Wednesday, May 19, 2004

Wednesday Watch

Earnings of Note

None of note.

Economic Data
None of note.

Goldman Sachs reiterated Outperform on MDT, BIIB, ROH, GLK, CCU, ADP and FDC. GS reiterated Underperform on SKS and TFX.

Late-Night News
Asian indices are sharply higher on falling oil prices, U.S. technology earnings reports and optimism over the political situations in India and Taiwan. Al-Qaeda may be planning a chemical or biological attack on U.S. soil in an attempt to alter the outcome of the election in November, the top intelligence officer at the Homeland Security Department said, the AP reported. At least one soldier has been arrested in connection with faked pictures of Iraqi prisoners allegedly being abused by British servicemen, the BBC reported. Research reported in a conference in New Orleans found that a form of cancer of the esophagus has increased more than five times in the U.S. over the past 25 years in correlation with higher consumption of carbonated beverages, Reuters said. Taiwan President Chen Shui-bian will probably avoid making provocative statements in his inauguration speech that may futher strain relations with China, ETTV reported, citing U.S. Deputy Secretary of State Richard Armitage. Aluminum Corp. of China(ACH) said it's in talks to buy as much as 300,000 metric tons of capacity this year, snapping up assets from rivals weakened by soaring raw material costs, Bloomberg said. Indian stocks rose for a second day on optimism Manmohan Singh, the former finance minister who cut state controls and encouraged foreign investment, will be prime minister after Sonia Gandhi declined the post, Bloomberg reported.

Late-Night Trading
Asian Indices +2.50% to +4.5% on average.
S&P 500 indicated +.65%.
NASDAQ indicated +.93%.

BOTTOM LINE: I expect U.S. stocks to rally again tomorrow on strong corporate earnings, falling energy prices, positive developments in Asia and stabilizing interest rates. Tomorrow should confirm that last Wednesday marked the beginning of a short to intermediate-term rally. I am looking for a 2%+ broad-based rally tomorrow on good volume. In the last week the S&P 500's 04 P/E has fallen from 17.25 to 16.95, while stocks have risen, as many major U.S. companies are beating quarterly estimates and raising 04 forecasts. AMAT, the largest semi-equipment maker in the world, is down 26% from its recent high. The company posted sales growth of 82% and net income beat estimates by 16%. The CFO said on a conference call that "Under-investment in the past three years has created pent-up demand" and hinted that order growth is accelerating. Its valuation appears very reasonable considering this kind of growth from a global industry leader. I continue to believe that this semiconductor cycle will last substantially longer than analysts currently anticipate. AMAT joins MOT, EBAY, DELL, YHOO, QCOM, JNPR, BRCM, MU, ERTS, FLEX, A, XLNX, TXN, VRTSE, AMZN, CSCO and INTC, all major U.S. technology companies that reported 20%+ sales growth in their most recent quarters. Corporate spending on technology has improved significantly from last year and should accelerate throughout 04 for a variety of reasons. The Portfolio is 125% net long heading into trading tomorrow.

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