Mid-day Update

S&P 500 1,109.87 -1.04%
NASDAQ 1,929.85 -1.40%

Leading Sectors
Foods -.03%
Drugs -.31%
Utilities -.38%

Lagging Sectors
Retail -2.70%
Disk Drives -2.70%
Airlines -3.42%

Other
Crude Oil 39.42 -.38%
Natural Gas 6.25 -1.03%
Gold 387.40 -1.60%
Base Metals 105.68 +.46%
U.S. Dollar 89.85 +.58%
10-Yr. Long-Bond Yield 4.59% +.32%
VIX 17.34 +9.96%
Put/Call 1.31 +54.12%
NYSE Arms 1.29 +67.53%

Market Movers
KG -16.6% after substantially missing 1Q estimates and withdrawing 04 forecast.
GMST -23.81% after missing 1Q estimates and lowering 04 forecast.
MGPI +28.47% after strong 3Q estimates and raising 04 forecast.
ASYT +22.16% after substantially beating 4Q estimates and raising 1Q forecast.
HANS +13.67% after beating 1Q estimates.
THQI +9.9% after beating 4Q estimates and raising 1Q/04 forecast.
IPMT +5.96% after beating 1Q estimates and raising 04 forecast.
WMS +6.42% on strong 3Q results, raised to Buy at Roth Capital, $35 target.
HB -17.03% after substantially missing 2Q estimate and lowering 3Q/04 forecast.
PPCO -17.85% after saying it will begin a new study on a painkilling drug as the FDA said its prior results were favorably biased.
CHS -7.11% on profit-taking after announcing above-expectations 16% same-store-sales.
MIK -7.0% after missing April same-store-sales estimate and lowering 1Q guidance.

Economic Data
Preliminary 1Q Non-farm Productivity +3.5%, meeting estimates, versus 2.5% in 4Q.
Preliminary 1Q Unit Labor Costs +.5% versus 0.0% expectations and -.4% in 4Q.
Initial Jobless Claims for last week 315K versus 335K expectations and 340K prior week.
Continuing Claims 2935K versus expectations of 2971K and 3004K prior week.

Recommendations
Goldman Sachs upgraded NOI to Outperform. GS reiterated Attractive view on oil service stocks, saying they prefer equipment/service stocks over drillers. GS reiterated Underperform on AMCC, LVLT and T. GS reiterated Outperform on TRW, CMX, HD, AET, GE, IGT, AGI and BSX. Citi Smith Barney upgraded HIG to Buy, target $81. Citi said to Sell ADBE and Buy VRTS, target $33. Citi reiterated Buy on MCD, target $33. Citi reiterated Buy on PMI, raised target to $55. Citi also said 2 restaurants well-positioned to battle rising costs are SBUX and WEN. JWN raised to Buy at UBS, target $44. VSH raised to Buy, target $24. ADTN raised to Buy at Legg Mason, target $32. MU raised to Outperform at CSFB, target $19. NOC raised to Buy at Bank of America, target $115. COLM rated Outperform at CSFB, target $67. DDR raised to Overweight at Morgan Stanley, target $35. EXPD raised to Outperform at Bear Stearns.

Mid-day News
U.S. stocks are falling mid-day as better-than-expected reports on jobs and wages fueled concerns that inflation is accelerating. Goldman Sachs said key takeaways from its Electrical Products Group Conference are that companies are seeing strong organic growth, higher capital spending, a pick-up in price increases and improved balance sheets which can help fund stock repurchases or acquisitions. Goldman says the bottom line is that the industrial recovery is accelerating. AOL unveiled a new video game site yesterday to try to win over more customers to its high-speed broadband Internet service, Reuters reported. Adidas plans to introduce a $250 running-shoe line, the Wall Street Journal reported. XM Satellite Radio Chairman Parsons told CNBC he expects to have 2M subscribers by the end of the second quarter and that subscribers will exceed 2.8M in 04. The legal voting age in California could drop to 14, after the Senate Elections Committee voted 3-2 to pass legislation that would lower the state's age, the San Francisco Chronicle reported. News Corp., owner of the FOX network, said its fiscal 3Q profit increased by 69% on higher ad sales from its "American Idol" show and Fox News Channel. The Madrid terrorist bombings which killed 191 people three days before national elections, influenced the voting decisions of 28.5% of Spaniards, according to a Center for Sociological Research Poll. A slowdown in China's economy will push global commodities prices lower, helping restrain inflation, said Alan Greenspan. Sales at U.S. retailers including Wal-Mart, Nordstrom and JC Penney increased less than expected in April, causing retail shares to fall, Bloomberg reported. Unit Labor costs rose last quarter for the first time in a year, which may herald faster growth in wages and fuel concern about inflation, Bloomberg reported. The number of Americans filing applications for unemployment benefits fell to the lowest since the stock market bubble burst in 2000 and productivity trailed economic growth for a second quarter, suggesting companies will increase hiring, Bloomberg reported.

BOTTOM LINE: The Portfolio is up today as my healthcare and energy longs are down less than my retail and technology shorts. I have not traded today and the Portfolio is still positioned market neutral(shorts-longs=0). While it is good to see investor complacency is starting to fall as evidenced by the soaring ARMS, Put/Call readings and falling AAII Bullish %, their current levels are still not sufficient to form a meaningful bottom in this correction. The recent slew of better-than-expected economic reports points to a better-than-expected jobs' report tomorrow, which would likely send interest rates higher and stocks lower. However, a below-expectations report could provide the catalyst for a short-term oversold trading rally. The key will be the bond markets reaction to this report.