Factory Orders Exceed Expectations

- Factory Orders for March rose .1% versus estimates of a 1.2% decline and a downwardly revised .5% fall in February.

Bottom Line: The .1% gain in factory orders is more evidence that economic growth is slowing to more sustainable and less inflationary levels. An 18% increase in orders for petroleum and coal products accounted for most of the “better-than-expected number.” However, today’s report also showed orders for capital goods excluding aircraft, a gauge of future business investment rose 10.4% from the first quarter of 2004. While the rate of increase is slower than last year, this is still a healthy gain.

Links of Interest

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Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- GE received a subpoena from the SEC about a type of policy used by its insurance unit that can be misused to smooth earnings.
- Lenovo Group Ltd. appointed IBM's Stephen Ward as CEO after completing the $1.25 billion takeover of IBM's PC division.

Wall Street Journal:
- Fidelity Investments' Abigail P. Johnson, head of the largest US mutual fund company's money management unit, will be transferred to another unit and succeeded by Fidelity executive Stephen P. Jones.

China Times:
- Taiwan is developing long-range missiles.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MDT, HEP and EMC.
- Reiterated Underperform on MCRL and PFG.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.04%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
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Earnings of Note
Company/EPS Estimate
AG/.24
CMX/.43
CEPH/.52
CVH/1.06
ERTS/.09
EMR/.81
KOSP/.55
LVS/.25
LTR/1.73
MACR/.21
MMC/.49
MXIM/.38
MBI/1.34
MET/.86
NTE/.22
KWK/.20
SHRP/.95
SBL/.11
THC/-.04
RIG/.17
TYC/.47
VRTS/.24

Splits
TBL 2-for-1
HCSG 3-for-2

Economic Releases
10:00 EST:
- Factory Orders for March are estimated to fall 1.2% versus a .2% increase in February.

2:15 EST:
- The FOMC is expected to raise its benchmark rate 25 basis points to 3.0% from 2.75%.

Afternoon:
- Total Vehicle Sales for April are estimated at 16.8M versus 16.8M in March.
- Domestic Vehicle Sales for April are estimated at 13.3M versus 13.5M in March.

BOTTOM LINE: Asian indices are mostly higher, led by technology shares in the region. I expect US equities to open modestly higher on short-covering ahead of the Fed announcement. I expect the Fed to raise their benchmark rate by 25 basis points, keep the "measured" language and make more dovish comments. The market should rally further in the afternoon on the news. The Portfolio is 75% net long heading into tomorrow.

Stocks Finish Quietly Higher Ahead of Fed

Indices
S&P 500 1,162.16 +.46%
DJIA 10,251.70 +.58%
NASDAQ 1,928.65 +.36%
Russell 2000 585.86 +1.12%
DJ Wilshire 5000 11,426.87 +.52%
S&P Barra Growth 561.51 +.47%
S&P Barra Value 596.31 +.45%
Morgan Stanley Consumer 579.98 +.83%
Morgan Stanley Cyclical 701.67 +.61%
Morgan Stanley Technology 437.31 +.17%
Transports 3,483.83 +1.67%
Utilities 373.19 +.46%
Put/Call .94 -7.84%
NYSE Arms .93 +7.29%
Volatility(VIX) 15.12 -1.24%
ISE Sentiment 165.00 +22.2%
US Dollar 84.49 +.07%
CRB 302.89 -.28%

Futures Spot Prices
Crude Oil 50.82 -.20%
Unleaded Gasoline 151.10 -.23%
Natural Gas 6.67 -.33%
Heating Oil 146.10 -.15%
Gold 430.70 +.05%
Base Metals 124.97 +1.10%
Copper 145.00 -.34%
10-year US Treasury Yield 4.18% -.23%

Leading Sectors
Oil Service +2.78%
Oil Tankers +2.37%
Energy +1.96%

Lagging Sectors
Broadcasting -.61%
Telecom -1.16%
I-Banks -1.92%

Evening Review
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Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
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GuruFocus.com
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW, GD, PFE and AMGN.
- Reiterated Attractive view of Drug Retailers.

Afternoon/Evening Headlines
Bloomberg:
- Prudential Equity Group’s chief investment strategist, told clients to raise their allocation for US stocks to 80%.
- MCI Inc. accepted an increased takeover offer from Verizon Communications, snubbing a bid from Qwest Communications that is more than $1 billion higher.
- Crude oil rose, rebounding from a two-month low, after Algeria’s energy minister Khelil said that OPEC should boost production to meet “very strong” demand.
- The Fed this week will drop its year-old commitment to increase rates at a “measured” pace, according to five of Wall Street’s 22 biggest bond-trading firms surveyed by Bloomberg.
- Hewlett-Packard agreed to pay bigger rival EMC Corp. $325 million over five years to end lawsuits over patents.

LA Times:
- Los Angeles County office vacancies fell 3 percentage points to 14% in the first quarter as businesses continue to expand.

BOTTOM LINE: The Portfolio finished unchanged as gains in my Computer and Internet longs offset losses in my Commodity-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market improved modestly into the close as the advance/decline finished slightly higher, most sectors rose and volume was light. Measures of investor anxiety were mostly lower. Overall, today’s market action was modestly positive considering Friday’s gains and the rise in energy prices. I expect the Fed’s comments tomorrow to result in an extension of the recent rally.

Stocks Mixed Mid-day on Rising Energy Prices

Indices
S&P 500 1,155.54 -.11%
DJIA 10,197.61 +.05%
NASDAQ 1,917.89 -.20%
Russell 2000 579.72 +.06%
DJ Wilshire 5000 11,361.60 -.05%
S&P Barra Growth 558.73 -.03%
S&P Barra Value 593.02 -.11%
Morgan Stanley Consumer 576.98 +.32%
Morgan Stanley Cyclical 697.32 -.02%
Morgan Stanley Technology 435.50 -.25%
Transports 3,460.34 +.98%
Utilities 372.23 +.20%
Put/Call .99 -2.94%
NYSE Arms .95 +11.62%
Volatility(VIX) 15.63 +2.09%
ISE Sentiment 141.00 +4.44%
US Dollar 84.55 +.14%
CRB 302.40 -.44%

Futures Spot Prices
Crude Oil 50.65 +1.77%
Unleaded Gasoline 148.00 -1.08%
Natural Gas 6.61 +.46%
Heating Oil 143.70 +.78%
Gold 430.90 -1.19%
Base Metals 124.97 +1.10%
Copper 145.50 -.61%
10-year US Treasury Yield 4.19% -.14%

Leading Sectors
Insurance +1.46%
Oil Service +1.43%
Oil Tankers +1.32%

Lagging Sectors
Papers -.74%
Steel -.88%
I-Banks -2.56%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Computer and Internet longs are being offset by losses in my Oil Tankers shorts. I took profits in some of my trading longs this morning, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is mildly positive, considering Friday’s gains, rising energy prices and the market’s oversold state. Ried, Thunberg's weekly index measuring the outlook for U.S. government debt rose for the first time in a month last week to 41 from 40. Readings below 50 mean investors continue to anticipate a rise in yields by the end of June. This reading continues to be bullish for bonds. As well, 70% of their survey's participants expect the Fed to refer to signs of sluggish economic growth in their policy statement. I expect US stocks to trade mixed into the close as short-covering and bargain-hunting offset apprehensions ahead of the Fed meeting and rising energy prices.