Saturday, February 12, 2005

Economic Week in Review

ECRI Weekly Leading Index 134.40 +.52%

Consumer Credit for December fell to $3.1 billion versus estimates of $8.0 billion and $2.0 billion in November. Borrowing slowed as the Fed raised rates to 2.25% in December from 1% in June to stem inflation fears. The US central bank raised rates another quarter point this month and said further increases may come at a "measured" pace, Bloomberg reported. Weaker-than-expected December consumer-borrowing figures, following lackluster job-creation figures on Friday, may give Fed Chairman Greenspan margin to pause the increase in interest rates, said Mike Englund, chief economist at Action Economics. For the year, consumer borrowing rose 4.6%, the fastest annual increase since 2001, Bloomberg said.

Wholesale Inventories for December rose .4% versus estimates of a .9% increase and a 1.2% rise in November. Consumer spending in the last six months of 2004 rose at the fastest pace in almost five years, government reports last month showed. The gains kept stockpiles from becoming bloated, leaving wholesalers room to boost inventories in coming months and increase orders to manufacturers, Bloomberg said. "Inventories haven't been running far ahead of sales and therefore aren't excessive by any means," said Douglas Porter, a senior economist at BMO Nesbitt Burns. Wholesaler sales last year surged 13.8%, the biggest gain in history, Bloomberg reported. As well, the latest string of monthly rising wholesaler sales surpassed the record of 18 consecutive gains, which ended in August 1973, Bloomberg said. Rebuilding inventories may contribute .3 percentage points to GDP this quarter after adding .4 percentage points to growth in the previous three months, according to a forecast by economists at Lehman Brothers.

The Trade Balance for December came in at -$56.4 billion versus estimates of -$57.0 billion and -$59.3 billion in November. The biggest drop in the price of oil since early 1991 contributed to the narrowing trade deficit, Bloomberg said. These numbers follow Fed Chairman Greenspan's comment last week that deficits may shrink as the declining value of the dollar makes US exports more competitive, Bloomberg said. "I'm optimistic that we'll see more of an improvement, but it's only one month and I'd like to see a few more," said Glenn Haberbush, an economist at Mizuho Securities. "As other economies continue to improve, that will help, but consumption in the US is still extremely strong, so the quantity of imports will remain about the same." The trade deficit with China narrowed to $14.3 billion from $16.6 billion. US exports to China for all of last year rose to an all-time record of $35 billion.

Initial Jobless Claims for last week fell to 303K, the lowest level in more than four years, versus estimates of 325K and 316K the prior week. Continuing Claims for last week rose to 2737K versus estimates of 2700K and 2690K prior. Consumer Confidence rose to a six-month high in January as Americans said they were more optimistic about finding work and the unemployment rate fell to a three-year low, the Conference Board said Jan. 25. The economy created 2.2 million jobs for all of 2004, the most in five years, as companies added workers to meet demand as the economy expanded 4.4%, the fastest since 1999, Bloomberg reported. "Unemployment is working its way down," Fed Governor Gramlich told a business group last week. "We would like to see it move a little faster, but it is moving in the right direction."

The Monthly Budget Statement for January was $8.7 billion versus estimates of $10.0 billion and -$1.4 billion in December. The US Treasury reported a budget surplus in January, helped by a jump in quarterly tax payments from corporations and individuals, Bloomberg said. "The budget deficit is on the mend, and this is good news for the US," said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. Tax revenues rose 9.2% in the month to $202.2 billion from a year earlier, led by a 53% gain in corporate income tax receipts, Bloomberg reported. Moreover, the addition of more than 2 million workers to payrolls last year contributed to an 11% rise in income tax receipts, which totaled $110 billion in January, Bloomberg said. Finally, for the first four months of this fiscal year, the deficit totaled $109.2 billion, down 17% from the first four months of the previous fiscal year, according to Bloomberg.

Bottom Line: Overall, last week's economic data were positive. As long as consumer borrowing remains relatively healthy, a decline is welcome. High levels of consumer debt have been one of the bears' main focal points. A deceleration in the rate of recent inventory gains may take from economic growth in the near-term, however inventory rebuilding will likely add to GDP in subsequent months as sales remain relatively robust. I expect the trade deficit to improve throughout the year as the US dollar remains near current levels, spending slows from last year's blistering pace and energy prices decline further. Jobless claims have fallen noticeable over the last few weeks which is a big positive for consumer spending. However, I am closely monitoring the labor market for any signs that unemployment has reached such low levels as to result in a substantial rise in unit labor costs, the largest component of inflation. At this time, I continue to foresee modest improvements in the job market which should continue to spur consumer spending while holding inflation in check. US government tax receipts have rebounded substantially as the US economy grew last year at the fastest pace of all the world's industrialized nations. The US budget deficit should continue to shrink this year as income tax receipts, capital gains tax receipts and sales tax receipts continue to rise while government spending decelerates. Finally, the ECRI Weekly Leading Index rose again and has now more than recouped all of its late December/early January losses. It currently stands at the highest level since May of 2004.

Market Week in Review

S&P 500 1,205.30 +.19%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Overall, last week's market performance was mixed. Optimism over the possibility of meaningful legal reforms, an improving labor market and increasing fund inflows was mostly offset by worries over higher energy prices and slowing earnings growth. Technology and small-caps continued their underperforming ways which began at the first of the year. Breadth was sub-par and a number of sectors fell for the week. Measures of investor anxiety were also mixed on the week. On the positive side, the Dow is now in the black for the year and appears poised to make an assault on its highs at year-end of 2004. Long-term interest rates remained low and the average 30-year fixed rate mortgage fell to its lowest level since early April 2004. Finally, the Semiconductor Index significantly outperformed for the week and is looking better technically. The fact that somewhat disappointing results from Cisco and Dell failed to send tech meaningfully lower is also a psychological positive.

Friday, February 11, 2005

Weekly Scoreboard*

Indices
S&P 500 1,205.30 +.19%
Dow 10,796.01 +.75%
NASDAQ 2,076.66 -.48%
Russell 2000 634.76 -.42%
DJ Wilshire 5000 11,868.64 +.13%
S&P Equity Long/Short Index 1,021.71 +.28%
S&P Barra Growth 577.55 -.11%
S&P Barra Value 623.53 +.48%
Morgan Stanley Consumer 592.23 +.03%
Morgan Stanley Cyclical 765.66 +.12%
Morgan Stanley Technology 474.04 -.37%
Transports 3,613.03 +.42%
Utilities 352.88 +.03%
Put/Call .83 +13.70%
NYSE Arms .53 -45.92%
Volatility(VIX) 11.43 +1.96%
ISE Sentiment 129.00 -24.12%
AAII % Bulls 43.75 +4.99%
US Dollar 84.58 +.19%
CRB 286.18 +1.75%

Futures Spot Prices
Crude Oil 47.16 +1.38%
Unleaded Gasoline 128.37 +2.04%
Natural Gas 6.09 +.54%
Heating Oil 130.58 +2.09%
Gold 422.20 +1.39%
Base Metals 121.94 +1.46%
Copper 141.90 +3.35%
10-year US Treasury Yield 4.08% +.22%
Average 30-year Mortgage Rate 5.57% -1.07%

Leading Sectors
Semis +4.15%
Insurance +3.68%
Oil Service +3.13%

Lagging Sectors
Airlines -2.51%
Biotech -2.54%
Software -2.96%

*% Gain or loss for the week

Mid-day Report

Detailed Market Summary
Market Snapshot

Sector Performance

Market Movers

NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
None of note.

Recommendations

Mid-day News

BOTTOM LINE: Due to a scheduling conflict, I am posting an abbreviated version of the Mid-day Report. The Weekly Scoreboard will be posted at its regular time around 5pm est. The Portfolio is slightly higher mid-day on gains in my internet, networking and RFID longs. I added to a few of my existing longs this morning, thus leaving the Portfolio 50% net long. I added to my GOOG long and I am using a $185 stop-loss on this position. The tone of the market is much better today as the advance/decline line is pretty good, volume is solid and almost every sector is higher. Considering losses in market leaders, such as the homebuilders and Dell, the market’s overall performance today is impressive. On the negative side, oil is maintaining yesterday’s gains and measures of investor anxiety are lower. I expect US stocks to rise modestly into the close on short-covering, lower long-term interest rates and increasing fund flows.

Thursday, February 10, 2005

Friday Watch

Late-Night News
Asian indices are mixed as gains in India are being offset by losses in S. Korea. China's government said it wants North Korea to return to talks aimed at ending the country's nuclear program after North Korea announced it is pulling out of the negotiations, state news agency Xinhua reported. International Shipping Enterprises, a NY-based company with no assets, has won the right to negotiate the purchase of Navios Maritime Holding, a Connecticut-based ship-owner, Bloomberg reported. The SEC may give foreign companies an additional year to comply with regulations, under which they have to test and report on internal controls against fraud, the Financial Times reported. Pfizer isn't planning widespread layoffs for it 11,000 sales reps as the company reorganizes, the Wall Street Journal reported. Foreign direct investment in India may almost triple to $15 billion in the year ending March 31, from $5.6 billion a year earlier, the Times of India reported. Goldman Sachs' stake in Krispy Kreme Doughnuts has fallen 37% as the doughnut maker is the subject of a SEC probe, Business Week reported. BHP Billiton would scrap plans to export liquefied natural gas to North America should it fail to get approval for a proposed import terminal in California, EnergyReview.Net reported. The yen headed for its fourth losing week, the longest in nine months, on speculation a government report next week will show Japan's economy barely grew for a second straight quarter, Bloomberg reported.

Late Recommendations
-Goldman Sachs: Reiterated Outperform on MDT, GE, A, EBAY, NFX and STR. Reiterated Underperform on CVC.
-Business Week: Boeing(BA) shares are expected to climb as the world's second-biggest maker of commercial planes benefits from growing orders from Asian and Middle East carriers. Sabre Holdings'(TSG) assets are worth more than the share price reflects, said Scott Kuensell, managing director at Brandywine Asset Mgmt.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
ANAD/-.27
GMR/3.30
LNY/.22
VECO/.08

Splits
None of note.

Economic Data
None of note.

BOTTOM LINE: I expect US equities to open modestly lower in the morning on continuing weakness in technology shares. I would like to see market internals improve, commodity prices stabilize and my trading indicators turn more positive before increasing market exposure. The Portfolio is 25% net long heading into tomorrow.