Mid-day Update

S&P 500 1,113.82 -.09%
NASDAQ 1,897.78 +.20%

Leading Sectors
Iron/Steel +1.84%
Commodity +1.44%
HMOs +1.21%

Lagging Sectors
Biotech -.37%
Airlines -2.05%
Drugs -2.62%

Other
Crude Oil 50.04 +1.04%
Natural Gas 6.79 -1.75%
Gold 420.40 -.02%
Base Metals 121.28 +3.41%
U.S. Dollar 87.39 -.79%
10-Yr. T-note Yield 4.14% +1.27%
VIX 13.44 +1.74%
Put/Call .80 -4.76%
NYSE Arms .99 +25.32%

Market Movers
MRK -25.5% after withdrawing its Vioxx painkiller, which generated $2.5 billion is sales last year, because of a link to heart attacks and strokes.
ERES -17.4% after Advest downgrade to Buy, target $21.40.
FNM -4.7% after saying the Justice Dept. is considering whether to conduct a criminal investigation into accounting fraud.
NSTK +12.34% on continued optimism over its nasal spray for obesity.
ACH +6.7% after saying it raised its alumina price by 5% a ton following gains in the import cost of the aluminum metal raw material.
CRAI +8.4% after beating 3Q estimates and boosting 04 guidance.
IMDC +5.1% after announcing that Patricia Walker has accepted the new position of Chief Scientific Officer and Executive VP for Clinical and Regulatory Affairs.
ARRO +5.69% after meeting 4Q estimates and reiterating 05 outlook.
CLSR -33.5% after cutting 3Q/04 outlook.
TLB -9.3% after cutting 3Q forecast and multiple downgrades.
ANN -6.3% on TLB news.

Economic Data
Personal Income for August rose .4% versus estimates of a .4% rise and a .2% increase in July.
Personal Spending for August rose 0.0% versus estimates of a .1% rise and a 1.1% increase in July.
PCE Deflator (YoY) for August rose 2.1% versus estimates of a 2.2% increase and a 2.4% rise in July.
PCE Core (YoY) for August increased 1.4% versus estimates of a 1.5% rise and a 1.4% increase in July.
Initial Jobless Claims for last week were 369K versus estimates of 343K and 351K the prior week.
Continuing Claims were 2873K versus estimates of 2875K and 2876K prior.
Chicago Purchasing Manager for September rose to 61.3 versus estimates of 58.0 and a reading of 57.3 in August.

Recommendations
Goldman Sachs reiterated Outperform on SPLS, PFE, BSX, ATYT and ASN. Citi SmithBarney reiterated Buy on MAR, target $58. Citi rated GNW Buy, target $28. Citi reiterated Buy on GE, target $38. Citi reiterated Buy on AIG, target $80. Citi reiterated Sell on RNR, target $46. Citi reiterated Buy on FHN, target $50. Citi reiterated Buy on WFR, target $14. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on SPLS, target $35. Citi reiterated Buy on FLEX, target $22. COP raised to Buy at Deutsche Bank, target $91. CG rated Outperform at CSFB, target $28. SIRI raised to Overweight at JP Morgan. LRCX rated Underweight at Morgan Stanley, target $19.40. PFE raised to Outperform at Schwab SoundView, target $41. KLAC rated Overweight at Morgan Stanley, target $45. CYMI rated Overweight at Morgan Stanley, target $35.

Mid-day News
U.S. stocks are mixed mid-day as better economic data is being offset by concerns in the pharmaceutical sector. Merck said it's withdrawing its Vioxx painkiller from the market because of data showing and increased risk of heart attack and stroke after 18 months of treatment, Bloomberg reported. Wal-Mart may be planning to sell high-definition televisions in its stores under its own label, the NY Post reported. Kmart Holding is considering moving its corporate headquarters to Atlanta from suburban Detroit, the Detroit, the Detroit News reported. About 15,000 employees of Atlantic City, New Jersey, casinos owned by companies including Harrah's Entertainment, Caesars Entertainment and Aztar may strike tomorrow if union leaders and management don't agree on a new contract, the Star-Ledger reported. DuPont is introducing impact-resistant roofs, safe rooms and products designed to minimize damage to buildings during hurricanes and other natural disasters, the Wall Street Journal reported. Merck CEO Gilmartin told CNBC that the drugmaker's dividend won't be cut after the company's decision to withdraw its Vioxx painkiller because it may be unsafe. One of the organizers of the March 11 Madrid terrorist bombings received a monthly stipend of $2,495 from a Saudi cleric, El Mundo reported. Warburg Pincus may raise more than $8 billion for the world's biggest buyout and venture capital fund next year, Bloomberg reported. Copper prices in NY are rising today to the highest levels in nine years on strong demand from China and the U.S., Bloomberg reported. The frequency and strength of small earthquakes occurring near Washington state's Mount St. Helens accelerated for a second day, raising expectations that the volcano may erupt for the first time in almost 20 years, Bloomberg reported. Iraqi Prime Minister Allawi said attacks by insurgents won't stop elections taking place as planned in January and appealed to the international community to stand by Iraq in its attempts to defeat extremists, Bloomberg said. Business in the Chicago area, a center of manufacturing, grew at a faster pace than expected in September as orders and hiring gained, Bloomberg reported. Daily oil output in the Gulf is still close to 500,000 barrels below pre-storm levels, prompting further gains in the commodity, Bloomberg said.

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Chinese ADR, security and steel longs. I have not traded and the Portfolio is still 125% net long. The tone of the market is ok today, considering the damage to Merck, one of the world's largest pharmaceutical companies and a large component in the DJIA. The underlying strength in the Chicago Purchasing Manager report is welcome and bodes well for economic growth in the fourth quarter. It is also a positive that oil inventories rose this last week even with production in the Gulf at lower levels. I expect U.S. stocks to rise into the close on short-covering, end-of-quarter window dressing and better economic data.