Mid-day Update

S&P 500 1,135.65 -.57%
NASDAQ 2,003.20 -1.00%

Leading Sectors
Telecom +1.97%
Airlines +.38%
Gaming +.18%

Lagging Sectors
Biotech -2.17%
Semis -2.32%
Homebuilders -2.33%

Other
Crude Oil 37.15 -.35%
Natural Gas 6.08 -.57%
Gold 385.10 -1.71%
Base Metals 104.84 -2.11%
U.S. Dollar 89.47 +1.08%
10-Yr. T-note Yield 4.81 +1.01%
VIX 15.09 +.53%
Put/Call .76 -11.63%
NYSE Arms 1.05 +15.38%

Market Movers
IPIX +21.1% after saying its full-360 degree video surveillance systems are deployed at the G-8 Summit.
OVTI -29.03% after lowering 1Q estimates and saying it may restate prior quarter results.
DNA -5.91% after Sanford C. Bernstein downgrade to Market Perform.
DHB +30.6% after saying it was awarded a $239.4 million contract to supply the U.S. Army with the company's new armor that shields arms and shoulders.
BDY +15.3% after saying it has entered into a definitive agreement to acquire the assets of Bioglan Pharmaceuticals, a subsidiary of Quintiles Transnational, for $183 million.
TOM -10.96% after lowering 1Q/05 forecast.
NKTR -11.8% after saying its Exubera NDA won't come until 05.

Economic Data
Wholesale Inventories down .1% in April versus estimates of a .5% rise and a .5% rise in March.

Recommendations
Goldman reiterated Outperform on BIIB, AMLN, GILD, TRMS, CCL, RCL, FS, GDT and IP. Goldman sees PC growth of at least 12% in 04, any upside to this will drive stocks higher. Goldman rated NRG Outperform. Citi SmithBarney said to Buy STT right now, target $62. Citi reiterated Buy on KMB, target $72. Citi reiterated Buy on PCG, target $34. ROCK raised to Sector Outperform at CIBC, target $35. PXD raised to Outperform at CSFB, target $39. SPLS rated Outperform at CSFB, target $34.

Mid-day News
U.S. stocks are falling mid-day as interest rates rise ahead of several key inflation reports. AirTran is better situated than competitors as the cost of jet fuel increases, because it has "hedged" 50% of its fuel for the rest of this year and bought 15% for 05, CEO Leonard told CNBC. President Bush supports stem-cell research with limits, First Lady Laura Bush told CNN. TiVo will unveil Internet-based features that will allow subscribers to download films and music from the Web to their recorders' hard drive, the NY Times reported. Sovereign Bancorp is considering a bid for NY Community Bancorp, the NY Daily News said. The growth in health-care spending in the U.S. fell for the second year in a row in 03, because demand for health services decreased, the AP reported. Disney and three French banks agreed to bail out Euro Disney for the second time in a decade, Bloomberg reported. A government report showed inventories relative to sales dropped to an all-time record low of 1.12 month's supply in April, suggesting companies will have to order more from factories in coming months to catch up with demand, spurring production and adding to growth, Bloomberg reported. The U.S. Justice Department won't ask the Supreme Court to reverse a lower court's decision striking down federal rules that give AT&T and other carriers discounted access to local-telephone companies' networks, Bloomberg said. Crude oil is falling to a 6-week low after the Energy Department reported that U.S. oil and gasoline inventories rose last week. U.S. Treasury notes fell for the third day in four on speculation inflation will accelerate, leading the Fed to boost rates faster than anticipated, Bloomberg reported.

BOTTOM LINE: The Portfolio is down today as my semiconductor, telecom equipment and internet longs are declining. I have taken profits in many longs this morning and added several new shorts, bringing the Portfolio's market exposure to 50% net long. The Portfolio is up substantially for the year and I want to protect profits over the short-term. One of my new shorts is SSYS and I am using a $27.50 stop-loss on the position. I also shorted a few homebuilders. Inflation reports over the next week from the PPI and CPI will likely exceed expectations, further pressuring bonds. Moreover, I expect stocks to trade weaker to neutral as investor anxiety rises over the next 2 weeks ahead of the Fed rate hike, Iraqi handover, end of the quarter and Russell rebalancing. I then expect U.S. stocks to begin another up-leg at the end of the month or beginning of July.