Stocks Quietly Higher Mid-day On Strong Employment Report

Indices
S&P 500 1,173.55 +.08%
DJIA 10,379.91 +.38%
NASDAQ 1,965.70 +.20%
Russell 2000 596.87 +.21%
DJ Wilshire 5000 11,551.20 +.08%
S&P Barra Growth 566.91 +.15%
S&P Barra Value 601.85 -.06%
Morgan Stanley Consumer 581.56 -.18%
Morgan Stanley Cyclical 714.42 +.50%
Morgan Stanley Technology 446.85 +.31%
Transports 3,531.02 +.07%
Utilities 366.04 -.11%
Put/Call 1.06 unch.
NYSE Arms .74 -45.67%
Volatility(VIX) 13.68 -2.15%
ISE Sentiment 144.00 +29.7%
US Dollar 84.50 +.67%
CRB 300.30 +.03%

Futures Spot Prices
Crude Oil 51.25 +.83%
Unleaded Gasoline 148.35 +.29%
Natural Gas 6.64 -.61%
Heating Oil 143.50 -.60%
Gold 426.90 -.88%
Base Metals 122.82 +.54%
Copper 144.00 +.70%
10-year US Treasury Yield 4.26% +2.68%

Leading Sectors
Steel +1.92%
I-Banks +1.82%
Software +1.12%

Lagging Sectors
Gold & Silver -.68%
Banks -.77%
Airlines -.80%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Internet, Homebuilding and Gaming longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are rising and volume is below average. Measures of investor anxiety are lower, however the AAII % Bulls fell again this week to 28.57%. This is a big positive and bodes well for an extension of the recent rally. Today’s overall market action is modestly positive considering the increase in long-term rates and energy prices. In further evidence that inflation fears have peaked, gold is breaking down today. I expect US stocks to trade modestly higher into the close on short-covering, bargain-hunting and more optimism over US economic growth.

Today's Headlines

Bloomberg:
- China’s economic growth is “still too high,” Deputy Finance Minister Li Yong said.
- Mittal Steel, the world’s largest steelmaker, has shut two US mills for maintenance work. They will be restarted “when business conditions demand.”
- General Electric increased its second-quarter profit forecast by 1 cent a share after restating results for prior years because of changes in derivatives accounting.
- Crude oil is rising on speculation the US economy is stronger than some had anticipated after the better-than-expected employment report.
- US Treasuries are falling, pushing the two-year note to its biggest decline in a year, after the economy last month created more jobs than forecast.
- The US dollar is climbing the most in six weeks against the euro and is rising versus the yen as expectations for further Fed rates hikes increased.

CNBC:
- Hicks, Muse, Tate & Furst plans to sell 22.5 million shares of Clear Channel Communications, most of the 37.5 million shares it owns.

Wall Street Journal:
- Hewlett-Packard and Lexmark International face rising competition from brokers who buy empty cartridges and resell them to be refilled.
- The median pay of US mutual-fund managers, including salary and bonus, is $390,000, 34% higher than two years ago and higher than the $330,000 median figure for hedge fund managers.

NY Times:
- US House lawmakers approved $200 million in aid for Palestinians, and the White House welcomed the vote.

Boston Globe:
- Boston’s business costs were 36% higher than the national average in 2003, making it the most costly city in which to do business in the US.

Boston Herald:
- Analogic plansto begin tests of its new Cobra explosives detection machine today at Boston’s Logan International Airport, which may give the US a better way of spotting weapons or bombs.

Frankfurter Allgemeine Zeitung:
- Merrill Lynch global markets and investment banking head Greg Fleming expects mergers worldwide to increase between 15 and 25% this year.

Job Market Still Healthy

- The Unemployment Rate for April came in at 5.2% versus estimates of 5.2% and 5.2% in March.
- Average Hourly Earnings for April rose .3% versus estimates of a .2% increase and a .3% gain in March.
- The Change in Non-farm Payrolls for April rose to 274K versus estimates of 174K and an upwardly revised 146K in March.
- The Change in Manufacturing Payrolls for April rose to -6K versus estimates of -5K and -7K in March.
- Average Weekly Hours for April rose to 33.9 versus estimates of 33.7 and 33.7 in March.

Bottom Line: Today’s strong jobs report was further bolstered by an upward revision of 93,000 more jobs created in February and March than previously thought. Stand-out sectors included an increase in retail employment of 24,000 in April after a decline of 2,100 in March. As well, construction jobs rose by 47,000 after an increase of 29,000 the prior month. This bodes well for an acceleration of new home starts. Moreover, I continue to believe consumer spending will remain healthy throughout the year as interest rates stay low, inflation decelerates, job prospects/incomes improve modestly, sentiment rises and gas prices fall.

Links of Interest

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Real-time Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- JP Morgan Chase said the SEC's Midwest office may recommend filing suit against the company's Bank One Corp. unit and former employee.
- SBC Communications lost a request with US regulators to keep video and high-speed Internet services free from the same set of rules that apply to voice and other Web products sold by phone companies.
- Australia's central bank said inflation pressures have eased and March's interest-rate increase has damped consumer demand, signaling it may keep borrowing costs unchanged in coming months.
- Prime Minister Tony Blair led his Labour Party to victory in yesterday's election, television projections showed, putting him on course to become Britain's first Labour leader to win a third straight term.
- Crude oil prices are more likely to fall than rise as US inventories near a six-year high boost confidence that refiners will meet peak summer gasoline demand, a Bloomberg survey shows.

AP:
- UN Secretary-General Kofi Annan said more than twice as many UN peacekeepers and staff members were accused of sexual abuse in 2004 than the year before.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MCK, TRI, INTC, BBG and HMA.
- Reiterated Underperform on PFG, ROIAK, MU, WGR, WTW and DRI.

Business Week:
- The shares of Cooper Cameron(CAM), the maker of oil and gas drilling equipment, will rise after trailing the industry's gains.
- The shares of Varian Semiconductor Equipment Associates(VSEA) may rise 40% in the next year as earnings may increase on demand from chipmakers.
- Shares of American Greetings(AM) are worth buying because the company has a strong cash flow and it may buy back as much as 11% of its stock in the next year.

Night Trading
Asian Indices are +.25% to +1.25% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated -.03%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
BRK/A/910.00
MLS/.22
OATS/-.05

Splits
None of note

Economic Releases
8:30 EST:
- The unemployment rate for April is estimated at 5.2% versus a 5.2% rate in March.
- Average Hourly Earnings for April are estimated to rise .2% versus a .3% gain in March.
- The Change in Non-farm Payrolls for April is estimated to rise to 174K versus 110K in March.
- The Change in Manufacturing Payrolls for April is estimated to rise to -5K versus -8K in March.

3:00 EST:
- Consumer Credit for March is estimated to rise to $6.4B versus $5.6B in February.

BOTTOM LINE: Asian indices are higher, spurred by gains in exporting shares in the region. I expect US equities to open modestly higher on a positive reaction to tomorrow's employment report. While I don't have a good feel for whether or not non-farm payrolls will meet expectations, I do believe that only a much lower-than-expected number of below 100,000 would hurt stocks. Under this scenario, which is very unlikely, fears of a US hard landing would resurface. The Portfolio is 100% net long heading into tomorrow.