Don't look now Bear fans, but the S&P 500 has advanced for 5 straight days and closed yesterday at its highest level in eleven months. However, I'm sure I wasn't the only investor nervously watching the mid-August highs yesterday as a repeat of the recent stall patterns appeared to be a distinct possibility. But instead of struggling with resistance, the troops appeared to follow the NASADQ's lead and the indices powered to new cycle highs.
If you will recall, in both mid-June and mid-August, the indices pulled the old "breakout fakeout" routine, stalled for several days and then proceeded to correct lower. So, with the majority of analysts talking about how extended the now six-month old rally has become, anybody leaning long might have been a little concerned about a repeat performance.
The culprit for the recent robust rise has not been a single game-changing economic report but rather a string of pre-announcements from corporate America suggesting that things are actually starting to improve a bit. Granted, the bar for the third quarter's earnings season has been set rather low. And yes, the majority of the earnings gains in the second quarter did come from cost-cutting. But remember, analysts have spent the better part of a year taking a hatchet to the estimates and as such, the reductions in earnings expectations have reached record levels. Thus, it is fairly safe to say that companies with a little momentum could have a fairly easy time beating the estimates for both the third and fourth quarters.
Yesterday was a perfect example of the quietly bullish news flow that has been showing up recently. For example, we got an addition to the steady stream of upbeat preannouncements from the semiconductor space, above consensus guidance from Procter & Gamble (PG), positive comments from General Mills (GIS) that earnings are tracking ahead of schedule, and word of an improvement in back-to-school sales results at Office Depot (ODP).
And while the following isn't earnings related, it was positive all the same that Hartford (HIG) said unrealized losses were actually shrinking more than expected in July and August, that the IEA increased their estimate for global oil demand for the second straight month, that the Treasury's auction of 30-year bonds was once again well received, and that initial claims for unemployment insurance continue to trend lower.
So, if you are looking for a headline to tie the recent rally to, you might have a hard time. However, if you've kept an ear to the ground and are listening hard, you have probably heard a fair amount of "good stuff" lately.
This is not to say that stocks aren't overbought and/or due for a pullback. But, given the positive action on the charts of the S&P and the NASDAQ, we'd suggest to anyone who is siding with the glass-is-completely-empty crowd right now to get out of the bitter barn and start buying the dips. Sure, the so-called "easy money" has been made. But it looks to us that the bulls may still have a little something left in the tank.
Turning to this morning, Import Prices for August came in up 2% vs. expectations for 1.0%. In addition, we'll get reports on Wholesale Inventories and the University of Michigan's Confidence at 10:00 am.
Running through the rest of the pre-game indicators, the foreign markets are mostly higher. Crude futures are moving lower with the latest quote showing oil trading down by $0.30 to $71.64. On the interest rate front, we've got the yield on the 10-yr trading at 3.35%, while the yield on the 3-month T-Bill is currently at 0.14%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 9 points; the S&P's are about even, while the NASDAQ also looks to be about even with fair value at the moment.
If you are serious about staying on top of your portfolios, you
will need to keep abreast of what The Street is saying about your
stocks. While not all analyst upgrades or downgrades will move a
company's stock in a big way, you can rest assured that there are those
that will most definitely get traders' attention.
So, be sure to start your day with a quick perusal
of the upgrades and downgrades from Wall Street's finest. Below is a
list of today's rating changes:
Upgrades/Downgrades/Brokerage Research:
- Garmin (GRMN) – Upgraded at BofA/Merrill
- Electronic Arts (ERTS) – Downgraded at BofA/Merrill
- RRI Energy (RRI) – Upgraded at Barclays
- Calpine Corp (CPN) – Downgraded at Barclays
- American Axle (AXL) – Upgraded at Barclays
- Goldman Sachs (GS) – Estimates and target increased at Citi
- News Corp (NWS.A) – Downgraded at Cowen & Co.
- Plum Creek (PCL) – Upgraded at Credit Suisse
- Ann Taylor (ANN) – Upgraded at FBR Capital
- Colgate-Palmolive (CL) – Upgraded at Goldman
- Schlumberger (SLB) – Upgraded at Goldman
- Progressive (PGR) – Upgraded at Goldman
- Clorox (CLX) – Downgraded at Goldman
- Smith Intl (SII) – Downgraded at Goldman
- Allstate (ALL) – Downgraded at Goldman
- Adobe Systems (ADBE) – Initiated Buy at ISI Group
- Salesforce.com (CRM) – Initiated Buy at ISI Group
- VMware (VMW) – Initiated Buy at ISI Group
- Banco Santander (SAN) – Upgraded at Morgan Stanley
- Best Buy (BBY) – Downgraded at Oppenheimer
- Morgan Stanley (MS) – Mentioned positively at Rochdale
- Intel (INTC) – Upgraded at Roth Capital
- VimpelCom (VIP) – Downgraded at Royal Bank of Scotland
- Qwest (Q) – Upgraded at Thomas Weisel
- Amazon.com (AMZN) – Mentioned positively at UBS
- PartnerRe (PRE) – Upgraded at Wells Fargo
- American Intl Group (AIG) – Downgraded at Wells Fargo
Long positions in stocks mentioned: GS, RE
Enjoy your Friday, have a pleasant weekend, and until next time, "may the bulls be with you!"
