Morning Report: Reevaluation Takes Hold, Stocks Tank, Greek Correct

(Stocks in this article: Nasdaq: CSCO, NYSE: S, Nasdaq: CROX, NYSE: CVS, NYSE: UL, NYSE: CS, NYSE: EK, NYSE: MHS, NYSE: PTR, NYSE: ABX, NYSE: MER, NYSE: C, NYSE: HON, NYSE: CAT)

Equities have opened lower to start Thursday, as the market reevaluates the true impact of the Fed's neutral bias. First and foremost, the dollar already rebounded in European trade. Oil is higher to start the day, after rising yesterday ahead of the FOMC announcement on weak import levels. However, I view the gold and oil drives running on fumes now, and I continue to believe factors are coming together to bring about an oil top. The most important drivers of today's trading follow below:

1. After the dollar weakened again yesterday, it's begun to show signs of life today in Europe. As we suggested yesterday, the Fed Policy Statement clearly communicated a neutral bias going forward. The Fed's intent was unmistakeable. While giving the stock market what it wanted for the day, and keeping credit markets fluid, it left market forecasters to fend for themselves with economic and corporate data in the months ahead. My view ahead of the September 50 basis point move was that significant political pressures and credible corporate incentive existed to push the Fed's change in view. I also pointed out the move would prove a "half-devil," to be followed by inaction. I was wrong once (on the 25 point action), but the Fed proved me right in its statement. Therefore, moving forward, I predict the dollar has now hit a near-term bottom. This means a reversal for U.S. multinationals is possible. Caterpillar (NYSE: CAT) has already given back its summer gains, but I see no catalyst for rise here either. Honeywell (NYSE: HON), which has defensive offsets, still has room to give back a few points on dollar strength. My point is, I would look to American multinationals to give back some value now. I will look to uncover some richly valued short ideas for you now.


2. I believe oil will post a near-term top sometime between now and when OPEC likely announces a production boost. OPEC ministers have started to show signs of cracking. Qatar's minister stated earlier this week that OPEC would act on "physical needs." What he means by this is, $100 oil is not going bring OPEC table (probably to the casino table though), but the kind of supply information reported by the EIA yesterday should. I expect rumors of an OPEC meeting to start surfacing and to support downside to oil. Yesterday's Fed announcement removes dollar support, and I am now pounding the table on my sell recommendation regarding PetroChina (NYSE: PTR), Barrick Gold (NYSE: ABX) and other richly valued commodity plays. I'm going to spend the afternoon looking for other extended stocks in the group for you.


3. Personal Consumption was reported up 0.3% in September, versus expectations for a 0.4% increase. Personal Income was reported up 0.4%, missing Bloomberg's consensus of 0.5%. The PCE Deflator, the Fed's preferred inflation gauge, showed a year-to-year rise of 1.8%, easing inflation concerns. However, consumer spending adjusted for inflation, rose just 0.1%. Even so, I do not believe this report should make impact today, as retailers' shares are already well-discounted.


4. Two separate jobs reports reached market. The Challenger Job-Cut Report showed announced layoffs for October at 63,114, compared to September's 71,739. The weekly jobless claims report showed new filers at 327,000, modestly below consensus expectations. In my view, this data will not offer investors any relief, but should not add to economic concerns either.


5. Citigroup (NYSE: C) rumors of a potential dividend cut on the heels of an analyst downgrade has traders antsy this morning. Remember, Citi's recent writeoff was only trumped by the financial sector weakness reported by Merrill Lynch (NYSE: MER). Fed direction pulls the rug from financial sector recovery for the near term, in my view, so I would not go looking for bargains now.

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