However, in light of the fact that the all-important jobs report is just about to be released and that this number is likely to drive both markets today, I have just one more quick thought to offer. There is a chance that the bond market just might be focusing more on inflation or, more accurately, the lack thereof, at the present time and the lack of potential for price appreciation in the economy is the reason for the low yields. So, while we've got to turn our attention to the number du jour, this issue remains something to ponder going forward.

Turning to this morning... All eyes are on the Jobs report, so let's get to it. The Labor Department reported that Nonfarm Payrolls, which is arguably the most important gauge of the state of the economy at the present time, fell in the month of July by 131,000. This was below the consensus estimates for a decrease of 76,000. In addition, June payrolls were revised lower to -221K from -125K. June Private Payrolls revised lower to +31K from +83K. Next up, the nation’s Unemployment Rate fell 0.1% to 9.5%, which was below expectations for a reading of 9.6 and in line with June’s level of 9.5%. Finally, the private sector (aka the household survey) showed gains of 71,000 jobs, which was below the estimates for 89,000K.

Stock futures have plunged on the news and as one might expected, bond yields have also moved to a new low for the year. Thus, at least for the moment, it appears that the bond market has it right.

Finally, best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

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

  • Major Foreign Markets:
    • Australia: +0.03%
       
    • Shanghai: +1.44%
       
    • Hong Kong: +0.59%
       
    • Japan: -0.12%
       
    • France: -0.73%
       
    • Germany: +0.31%
       
    • London: +0.60%

     

  • Crude Oil Futures: - $0.96 to $81.11
     
  • Gold: + $1.20 to $1200.50
     
  • Dollar: lower against Yen, higher vs. Euro and Pound
     
  • 10-Year Bond Yield: Currently trading lower at 2.86%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -8.40
       
    • Dow Jones Industrial Average: -76
       
    • NASDAQ Composite: -19.90

       

Wall Street Research Summary

Upgrades:

  • PF Chang's (NASDAQ:PFCB) - Argus Research
     
  • McDonald's (NYSE:MCD) - Estimates increased at Cowen
     
  • Alliant Techsystems (ATK) - Credit Suisse
     
  • Hyatt Hotels (NYSE:H) - FBR Capital

     

    Downgrades:

  • Career Education (NASDAQ:CECO) - BMO Capital
     
  • Blue Nile (NASDAQ:NILE) - Goldman
     
  • Viacom (VIA.B) - Janney Capital
     
  • Autodesk (NASDAQ:ADSK) - Jefferies
     
  • Transocean (NYSE:RIG) - JPMorgan
     
  • Genzyme (GENZ) - Piper Jaffray
     
  • Hewitt Associates (HEW) - RW Baird
     
  • Tenaris (NYSE:TS) - UBS
     
  • American Eagle (NYSE:AEO) - Wells Fargo
     
  • Aeropostale (NYSE:ARO) - Wells Fargo

     

    Yesterday's Earnings After the Bell

    Company

    Symbol

    EPS
    Reuters
    Estimate
    Activision Blizzard ATVI $0.06 $0.05
    CF Industries Holdings CF $1.54* $3.16
    EOG Resources EOG $0.18 $0.24
    Harman International HAR $0.30 $0.31
    Kraft Foods KFT $0.60 $0.52
    Microchip MCHP $0.55 $0.51
    PerkinElmer PKI $0.38 $0.33
    Public Storage PSA $0.26 $0.21
    Southwestern Energy SWN $0.35 $0.36

    Earnings Before The Bell

    Company

    Symbol

    EPS
    Reuters
    Estimate
    AES Corp AES $0.23 $0.22
    American International Group AIG $1.14 $0.98
    Progress Energy PGN $0.63 $0.62
    Pepco Holdings POM $0.34 $0.19
    Warner Chilcott WCRX $0.95 $0.81

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

    Long positions in stocks mentioned: RIG

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

     


    The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.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. 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 TopStockPortfolios 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. Stocks 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 our websites and TopStockPortfolios publications 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. (NASDAQ:HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission 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.



Disclosure: Long RIG