Stocks Finish Modestly Higher on Lower Energy Prices

Indices
S&P 500 1,156.38 +.40%
DJIA 10,198.80 +.47%
NASDAQ 1,930.43 +.16%
Russell 2000 587.14 -.09%
DJ Wilshire 5000 11,382.91 +.30%
S&P Barra Growth 559.04 +.31%
S&P Barra Value 593.01 +.50%
Morgan Stanley Consumer 574.10 +.38%
Morgan Stanley Cyclical 697.86 -.56%
Morgan Stanley Technology 438.82 +.04%
Transports 3,417.54 +.38%
Utilities 368.24 +.72%
Put/Call 1.07 +42.67%
NYSE Arms .96 -45.92%
Volatility(VIX) 14.87 -.27%
ISE Sentiment 161.00 +25.78%
US Dollar 84.12 +.19%
CRB 305.88 -1.26%

Futures Spot Prices
Crude Oil 51.35 -.50%
Unleaded Gasoline 153.47 -.47%
Natural Gas 6.77 -.29%
Heating Oil 147.55 +.10%
Gold 433.50 -.14%
Base Metals 123.54 -.87%
Copper 144.40 unch.
10-year US Treasury Yield 4.22% -.98%

Leading Sectors
HMOs +3.28%
Papers +2.06%
Telecom +1.71%

Lagging Sectors
Oil Service -3.33%
Gold & Silver -4.02%
Steel -4.79%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BHI, WLP, AHC and CL.
- Reiterated Underperform on KEA, BA, RAI and ALB.

Afternoon/Evening Headlines
Bloomberg:
- UK Prime Minister Blair cast doubt on Britain joining the euro currency while he is in office as he seeks a third term in a May 5 general election.
- Ministers from Caribbean countries said their tourism-dependent economies might be hurt by new US rules requiring US citizens traveling to the Caribbean to carry passports.
- Hedge funds attracted a record $27.4 billion from institutional and wealthy investors in the first quarter, helping to push assets to more than $1 trillion for the first time, according to Hedge Fund Research.
- Tenet Healthcare said it received a notice that US regulators plan to recommend civil action related to the company’s financial reporting of Medicare and managed-care payments.
- Crude oil fee almost $3 a barrel in NY, the biggest decline this year, after the Energy Dept. reported that US inventories jumped to the highest in almost 3 years and President Bush spoke on ways to cut energy prices.

BOTTOM LINE: US stocks finished modestly higher today on falling energy prices and long-term interest rates. The Portfolio finished substantially higher on gains in my Commodity-related shorts. I added a few new Energy-related shorts in the afternoon, thus leaving the Portfolio 50% net long. One of my new shorts is OMM and I am using a $19.75 stop-loss on this position. The tone of the market remained slightly positive into the afternoon as the advance/decline finished modestly lower, most sectors were higher and volume was average. Measures of investor anxiety were mostly lower. Overall, today’s market action was slightly positive. I expect tomorrow’s GDP report to fail to meet expectations. This may spur a further decline in commodity prices.

Stocks Gaining Mid-day on Falling Energy Prices

Indices
S&P 500 1,156.71 +.43%
DJIA 10,194.66 +.42%
NASDAQ 1,932.99 +.29%
Russell 2000 589.33 +.28%
DJ Wilshire 5000 11,390.65 +.37%
S&P Barra Growth 559.28 +.35%
S&P Barra Value 593.17 +.53%
Morgan Stanley Consumer 573.71 +.30%
Morgan Stanley Cyclical 697.67 -.60%
Morgan Stanley Technology 438.91 +.06%
Transports 3,416.55 +.35%
Utilities 368.90 +.90%
Put/Call 1.15 +53.33%
NYSE Arms 1.12 -37.26%
Volatility(VIX) 14.86 -.34%
ISE Sentiment 161.00 +25.78%
US Dollar 84.12 +.19%
CRB 306.23 -1.15%

Futures Spot Prices
Crude Oil 51.57 -4.85%
Unleaded Gasoline 155.50 -4.31%
Natural Gas 6.78 -4.78%
Heating Oil 148.40 -1.59%
Gold 434.10 -1.12%
Base Metals 123.54 -.87%
Copper 144.30 -1.16%
10-year US Treasury Yield 4.23% +.-.79%

Leading Sectors
HMOs +2.75%
Papers +2.05%
Telecom +1.52%

Lagging Sectors
Oil Service -2.30%
Steel -4.18%
Gold & Silver -4.24%

BOTTOM LINE: US stocks are modestly higher mid-day, spurred by lower long-term interest rates and energy prices. The Portfolio is higher on gains in my Homebuilding longs and Base Metal shorts. I exited a few longs as they hit stops this morning and added some new Gaming and Internet longs, thus leaving the Portfolio 75% net long. One of my new longs is VRSN and I am using a $27 stop-loss on this position. The tone of the market is neutral as the advance/decline line is slightly lower, most sectors are rising and volume is above average. Measures of investor anxiety are mostly lower. Today’s overall market action is modestly positive, considering lower energy prices, lower long-term rates, a firmer US dollar, disappointing durable goods orders and the recovery from morning losses. I expect US stocks to trade modestly higher into the close on short-covering, lower energy prices, lower long-term interest rates and bargain-hunting.

Today's Headlines

Bloomberg:
- Goldman Sachs’s financial rewards for arranging the NYSE’s purchase of Archipelago exceed $100 million.
- Crude oil is falling after the EIA reported supplies rose to a 35-month high.
- US T-notes are rising after the government reported durable goods orders fell in March by the most in two years.
- President Bush will propose using closed military bases as sites for oil refineries and speed up licensing of nuclear power plants.
- European surveys showing deteriorating confidence suggest the European Central Bank may lower its benchmark interest rates this year, hurting demand for the euro, according to Goldman Sachs.

Wall Street Journal:
- Three men seem to be the front-running candidates to succeed US Fed Chairman Greenspan, who’s due to step down in January. They are Martin Feldstein, Ben Bernanke and Glen Hubbard.
- The House and Senate are close to agreeing on a budget for 2006 that includes $40 billion in savings over five years and would close some tax-loopholes to compensate for $106 billion in tax cuts.
- XM Satellite Radio and Sirius Satellite Radio are introducing receivers for listening to satellite radio outside their normal habitat, the car.
- 3Com executives have bought shares of the company for the first time in four years.

NY Times:
- More than three-quarters of small US businesses polled last month plan to increase spending on technology tools such as computer software and Web sites by 20% in the next two to three years, citing a survey to be released by Hewlett-Packard.

San Francisco Chronicle:
- Oakland became the first large US shipping port to automatically scan cargo containers for radioactive material.

La Tribune:
- Lazard Ltd., the investment bank headed by Bruce Wasserstein, plans to have its shares trading on the NYSE on May 5:

Die Welt:
- Almost one third of Europeans suffer from mental illnesses such as panic attacks, depression, the effects of stroke and migraine, citing a study by the European Brain Council.

Durables Not That Bad, Crude Inventories Surging

- Durable Goods Orders for March fell 2.8% versus estimates of a .3% increase and a downwardly revised .2% decline in February.
- Durables Ex Transports for March fell 1.0% versus estimates of a .5% increase and a .2% fall in February.
- Summary of Weekly Petroleum Data for the Week Ending April 22, 2005. Crude oil inventories rose 5.5M barrels versus estimates of a 650K rise, distillate fuel inventories fell 1.4M barrels versus estimates of a 100K rise and gasoline inventories fell 300K barrels versus estimates of a 1M barrel fall.

Bottom Line: Durable goods orders for March fell 2.8% vs. estimates of a .3% increase and a downwardly revised .2% decline in February. Durables excluding transports for March fell 1.0% vs. estimates of a .5% increase and a .2% fall in February. This "very bearish" number, as some pundits are calling it, doesn't appear to me to be that worrisome. Orders for transportation equipment fell 7.8%, mainly due to a 23% decline in the very volatile aircraft component. Boeing received orders for only 11 planes last month, compared with 34 in February. Moreover, the report was skewed by the loss of working days around Easter, which was in March rather than April. The only economist to correctly forecast March's decline was Ian Shepherdson of High Frequency Economics. He is saying "these data are unreliable" and that "he expects a hefty April rebound." I believe analyst estimates of 3.5% GDP growth are at risk for 1Q as a result of a weaker-than-expected March and a higher-than-expected deflator. However, I continue to believe that U.S. growth will temporarily slow to around 2% before rebounding in the second half. I do not think a recession is likely. I also continue to believe the "contango" in crude is resulting in a temporary artificial boost to current demand. As perceptions shift over the next couple of months, a demand vacuum will send crude prices lower than most currently expect.

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