Mid-day Report

Indices
S&P 500 1,226.65 +.37%
Dow 10,968.45 +.26%
NASDAQ 2,093.68 +1.11%
Russell 2000 646.09 +.18
DJ Wilshire 5000 12,085.01 +.38
S&P Barra Growth 589.80 +.30%
S&P Barra Value 632.33 +.43%
Morgan Stanley Consumer 593.05 +.25%
Morgan Stanley Cyclical 785.30 +.13%
Morgan Stanley Technology 482.60 +1.78%
Transports 3,874.66 +1.14%
Utilities 363.30 +.43%
Put/Call .79 -3.66%
NYSE Arms .75 -30.91%
Volatility(VIX) 12.15 +1.84%
ISE Sentiment 174.00 +14.47%
US Dollar 82.73 +.25%
CRB 309.45 +.09%

Futures Spot Prices
Crude Oil 53.60 -.33%
Unleaded Gasoline 150.80 -.06%
Natural Gas 6.68 -.87%
Heating Oil 147.70 -.43%
Gold 435.80 +.14%
Base Metals 129.97 -.24%
Copper 149.60 +.13%
10-year US Treasury Yield 4.30% -.04%

Leading Sectors
Gaming +2.41%
Semis +2.28%
Networking +2.16%

Lagging Sectors
HMOs -.87%
Energy -.92%
Commodity -.93%

Market Movers
RIMM -5.11% after Piper Jaffray downgrade to Market Perform on competition worries.
CELG +16.7% after saying its experimental drug Revlimid worked so well in studies of people with a form of blood cancer that the trials are being stopped and all patients offered the treatment.
ICCI +20.1% after saying its management offered to buy out other investors in a transaction valuing Insight’s shares at $650 million.
HIB +21.11% after Capital One(COF) agreed to purchase it for $5.35B. COF -2.68%.
QCOM +4.8% after cutting 2Q sales estimate and raising 2Q eps forecast.
CTIC -47.9% after saying its experimental drug Xyotax failed to boost survival more than an older chemotherapy in a study of patients with non-small sell lung cancer.
UDI +25.95% after BAE Systems Plc, Europe’s biggest defense company, agreed to buy it for $3.97 billion.
GEOI +19.39% after on continuing optimism after strong 4Q report.
STR +7.18% after Morgan Stanley rated it Overweight.
TSRA +7.54% on no news.
BYD +6.26% on no news.
APCC +10.08% after UBS initiated it with a Buy rating.
HAE +5.98% on no news.
MSO -9.76% on continued profit-taking after Stewart’s release from jail.

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

Economic Data
None of note.

Recommendations
- Goldman Sachs: Reiterated Outperform on YUM, MDT, BSX., KO, RIG, DO and GE.
- Smith Barney: Said to Buy WFR, raised estimates, target $18. Reiterated Buy on TEX, target $58. Reiterated Buy on DNA, target $87.50. Reiterated Buy on WMT, target $65. Reiterated Sell on PGN, target $38.50. Reiterated Sell on SKS, target $12.50. Reiterated Sell on HIW, target $21. Said to Buy NSM, FCS and IRF on pullbacks. Reiterated Buy on ERTS, target $76.
- JP Morgan: Raised PLT to Overweight.
- Banc of America: Upgraded ANN to Buy, target $34. Expects employment reports to continue to surprise on the upside and to accelerate this spring.
- UBS: Rated APCC Buy, target $40. Raised NE to Buy. Raised WMB to Buy, target $23.
- Oppenheimer: Raised ABX to Sector Outperform, target $33.
- Merrill Lynch: Raised PX to Buy, target $55.
- Prudential: Raised TLB to Overweight, target $36. Downgraded BSX to Underweight., target $29. Raised MDT to Overweight, target $62. Raised MCD to Overweight.
- Morgan Stanley: Raised STR to Overweight, target $67.
- CSFB: Rated CPS Outperform, target $48.

Mid-day News
US stocks are higher mid-day as investors boost technology shares ahead of key mid-quarter updates, conference presentations and earnings reports. T-Mobile International AG plans to lower rates for wireless data transfers to spur the use of the technology, Frankfurter Allgemeine Zeitung reported. Royal Philips Electronic NV plans to reduce its number of suppliers by a third to help cut costs and keep up with Asian competitors, Financial Times Deutschland reported. General Motors will provide discounts on a regional rather than a national basis to restrain expectations among consumers of large price cuts, the Wall Street Journal reported. Time Warner and GE’s NBC Universal plan to lower prices for DVDs in China, Russia and Mexico to fight counterfeiting and gain market share, the Wall Street Journal reported. Bank of Japan Governor Fukui said Japan has no intention of diversifying its currency reserves, Reuters reported. D’Andrea Brothers LLC, a closely held LA-based company, has obtained exclusive rights to manufacture and distribute the US Army’s Hooah! Energy bar for the retail market, the Wall Street Journal reported. EBay is one of the top five companies targeted by computer hackers who use fake e-mails and Internet sites to collect clients’ personal information, the NY Times reported. China’s local governments have been exaggerating their economic growth rates reported to the central government, Xinhua News Agency reported. Apple Computer’s lawsuit to force Internet sites to disclose the identity of who provided leaked data about new Apple products may make courts decide who should be considered a journalist, the NY Times reported. If a court in San Jose, California, decides that bloggers are journalists, more people could be able to keep news sources confidential, the newspaper reported. Wells Fargo and Bank of America are upgrading automated teller machines with Internet technology to improve the efficiency of customer transactions, the NY Times said. Joe Liberman, a Connecticut Senator who was the Democratic Party’s vice presidential nominee in 2000, is angering some members of his party with his willingness to word with President Bush on trying to save the Social Security system, the NY Times reported. Nigeria’s President Obasanjo urged OPEC to “moderate the high price of oil,” AFP reported. Comcast is beginning to offer televised sports programs around the US amid speculation it might start a national sports network to compete with ESPN, the Philadelphia Inquirer reported. Foreign investment in the USA will bolster demand for the dollar, according to Joseph Quinlan, chief market strategist at Banc of America Capital, Barron’s reported. University of Colorado President Elizabeth Hoffman said today she is stepping down, effective June 30 or when the Board of Regents finds a replacement, the AP reported. Hoffman’s five-year tenure included a football recruiting scandal and allowing a professor who compared victims of the Sept. 11, 2001, terrorist attacks to Nazi war criminals to keep his job, the AP said. Syrian soldiers in Lebanon will today start retreating to the eastern Bekaa Valley near the border after the Syrian and the Lebanese presidents meet in Damascus, Bloomberg reported. GE plans to sell as much as $2.36 billion of shares in its life and mortgage insurance unit, Genworth Financial, Bloomberg said. Google hired a top Microsoft engineer who was one of the six original members of the team that created the Windows NT operating system, Bloomberg said. Boeing ousted CEO Harry Stonecipher because of an affair with a female executive that violated the company’s code of conduct, Bloomberg reported. Honda Motor, stung by a 21% drop in Accord and Civic car sales this year, said it may have to offer cheaper loans and leases and lift incentives to dealers to bolster sales of its two best-selling US models, Bloomberg reported. Crude oil fell from a four-month high in NY after OPEC’s president said that the group can pump at least another 2 million barrels a day, Bloomberg said.

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my networking, semiconductor and alternative energy longs. I exited a few commodity-related longs this morning and added a few new tech longs, thus leaving the Portfolio’s market exposure at 125% net long. One of my new longs is NTE and I am using a $23 stop-loss on this position. The tone of the market is modestly positive as the advance/decline line is slightly higher, sector performance is mostly positive and volume is ok. Measures of investor anxiety are mostly lower, however. Today’s overall market action is very positive as the DJIA, S&P 500 and Russell 2000 consolidate recent gains and the tech-heavy Nasdaq outperforms substantially. I expect the Nasdaq to take out resistance at around 2,110 in the next few days, led by Semis and Networkers. The current rally in the overall market likely has further to run as there is still an unusual amount of skepticism by many investors considering recent gains. I expect US stocks to trade modestly higher from current levels into the close on optimism over US economic growth, short covering, low long-term interest rates, stabilizing energy prices and bargain hunting.

Monday Watch

Weekend News
China will not alter its currency reserves away from the dollar and won't adjust its policy on the yuan, said Guo Shuqing, head of China's foreign-exchange regulator. The smuggling of a more potent variety of marijuana from Canada to the US has boosted the level of drug trafficking and violent crime, the NY Times reported. The British Broadcasting Corp. is facing criticism for paying a convicted criminal to appear in a documentary related to his crime, the Daily Telegraph reported. Kmart Holding Corp., the No. 3 US discount retailer which is buying Sears, will move its headquarters to Chicago from Michigan within a year, the Detroit Free Press reported. Walt Disney's Space Mountain roller-coaster ride will reopen July 15, in time for the company's 50th anniversary of its Disneyland park in Anaheim, California, the Orange County Register reported. The median asking-price for homes in King County, where Seattle is located, rose 15% in February to $415,000, the Seattle Times reported. Canadian and US officials are seeking to broaden their joint air-defense arrangement to include shared land and maritime threats, the Toronto Start reported. BP Plc hired Goldman Sachs and Morgan Stanley to advise it on the IPO of its chemicals unit, Bloomberg reported. UnitedHealth and Medco Health Solutions are among a growing list of insurers and pharmacy-benefit managers who have agreed to participate in the new Medicare drug benefit, the NY Times reported. The US Senate will vote as soon as this week on legislation aimed at making consumer bankruptcy more difficult, the Washington Post reported. EBay may be unable to sustain growth as it faces complaints from users over fee increases, service and lower selling prices, the NY Times reported. Black churches in the US are starting to align with Republicans over social issues, including same-sex marriage, the NY Times said. Iran reiterated its permanent commitment to enriching uranium Saturday and warned that any sanctions from the UN could affect security and stability in the region, the NY Times reported. Shipments of cargo on the US West Coast will increase 14% this year from 2004 according to the Pacific Maritime Association in San Francisco. Alternative treatments such as acupuncture and the use of drugs like ibuprofen are on the rise as patients try to replace Merck's Vioxx Painkiller, the NY Times said. Finance ministers from the Group of Seven industrial countries agree the next World Bank president should hail from the US, Bloomberg reported. Tobacco stocks, which have outperformed the broader stock market over the past five years, may be nearing the end of their rally as growth in cigarette smoking slows, the NY Times reported. Nasdaq Stock Market Inc. submitted a bid last month for Reuters Group's Instinet, a purchase that would give Nasdaq a 50% share of electronic trading in the US, Crain's NY Business said. STMicroelectronics NV will move its global production of RFID chips to Singapore by the third-quarter in response to an expected surge in demand for the product by Wal-Mart Stores, the Business Times said. Xiamen Airlines will buy 15 737-800 planes from Boeing for $615 million, the Asian Wall Street Journal reported. Merrill Lynch and Goldman Sachs may seek a license to open a bank in India, the Economic Times reported. Advanced Micro Devices Chairman Ruiz will visit computer makers in Taiwan tomorrow, aiming to help boost sales, the Economic Daily News reported. Reuters Group Plc may plan to offer its news and information services to consumers on their cell phones and other electronic platforms, the Financial Times said. World steel prices may begin falling from the middle of 2005 due to slowing demand in China, the Financial Times said, citing an interview with Duferco SA Chairman Bolfo. China will allow the market to play a bigger role in setting the value of its currency, the China Daily said. ESPN last week started a free online poker game which attracted 30,000 people within a few days, the Financial Times said. China's Premier Wen Jiabao announced plans to slow growth in the world's fastest-growing major economy to 8% this year by clamping down on urban infrastructure projects and spending more on lagging rural areas, Bloomberg reported. Wal-Mart said March sales at US stores open at least a year are rising within forecast as shoppers used tax refunds, Bloomberg said. Medtronic may capture at least 10% of the $5 billion market for drug-coated heart stents, cutting into profit growth at Boston Scientific and Johnson & Johnson, Bloomberg reported. Iraq's new parliament will hold its first session on March 16, AFP reported. Berkshire Hathaway, run by billionaire Warren Buffett, said its reinsurance unit may be accused of contributing to the 2001 collapse of HIH Insurance Ltd, Bloomberg reported. Capital One Financial, the fifth-biggest US credit-card issuer, said it agreed to buy Hibernia Corp. for $5.35 billion in stock and cash to add a network of bank branches, Bloomberg said. News Corp. Chairman Rupert Murdoch is still considering whether to launch a new business channel to compete with CNBC, the NY Times reported.

Weekend Recommendations
- Bulls and Bears: Had guests that were positive on TAP, DBD, DLM, WAG, PFE, CLX, INTC, BIID, mixed on RSH, AAPL and negative on SYMC, MSO.
- Cashin' In: Had guests that were mixed on MXIM, FDX, GTRX, mixed on ODFL, LGF, XMSR and negative on MSO.
- Forbes on Fox: Had guests that were positive on SNDA, NTES, PRU, ENR, BTU and negative on MSO.
- Cavuto on Business: Had guests that were positive on GE, YUM, VWSYF and negative on MSO.
- Barron's: Had positive comments on Ford Motor bonds, airport-related municipal securities from AMR's American Airlines unit, CSCO, home electronics and cable stocks.
- Business Week: Had a positive column on Business Intelligence Software stocks.
- Goldman Sachs: Reiterated Outperform on DNA, INTC, NSM, FSL and EBAY.
- Smith Barney: Reiterated Overweight on Financial stocks and said Future Inflation Gauges are falling.

Night Trading
Asian Indices are higher, +.25% to +.50% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.23%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell 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
DKS/.77
MVL/.15
SBTV/.93
KCS/.58

Splits
None of note.

Economic Data
- Consumer Credit for January is estimated to rise $5.1B versus an increase of $3.1B in December.

BOTTOM LINE: I expect US stocks to open modestly higher in the morning on optimism over merger activity, strong economic reports and last week's technical breakouts. The Portfolio is 125% net long heading into the week.

Weekly Outlook

There are a few important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports for the week include:

Mon. - Consumer Credit
Wed. - Fed's Beige Book
Thur. - Initial Jobless Claims, Continuing Claims, Wholesale Inventories, Monthly Budget Statement
Fri. - Trade Balance

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Dick's Sporting Goods(DKS), Marvel Enterprises(MVL)
Tues. - Kroger Co.(KR), Las Vegas Sands(LVS), Tenet Healthcare(THC)
Wed. - Blockbuster Inc.(BBI), Cooper Cos.(COO), Talbots Inc.(TLB), American Tower(AMT)
Thur. - Aeropostale Inc.(ARO), AnnTaylor Stores(ANN), Borders Group(BGP), Dillard's Inc.(DDS), National Semiconductor(NSM), Quiksilver(ZQK), Tech Data(TECD)
Fri. - Berkshire Hathaway(BRK/A), Electronics Boutique(ELBO), Urban Outfitters(URBN)

Other events that have market-moving potential this week include:

Mon. - Smith Barney REIT Conference, Raymond James Institutional Investor Conference, Morgan Stanley Semiconductor Conference, Deutsche Bank Global Software Conference, Texas Instruments Mid-quarter Update
Tue. - Raymond James Institutional Conference, Smith Barney Global Industrial Manufacturing Conference, Bear Stearns Retail/Restaurants/Apparel Conference, Smith Barney REIT Conference, Morgan Stanley Semiconductor Conference, Merrill Lynch Communications Forum, Lehman Brothers Global Software/IT Services/Internet Conference, Merrill Lynch Advertising/Marketing Services/Education/Information Services Conference, Deutsche Bank Global Software Conference, Bear Stearns Retail/Restaurants/Apparel Conference, Fed's Bernanke speaks, Fed's Poole speaks, Xilinx Mid-quarter Update
Wed. - Lehman Brothers Global Software/IT Services/Internet Conference, Altera Business Update, Smith Barney REIT Conference, Morgan Stanley Semiconductor Conference, Deutsche Bank Hardware Conference, Bear Stearns Retail/Restaurants/Apparel Conference, Bear Stearns Restaurant Conference, Merrill Lynch Advertising/Marketing Services/Education/Information Services Conference, Smith Barney Global Industrial Manufacturing Conference, Raymond James Institutional Investors Conference, JP Morgan Small-cap Conference, Fed's Moskow speaks
Thur. - JP Morgan Small-cap Conference, Goldman Sachs Small-cap Growth Conference, Bear Stearns Retail/Restaurants/Apparel Conference, Deutsche Bank IT Hardware Conference, Intel Mid-quarter Update, Fed's Bernanke speaks, Fed's Greenspan speaks
Fri. - Goldman Sachs Small-cap Growth Conference, Fed's Greenspan speaks

Bottom Line: I expect US stocks to finish the week modestly higher as technology shares rebound on positive comments from semiconductor companies during mid-quarter updates, earnings reports and conference presentations. I also expect small-caps to continue their outperformance from last week. As well, Biotech shares should see a technical relief rally and retail may continue to outperform on more strong earnings reports. This should result in a breakout to the upside in the Nasdaq from its recent trading range. A drop or stabilization in energy prices or decline in long-term interest rates could help to push shares higher than I currently anticipate. Conference news and Fed comments will carry more weight this week as economic and earnings reports are light. I expect the Fed to make positive comments on recent labor cost readings with respect to their implications for inflation. My short-term trading indicators are mostly bullish and the Portfolio is 125% net long heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 134.90 +.67%

Personal Income for January fell 2.3% versus estimates of a 2.6% decline and a 3.7% increase in December. Personal Spending for January was unchanged versus estimates of a .1% increase and a .8% gain in December. The PCE Deflator(YoY) for January rose 2.2% versus estimates of a 2.2% increase and a 2.4% gain in December. The PCE Core(YoY) for January rose 1.6% versus estimates of a 1.5% increase and a 1.5% gain in December. While incomes fell 2.3%, distorted by a one-time dividend payout from Microsoft the prior month, wages and salaries rose, Bloomberg said. A drop in new vehicle sales during January, as automakers reduced discounts, held down spending. However, with take-home pay rising as employment improves, spending on other consumer goods should lift first-quarter growth, economists said. "Even though the consumer paused in January, we think we'll see a rebound in February," said Michael Englund, chief economist at Action Economics. The 1.6% rise in the PCE Core, Greenspan's favorite inflation gauge, is within the Fed's preferred range of 1.0-2.0%, Bloomberg reported.

New Home Sales for January fell to 1106K versus estimates of 1125K and an upwardly revised 1218K in December. The median sales price declined to $199,400 from $229,700, Bloomberg reported. The decline in prices was influenced by a change in the mix of sales reported, as purchases of so-called starter homes priced less that $150,000 accounted for a much greater percentage of the total. Of the 85,000 total new homes sold, 27.1% were starter-homes priced under $150,000, up from 18.8% the prior month. Measured against sales, the supply of new homes increased to 4.7 months, Bloomberg said. "We're plateauing," said Kevin Logan, senior market economist at Dresdner Kleinwort Wasserstein. "Sales and construction are topping out, just at a high level," Logan said.

The Chicago Purchasing Manager Index for February rose to 62.7 versus estimates of 60.5 and a reading of 62.4 in January. The index remains near the 16-year high of 67.7 set in October of last year. Chicago-area business unexpectedly grew at an accelerated pace in February, as orders and employment picked up and the prices paid component of the index fell to 70.1, the lowest since February 2004, Bloomberg said. Moreover, the employment index rose to 57.7 from 52.8 in January, Bloomberg reported. "We saw good consumer spending in the second half of last year, and business spending on equipment is very strong," said Robert Mellman, an economist at JP Morgan.

Construction Spending for January rose .7% versus estimates of a .4% increase and a 1.2% gain in December. US construction spending rose to a record $1.047 trillion at an annual rate, as residential, commercial and public building increased, Bloomberg said. Construction spending has now increased for 12 straight months, the longest period of continuous expansion since record keeping began in 1993, Bloomberg reported. "It's almost preordained by the literally off-the-charts housing starts number in January," said James Smith, chief economist at the Society of Industrial and Office Realtors. Housing starts rose 4.7% in January to a 21-year high, the Commerce Department reported last month.

The ISM Manufacturing Index for February fell to 55.3 versus estimates of 57.0 and a reading of 56.4 in January. The ISM Prices Paid Index for February fell to 65.5 versus estimates of 68.0 and a reading of 69.0 in January. The ISM Manufacturing Index is just below the 60.5 average of last year, the highest annual average since 1973, Bloomberg said. US corporate leaders plan to invest more as confidence in the economy rises to the highest level in at least two years, a survey of CEOs found. "Manufacturing has settled into a nice, steady growth pace," said Joel Naroff, president of Naroff Economic Advisors.

Total Vehicle Sales for February rose to 16.3M versus estimates of 16.6M and 16.2M in January. Domestic Vehicle Sales for February were 13.0M versus estimates of 13.3M and 13.0M in January. Sales of Ford's Escape, the No.2 US automaker's compact sport-utility vehicle, pulled ahead of its larger Explorer sibling for the first time about two months ago at Woodhouse Ford, a dealership in Blair, Nebraska. "People are not going after the big SUVs here because gas prices are just staying too high, and this is truck country," said Woodhouse sales manager Kitzelman. SUV buyers' growing preference for more fuel-efficient models is costing US manufacturers sales and market share, Bloomberg said. Toyota, the world's second-largest automaker, reported an 11% increase in February US sales, Bloomberg reported.

Final 4Q Non-farm Productivity rose 2.1% versus estimates of a 1.5% increase and a prior estimate of a .8% gain. Final 4Q Unit Labor Costs rose 1.3% versus estimates of a 1.8% increase and a prior estimate of a 2.3% rise. Productivity from July through December rose an average 1.7%, less than half the pace in the year's first six months, Bloomberg reported. Businesses can no longer depend on efficiency gains alone to meet demand and are hiring more and boosting hours to keep up, Bloomberg said. "This downward revision in unit labor costs in the fourth quarter is actually good news, and it's all the more reason for the Fed to keep raising rates at the sort of slow, measured pace they have been talking about," said Stewart Hoffman, chief economist at PNC Financial.

The ISM Non-manufacturing Index for February rose to 59.8 versus estimates of 60.0 and a reading of 59.2 in January. "Businesses are becoming less cautious and more confident, and that is being reflected in more hiring and investing," said James O'Sullivan, a senior economist at UBS Securities. The hiring component of the index rose to 59.6, the highest since the survey began in July 1997, Bloomberg said. The index of prices paid by companies for materials and services dropped to 66.4, the lowest since March 2004, Bloomberg reported. "Things look pretty good out there right now," said Jeffrey Taylor, CEO and founder of Monster Worldwide. Monster's index of on-line job advertising rose to a record 122 during February, Bloomberg said. Retailers helped push up the ISM Non-manufacturing Index as consumers began to spend tax refunds. Wal-Mart Stores said February sales at US stores open at least a year rose a brisk 4.1%, the most in nine months, Bloomberg reported. Sales gains in March will be "similar to or better than February," Wal-Mart said. The average tax refund is 9.2% larger so far this year, according to IRS data.

The Change in Non-farm Payrolls for February was 262K versus estimates of 225K and a gain of 132K in January. The Change in Manufacturing Payrolls for February was 20K versus estimates of 7K and a loss of 20K in January. The Unemployment Rate for February rose to 5.4% versus estimates of 5.2% and a rate of 5.2% in January. Average Hourly Earnings for February were unchanged versus estimates of a .2% increase and a .3% gain in January. Average Weekly Hours for February were 33.7 versus estimates of 33.8 and 33.7 in January. "You're getting good job growth but it's coming without any wage pressures, which is actually good news for the financial markets and good news for the Fed," said Kathleen Bostjancic, senior economist at Merrill Lynch. "The bond market can exhale a small sigh of relief that its worst fears of a total blowout number were not realized," said Stephen Stanley, chief economist at RBS Greenwich Capital. Employment gains and higher tax refunds should continue to boost consumer spending, Bloomberg said. The US economy grew at a 4.4% rate last year, the fastest pace since the height of the stock market bubble in 1999, and is forecast to expand 3.6% in 2005 according to the median estimate of economists surveyed by Bloomberg News. The year's projection exceeds the 3.0% a year average for the past 30 years, Bloomberg said.

The Final University of Michigan Consumer Confidence reading for February was 94.1 versus estimates of 94.5 and a prior estimate of 94.2. Gasoline prices reached a three-month high at the end of February and the debate over the US Social Security system may have created anxiety about the future, Bloomberg said. However, a rebound in stock prices and a stepped-up pace of hiring in February helped sustain optimism, Bloomberg said. "The overall economic picture is better, but the news that influences consumer confidence is a mixed bag," said Joshua Shapiro, chief economist of MFR Inc. The Consumer Confidence reading doesn't always reflect consumer's true mindset, Bloomberg said. Sales at US retailers surged 4.9% in February, the biggest gain in nine months, according to the International Council of Shopping Centers. Retailers from discounters Wal-Mart Stores and Kohl's to luxury chain Neiman Marcus Group beat analysts' estimates with the aid of job growth and spring fashions, Bloomberg reported. CEOs are also more confident about the US economy, according to a survey released March 1 by The Business Roundtable. 82% said they expected hiring to increase or remain the same the next six months and 60% plan new investments in plants and equipment, Bloomberg reported.

Factory Orders for January rose .2% versus estimates of a .1% decline and an upwardly revised .5% increase in December. Orders for capital goods excluding aircraft, a proxy for future business investment, rose strong 2.9%, Bloomberg reported. Rising business spending to update equipment and restock inventories is helping boost orders and demand for workers, economists said. "It's a strong start for the quarter and for the year," said Stuart Hoffman, chief economist at PNC Financial Services. "Spending on equipment is very strong right now. Business investment overall is quite strong right now," Hoffman said.

Bottom Line: Overall, last week's economic data were positive. The Microsoft dividend during December of last year makes it difficult to judge January's personal income and spending reports. A number of measures of inflation showed deceleration in last week's data. The Chicago Purchasing Manger Prices Paid Index, ISM Manufacturing Prices Paid Index and ISM Non-manufacturing Prices Paid Index all fell, while the PCE Deflator and Unit Labor Costs rose at a slower pace than originally estimated. The overcapacity generated during the 90's and global competition still makes it incredibly hard for companies in many sectors to raise prices. The airline, telecom, auto, technology and retail sectors are some of the main areas still facing immense pressure to keep prices low. The downward revision to 4Q Unit Labor Costs is a big positive, considering these costs comprise roughly two-thirds of inflation. As long as unit labor costs remain well in check the Fed is unlikely to accelerate their pace of rate hikes. At this point I am not concerned by the decline in home sales. Many parts of the country, specifically California, are experiencing one of the wettest winters on record. In my opinion, it is a positive for the economy that more lower income and first-time home buyers are entering the market, which appeared to be the case in January. I continue to believe home sales will fall modestly this year, but remain high by historic standards as the labor market improves, long-term interest rates stay low and supply remains tight. A strong housing market and an improving commercial real estate market should continue to propel construction spending throughout 2005. Manufacturing appears to be accelerating, which should boost inventory rebuilding and GDP growth over the next few months. I had expected 4Q/04 growth stole from 1Q/05 growth, but this does not appear to be the case. This bodes very well for another strong year for the US economy. Auto dealers are beginning to boost incentives again after recent sales declines which should also help spur GDP growth. If energy prices remain high, further loss of market share is likely to Asian competitors. Retailers reported very good sales in February which is especially positive considering January's strong reports, negative political rhetoric and the rise in gasoline prices. The low-end and high-end were strong as employment prospects appear to have improved across the board. I would like to see future non-farm payroll gains of around 200K, which would likely prevent unit labor costs from accelerating to inflationary levels and keep unemployment low. I expect Consumer Confidence to rise modestly in the near-term as an improving labor market, rising stock prices, improving geopolitical situations and low interest rates mostly offset the effects of higher gas prices and negative political rhetoric. Finally, the ECRI Weekly Leading Index rose .67% to 134.90, approaching cycle highs set in April 2004.

Market Week in Review

S&P 500 1,222.12 +.89%


Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Overall, last week's market performance was modestly positive. The advance/decline line rose marginally, most sectors advanced and volume was decent. Better-than-expected economic reports spurred cyclical shares, specifically the Transports, to strong gains for the week. As well, Retailers outperformed as February sales exceeded expectations at many stores. This is a very pleasant surprise considering the tough comps and rise in energy prices. An improving labor market, more optimism and relatively low interest rates should continue to boost consumer spending throughout 2005. Technology shares underperformed through week's end, pressured by declines in the semis, after several companies in the sector made disappointing comments. While semiconductors underperformed, the SOX is still technically healthy and appears poised for future gains. Biotechnology stocks were the worst performers of the week and appear headed for further underperformance over the intermediate-term. Measures of investor anxiety were mixed on the week, which is a positive considering the breakouts in most major indices. Finally, it was once again a psychological positive for the Bulls that the rise in crude oil, heating oil and gasoline prices didn't result in any discernable weakness in US stocks. As well, the fact that strong economic and earnings reports only pushed long-term interest rates marginally higher for the week was also a positive.