Weekly Outlook

U.S. stocks should extend recent gains this week, as the release of a number of key economic indicators should confirm brisk growth with little inflation. As well, recent merger activity should continue and a number of leading U.S. companies are set to release earnings. Reports over the weekend say North Fork is nearing an agreement to acquire GreenPoint Financial for about $6.2B in a union of two similarly sized New York regional banks. Shares of AT&T Wireless and Disney gained in Europe on Mon., as investors speculated there will be takeover battles for the 3rd-largest U.S. mobile phone provider and the No. 2 U.S. media company. Agilent(A), Applied Materials(AMAT), Hewlett-Packard(HPQ), Intuit(INTU), Nextel(NXTL), Nordstrom(JWN), Wal-Mart(WMT) and Target(TGT) report this week. Options expiration should add to volatility towards the end of the week.

BOTTOM LINE: The short-term technical indicators I follow turned negative last week, thus my Portfolio's relatively low(40% net long) level of market exposure. I believe we are still consolidating from the markets extraordinary strength over the last 12 months before we make new highs. While I am cautious short-term, I am getting more and more positive on the markets potential performance for the year. Valuations are LOW for the general market on expected 04 earnings relative to interest rates. With an expected P/E of 18.8 and interest rates at 46-year lows, the S&P 500 should continue a meaningful advance. Fed Fund futures are now showing market expectations that the Fed will remain on hold until Oct. I can't emphasize enough how positive the recent acceleration in merger and acquisition activity is for the market. Venture capital, for the first time in several years, is accelerating its flow into many promising U.S. start-ups. Investors have poured $31B into equity mutual funds just this year, according to recent data. The media harps on the decline in the dollar and large budget/trade deficits scaring away foreign investors, yet recent data suggest otherwise. Foreigners' appetite for U.S. stocks and bonds remains voracious. In November, foreign purchases of U.S. stocks and bonds jumped 217% to 87.6 billion, after a 560% jump in October according to The Street.com. A quiet IPO/secondary market, major Merger/acquisition activity and increasing inflows into U.S. equity funds all paint a very bright supply/demand picture for the market. Economic data points released this week should confirm accelerated spending by corporate America. Finally, with asset values increasing, debt service burdens decreasing, interest rates/inflation low, large increases in income tax refunds and income/job growth steadily accelerating, the consumer should continue to contribute meaningfully to economic growth. Strong housing and retail markets will provide a significant boost to 1st Q GDP, propelling it above 5% for the quarter. Overall, despite the negativity conveyed by most of the mainstream media, 04 is shaping up to be another very good year.