The S&P 500 advanced for an 11th week in 12 on Greenspan's testimony to Congress, takeover announcements and interest rates near 46-year lows. Greenspan told lawmakers Wednesday the U.S. economy may grow as much as 5% this year, the strongest pace since 1984, without sparking inflation. As a result, he said the Fed can be "patient" with respect to raising rates. Comcast's hostile bid for Disney and Juniper's acquisition of NetScreen generated excitement for further takeover announcements. Consolidation, in the form of increased mergers and acquisitions, is generally very positive for the overall market.
In other positive developments, Imclone's Erbitux received FDA approval for the treatment of colon cancer. PC motherboard shipments in Jan. rose much more than expected according to Smith Barney. The FCC ruled a computer-to-computer calling service isn't subject to traditional telephone rules, signaling it will take a hands-off approach to other internet-phone services as it begins a regulatory review of the VOIP industry. Commodity-related sectors exhibited tremendous strength throughout the week on price increases resulting from voracious Chinese demand and a significant improvement in U.S. growth.
While the S&P 500 rose modestly for the week, the NASDAQ fell .5%. This divergence and weakening breadth readings are a little worrisome and merit attention. OPEC's decision to cut production in April and stick to quotas resulted in a significant increase in energy prices. While Dell met expectations, it was more conservative than most investors expected on its conference call. I believe they are managing expectations to enable them to report a very good upside surprise next quarter. Lastly, Bank of America lowered expectations for Intel's 1st quarter sales and profits. I am not sure what to make of this, as it contradicts the Smith Barney motherboard report. Investors took profits across the board in technology the last two days of the week.
BOTTOM LINE: It appears as though last week's market action was a continuation of the recent consolidation that began a month ago. It wasn't a bad week, but with the exception of commodity-related sectors, not good either. It seems as though more consolidation needs to occur before a meaningful thrust through recent highs.
Sunday, February 15, 2004
Economic Week in Review
ECRI Weekly Leading Index 131.7-.68%
Sales at U.S. retailers excluding auto dealers increased .9% in January, the biggest rise in 5 months, as consumers used their Christmas gift cards, taking advantage of post-holiday discounts. As well, cold weather across much of the nation led to increased sales of sweaters and coats. There does not appear to be a retail slow-down so far in February. The same bad weather that helped retailers hurt auto dealers. Including autos, sales fell .3% in January, the first drop since Sept. of 03. However, economists are expecting auto sales to snap back sharply in February with better weather conditions.
The number of Americans filing first-time jobless claims unexpectedly rose by 6,000 last week. Bad weather may have resulted in temporary layoffs at construction related companies, a government spokesman said. It is my opinion that the over-capacity created by the bubble of the late 90's is resulting in an extended time-line for our current recovery. All the expected signs of economic recovery are occurring, but at a leisurely pace. However, this over-capacity is finally being burned off with vigorous U.S. demand in many sectors reported during the last 2 quarters and extending into this quarter. Recently, Cisco Systems and Micron Technology, two of the largest U.S. tech companies, stated that component shortages in their latest quarters are causing them to increase purchases for their inventories from suppliers. Vanguard, one of the largest investment firms in the world, stated this week that a substantial increase in customer interest and activity has resulted in a need to hire a lot of new people quickly.
Furthermore, recent reports showing the ratio of inventories-to-sales at all-time record lows, orders improving for manufacturers more than at any time in 50 years, and a decrease in productivity from 9.2% in the 3rd Q to 2.7% in the 4th Q also point to an increase in hiring very soon. Greenspan went out of his way to point this out several times in his testimony to Congress. Companies have finally squeezed every last ounce of productivity out of their current employees. With GDP growth rising at its fastest past in 20 years, during the last six months, burning off most of the excess capacity produced during the bubble, companies are ready to start hiring again to meet increased demand. Employment has always been a lagging indicator by about 6 months after substantial economic growth. Since substantial growth didn't occur in this recovery until the 3rd Q of 03 and the over-capacity issue is resulting in a push-out of usual recovery characteristics, I believe we are right on schedule for significant job growth within the next 3 months.
The University of Michigan Consumer Confidence Index fell unexpectedly in February to 93.1 from January's near 4-year high reading of 103.8. It is my belief that this decline was a result of several factors. First, I have never seen a greater disconnect between what is really occurring and what the mainstream media are reporting. The media's constant focus and obsession with all things negative could be the result of election year politics or the incorrect assumption that Americans prefer this type of reporting. It is very rare to turn on the nightly news without hearing about how bad the employment situation is, another new terror threat, an attack in Iraq or a new political scandal. I also think an increase in energy prices may have contributed to the decline in sentiment. I am closely following this situation. I am worried that energy prices could cause significant harm to the U.S. economy within the next couple of years. Finally, January's reading of 103.8 was the highest reading since November of 2000. A fall in February from this sharp spike up should have been expected.
BOTTOM LINE: With tax refunds and an improving labor market on the near-tear horizon, it is likely that the consumer will continue to spend. As well, interest rates remain near 46-year lows. These factors, combined with the multi-decade highs in many data points related to increased corporate profitability and spending, leads me to believe that the possibility of a substantial period of U.S. economic prosperity is rising.
Sales at U.S. retailers excluding auto dealers increased .9% in January, the biggest rise in 5 months, as consumers used their Christmas gift cards, taking advantage of post-holiday discounts. As well, cold weather across much of the nation led to increased sales of sweaters and coats. There does not appear to be a retail slow-down so far in February. The same bad weather that helped retailers hurt auto dealers. Including autos, sales fell .3% in January, the first drop since Sept. of 03. However, economists are expecting auto sales to snap back sharply in February with better weather conditions.
The number of Americans filing first-time jobless claims unexpectedly rose by 6,000 last week. Bad weather may have resulted in temporary layoffs at construction related companies, a government spokesman said. It is my opinion that the over-capacity created by the bubble of the late 90's is resulting in an extended time-line for our current recovery. All the expected signs of economic recovery are occurring, but at a leisurely pace. However, this over-capacity is finally being burned off with vigorous U.S. demand in many sectors reported during the last 2 quarters and extending into this quarter. Recently, Cisco Systems and Micron Technology, two of the largest U.S. tech companies, stated that component shortages in their latest quarters are causing them to increase purchases for their inventories from suppliers. Vanguard, one of the largest investment firms in the world, stated this week that a substantial increase in customer interest and activity has resulted in a need to hire a lot of new people quickly.
Furthermore, recent reports showing the ratio of inventories-to-sales at all-time record lows, orders improving for manufacturers more than at any time in 50 years, and a decrease in productivity from 9.2% in the 3rd Q to 2.7% in the 4th Q also point to an increase in hiring very soon. Greenspan went out of his way to point this out several times in his testimony to Congress. Companies have finally squeezed every last ounce of productivity out of their current employees. With GDP growth rising at its fastest past in 20 years, during the last six months, burning off most of the excess capacity produced during the bubble, companies are ready to start hiring again to meet increased demand. Employment has always been a lagging indicator by about 6 months after substantial economic growth. Since substantial growth didn't occur in this recovery until the 3rd Q of 03 and the over-capacity issue is resulting in a push-out of usual recovery characteristics, I believe we are right on schedule for significant job growth within the next 3 months.
The University of Michigan Consumer Confidence Index fell unexpectedly in February to 93.1 from January's near 4-year high reading of 103.8. It is my belief that this decline was a result of several factors. First, I have never seen a greater disconnect between what is really occurring and what the mainstream media are reporting. The media's constant focus and obsession with all things negative could be the result of election year politics or the incorrect assumption that Americans prefer this type of reporting. It is very rare to turn on the nightly news without hearing about how bad the employment situation is, another new terror threat, an attack in Iraq or a new political scandal. I also think an increase in energy prices may have contributed to the decline in sentiment. I am closely following this situation. I am worried that energy prices could cause significant harm to the U.S. economy within the next couple of years. Finally, January's reading of 103.8 was the highest reading since November of 2000. A fall in February from this sharp spike up should have been expected.
BOTTOM LINE: With tax refunds and an improving labor market on the near-tear horizon, it is likely that the consumer will continue to spend. As well, interest rates remain near 46-year lows. These factors, combined with the multi-decade highs in many data points related to increased corporate profitability and spending, leads me to believe that the possibility of a substantial period of U.S. economic prosperity is rising.
Saturday, February 14, 2004
Weekly Scoreboard*
Indices
S&P 500 1,145.81+.27%
Dow 10,627.85+.33%
NASDAQ 2,053.56-.51%
Russell 2000 585.14+.18%
Wilshire 5000 11,174.00+.40%
Volatility(VIX) 15.58-2.63%
AAII Bullish % 56.1+10.2%
US Dollar 85.55-.43%
CRB 264.85+1.59%
Futures Spot Prices
Gold 410.8+1.61%
Crude Oil 34.56+6.4%
Natural Gas 5.54+3.38%
Copper 124.35+5.38%
10-year US Treasury Yield 4.04%-.98%
Average 30-year Mortgage Rate 5.66%-1.05%
Leading Sectors
Oil Service+6.12%
Iron/Steel+5.07%
Broadcasting+3.59%
Lagging
Drugs-1.36%
Semis-1.7%
Disk Drives-4.09%
*% Gain or loss for the week
S&P 500 1,145.81+.27%
Dow 10,627.85+.33%
NASDAQ 2,053.56-.51%
Russell 2000 585.14+.18%
Wilshire 5000 11,174.00+.40%
Volatility(VIX) 15.58-2.63%
AAII Bullish % 56.1+10.2%
US Dollar 85.55-.43%
CRB 264.85+1.59%
Futures Spot Prices
Gold 410.8+1.61%
Crude Oil 34.56+6.4%
Natural Gas 5.54+3.38%
Copper 124.35+5.38%
10-year US Treasury Yield 4.04%-.98%
Average 30-year Mortgage Rate 5.66%-1.05%
Leading Sectors
Oil Service+6.12%
Iron/Steel+5.07%
Broadcasting+3.59%
Lagging
Drugs-1.36%
Semis-1.7%
Disk Drives-4.09%
*% Gain or loss for the week
Friday, February 13, 2004
Friday Close
S&P 500 1,145.81-.55%
NASDAQ 2,053.56-.97%
Leading Sectors
HMO's+1.16%%
Broadcasting+.10%
Banks-.17%
Lagging Sectors
Semis-1.58%
Airlines-2.03%
Disk Drives-3.26%
Other
Crude Oil 34.56+1.71%
Natural Gas 5.54+1.56%
Lumber 376.3-2.18%
After-hours Movers
None of note
After-hours News
U.S. stocks declined after an unexpected drop in the Univ. of Michigan consumer confidence index. Moreover, Bank of America reduced Intel's profit and sales forecasts for the 1st Q, leading to across-the-board profit-taking in the technology sector. Finally, terror worries also contributed to the decline. A white suspicious powder was found in a New Jersey post office and a fire alarm caused the evacuation of the U.S Senate building on Capitol Hill. Both scares proved to be false alarms. China has put 7,793 people under medical supervision to ensure they haven't contracted the bird flu virus. GE, MSFT, PFE, ESRX, INTC, UTX, COH and PEP were recommended on Rukeyser's Wall Street. DELL, MRK and PFE were recommended on Wall Street Week. SBC and Bellsouth are preparing to raise their $30B offer for AT&T Wireless to counter an expected higher bid from Vodafone. Disney will likely reject Comcast's hostile bid because it is too low, according to the Washington Post. Senator Kerry's recent failure to issue a flat-out denial that he had an extramarital affair or relationship "is very Clintonian," a top Democratic aide told Insight Online. "It's very worrying." Separately, President Bush has ordered the release of hundreds of pages of his military records to try and put to rest questions about his National Guard service. The U.S. financial markets will be closed on Monday for President's Day.
BOTTOM LINE: I ended the day with a net long position of 40% in the Portfolio. It wasn't a terrible day, but I don't want to trade against the short-term sell signals generated by the indicators I follow. Most of my long positions did relatively well today and my shorts declined, but not enough to offset my net long exposure. I will look to add some more shorts on any futher weakness Tue. taking the Portfolio to market neutral.
NASDAQ 2,053.56-.97%
Leading Sectors
HMO's+1.16%%
Broadcasting+.10%
Banks-.17%
Lagging Sectors
Semis-1.58%
Airlines-2.03%
Disk Drives-3.26%
Other
Crude Oil 34.56+1.71%
Natural Gas 5.54+1.56%
Lumber 376.3-2.18%
After-hours Movers
None of note
After-hours News
U.S. stocks declined after an unexpected drop in the Univ. of Michigan consumer confidence index. Moreover, Bank of America reduced Intel's profit and sales forecasts for the 1st Q, leading to across-the-board profit-taking in the technology sector. Finally, terror worries also contributed to the decline. A white suspicious powder was found in a New Jersey post office and a fire alarm caused the evacuation of the U.S Senate building on Capitol Hill. Both scares proved to be false alarms. China has put 7,793 people under medical supervision to ensure they haven't contracted the bird flu virus. GE, MSFT, PFE, ESRX, INTC, UTX, COH and PEP were recommended on Rukeyser's Wall Street. DELL, MRK and PFE were recommended on Wall Street Week. SBC and Bellsouth are preparing to raise their $30B offer for AT&T Wireless to counter an expected higher bid from Vodafone. Disney will likely reject Comcast's hostile bid because it is too low, according to the Washington Post. Senator Kerry's recent failure to issue a flat-out denial that he had an extramarital affair or relationship "is very Clintonian," a top Democratic aide told Insight Online. "It's very worrying." Separately, President Bush has ordered the release of hundreds of pages of his military records to try and put to rest questions about his National Guard service. The U.S. financial markets will be closed on Monday for President's Day.
BOTTOM LINE: I ended the day with a net long position of 40% in the Portfolio. It wasn't a terrible day, but I don't want to trade against the short-term sell signals generated by the indicators I follow. Most of my long positions did relatively well today and my shorts declined, but not enough to offset my net long exposure. I will look to add some more shorts on any futher weakness Tue. taking the Portfolio to market neutral.
Friday Mid-day Update
S&P 500 1,143.82-.70%
NASDAQ 2,052.14-1.04%
Leading Sectors
HMO's+1.1%
Broadcasting+.1%
Papers-.16%
Lagging Sectors
Airlines-1.84%
Semis-2.2%
Disk Drives-3.67%
Other
Crude Oil 34.3+.79%
Natural Gas 5.55+2.0%
Gold 409.7-1.06%
Market Movers
Dell+3.2% on earnings report and Raymond James upgrade to "Strong Buy".
PEET+10.2% on 4th Q earnings and announced stock buy-back.
PD-3.0% on downgrade to "Market Perform" at BMO Nesbitt and profit-taking.
Mid-day News
Morgan Stanley is upgrading the Electronic Manufacturing Services from "In-Line" to "Attractive". Goldman Sachs is positive on Voice-over-internet-protocol(VOIP) after FCC signaled its intent to minimize regulation of the nascent industry. The CEO of Analog Devices, an electronic device and mobile chipmaker, told CNBC that the broad recovery amongst its industrial customers is in its early stages, as customers are just beginning to add capacity to respond to what they see as much stronger demand. The CEO of Sabre Holdings, whose company owns Travelocity.com, told CNBC travel demand is rapidly improving. The U.S. trade deficit widened to $42.5B in December, above expectations of $40B. U.S. consumer sentiment fell this month to 93.1, below expectations of 103. Bank of America trimmed its sales and earnings estimates for Intel's 1st Q. Dell was raised to "Buy" at Raymond James. The AP said a suspicious powder was found at a post office branch in Jersey City, NJ. The Chicago Sun Times and the Philadelphia Daily News are reporting on the potential John Kerry scandal, however none of the major networks have mentioned it.
BOTTOM LINE: The weakness today is a result of the weaker consumer confidence numbers and multiple terror scares. The drop in cosumer confidence is disappointing, but not surprising after last months sharp spike up. My short-term trading models have now given sell signals, thus I am in the process of cutting my market exposure by selling longs and adding shorts. I will concentrate on the tech sector for potential short candidates. The Portfolio is down today and is currently 60% net long. I would like to take market exposure down to 20% by the end of the day.
NASDAQ 2,052.14-1.04%
Leading Sectors
HMO's+1.1%
Broadcasting+.1%
Papers-.16%
Lagging Sectors
Airlines-1.84%
Semis-2.2%
Disk Drives-3.67%
Other
Crude Oil 34.3+.79%
Natural Gas 5.55+2.0%
Gold 409.7-1.06%
Market Movers
Dell+3.2% on earnings report and Raymond James upgrade to "Strong Buy".
PEET+10.2% on 4th Q earnings and announced stock buy-back.
PD-3.0% on downgrade to "Market Perform" at BMO Nesbitt and profit-taking.
Mid-day News
Morgan Stanley is upgrading the Electronic Manufacturing Services from "In-Line" to "Attractive". Goldman Sachs is positive on Voice-over-internet-protocol(VOIP) after FCC signaled its intent to minimize regulation of the nascent industry. The CEO of Analog Devices, an electronic device and mobile chipmaker, told CNBC that the broad recovery amongst its industrial customers is in its early stages, as customers are just beginning to add capacity to respond to what they see as much stronger demand. The CEO of Sabre Holdings, whose company owns Travelocity.com, told CNBC travel demand is rapidly improving. The U.S. trade deficit widened to $42.5B in December, above expectations of $40B. U.S. consumer sentiment fell this month to 93.1, below expectations of 103. Bank of America trimmed its sales and earnings estimates for Intel's 1st Q. Dell was raised to "Buy" at Raymond James. The AP said a suspicious powder was found at a post office branch in Jersey City, NJ. The Chicago Sun Times and the Philadelphia Daily News are reporting on the potential John Kerry scandal, however none of the major networks have mentioned it.
BOTTOM LINE: The weakness today is a result of the weaker consumer confidence numbers and multiple terror scares. The drop in cosumer confidence is disappointing, but not surprising after last months sharp spike up. My short-term trading models have now given sell signals, thus I am in the process of cutting my market exposure by selling longs and adding shorts. I will concentrate on the tech sector for potential short candidates. The Portfolio is down today and is currently 60% net long. I would like to take market exposure down to 20% by the end of the day.
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