Tuesday, May 24, 2005

Stocks Finished Mixed After Late-Day Bounce

Indices
S&P 500 1,194.07 +.02%
DJIA 10,503.68 -.19%
NASDAQ 2,061.62 +.24%
Russell 2000 612.95 +.01%
DJ Wilshire 5000 11,780.23 +.03%
S&P Barra Growth 578.24 +.05%
S&P Barra Value 611.31 -.02%
Morgan Stanley Consumer 589.89 -.11%
Morgan Stanley Cyclical 724.46 -.38%
Morgan Stanley Technology 480.21 +.27%
Transports 3,632.66 +.17%
Utilities 363.48 +.07%
Put/Call .74 -8.64%
NYSE Arms 1.0 +23.59%
Volatility(VIX) 12.69 -2.01%
ISE Sentiment 152.00 -11.63%
US Dollar 86.37 -.03%
CRB 296.72 +.08%

Futures Spot Prices
Crude Oil 49.81 +.28%
Unleaded Gasoline 142.60 -.05%
Natural Gas 6.33 -.22%
Heating Oil 139.10 +.28%
Gold 418.40 +.17%
Base Metals 121.57 +1.06%
Copper 140.50 unch.
10-year US Treasury Yield 4.03% -.57%

Leading Sectors
Gold & Silver +2.46%
Semis +1.55%
Computer Hardware +.75%

Lagging Sectors
Papers -1.0%
Gaming -1.06%
Steel -1.31%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on HD, DKS, MDT, ACN, AAP and ODP.
- Reiterated Underperform on DDS.

Afternoon/Evening Headlines
Bloomberg:
- The US accounting oversight board revoked the registration of Goldstein & Morris, a NY accounting firm, marking the first disciplinary action since it was established in 2003.
- GM debt was cut to junk by Fitch Ratings, the second time in three weeks the world’s biggest automaker lost an investment-grade credit rating on concern about a drop in market share.
- US Treasuries rose, sending the 10-year T-note to its biggest two-day gain in almost a month, on speculation the Fed will be able to keep inflation in check.
- Legislation to expand federal funding for medical research using embryonic stem cells won approval in the US House of Representatives in a 238-194 decision, short of the 290 votes needed to override President Bush’s threatened veto.

Smart Money:
- International Strategy & Investing Group has become influential among Wall Street investors with its broad view of markets and easy-to-read reports.

AFP:
- Egyptian President Hosni Mubarak called for a high voter turnout in tomorrow’s referendum on a constitutional amendment to allow the country to hold its first multiparty presidential election.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet, Wireless, Retail and Semiconductor longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market strengthened modestly into the afternoon as the advance/decline finished near session highs, sector performance was mixed and volume was average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was slightly positive considering recent gains, the bounce in energy prices and mixed Fed comments. Today’s afternoon strength bodes well for further gains tomorrow. Long-term rates should begin a counter-trend bounce on tomorrow’s economic reports.

Stocks Mixed Mid-day After Fed Minutes Show No Surprises

Indices
S&P 500 1,192.33 -.14%
DJIA 10,489.20 -.33%
NASDAQ 2,057.14 +.02%
Russell 2000 612.40 -.08%
DJ Wilshire 5000 11,763.25 -.09%
S&P Barra Growth 577.86 -.03%
S&P Barra Value 609.67 -.28%
Morgan Stanley Consumer 589.17 -.23%
Morgan Stanley Cyclical 723.74 -.49%
Morgan Stanley Technology 478.49 -.09%
Transports 3,617.65 -.24%
Utilities 362.94 -.05%
Put/Call .72 -11.11%
NYSE Arms 1.12 +38.36%
Volatility(VIX) 13.02 +.54%
ISE Sentiment 173.00 +.58%
US Dollar 86.47 +.09%
CRB 296.49 +.01%

Futures Spot Prices
Crude Oil 49.65 +1.0%
Unleaded Gasoline 141.75 +1.32%
Natural Gas 6.32 -1.36%
Heating Oil 138.25 +1.17%
Gold 417.70 +.19%
Base Metals 121.57 +1.07%
Copper 140.50 +1.19%
10-year US Treasury Yield 4.05% -.10%

Leading Sectors
Gold & Silver +2.07%
Semis +.75%%
Energy +.66%

Lagging Sectors
Papers -1.15%
Airlines -1.20%
I-Banks -1.31%
BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet, Wireless and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mixed and volume is average. Measures of investor anxiety are mixed. Today’s overall market action is mixed, given last week’s gains, the morning bounce in energy prices and Fed Minutes. I expect US stocks to rise modestly into the close on short-covering, lower long-term interest rates, declining energy prices and strength in the Tech sector.

Today's Headlines

Bloomberg:
- French opposition to the European Union constitution rose to 53%, five days ahead of the May 29 national referendum on the treaty, as voters spurned President Chirac’s argument that rejection would isolate France.
- MidAmerican Energy, a US utility controlled by Warren Buffett’s Berkshire Hathaway, agreed to buy PacifiCorp for $5.1 billion, gaining the largest provider of power to customers in the US Northwest.
- The OECD cut its estimate for global growth this year and next, citing rising energy costs and a deepening slowdown in Europe. However, the Paris-based group raised 2005 US growth estimates to 3.6% from 3.3%.
- French President Chirac suffered a double blow in his campaign for Europe’s constitution as members of his party joined rallies against the treaty and polls showed support for the “no” vote growing.
- General Motors was cut to junk by Fitch Ratings, the second time the company has been downgraded in three weeks.

Wall Street Journal:
- Cantor Fitzgerald’s Cantor G&W LP is close to persuading Nevada lawmakers to approve rules to let gamblers play video poker, blackjack and other games on hand-held devices while at a resort.
- The US government announced new arrests in its bid to halt illegal “hawalas,” money-transfer businesses used to switch cash to Arab countries.
- The amount of cash and liquid securities held by US companies in the S&P 500 index jumped to a record $766 billion in the first quarter of the year, and stock buybacks are in vogue.
- US business people who book private jets are finding the experience is becoming more troublesome and full of hassles similar to the ones that had them switching from commercial flights.

NY Times:
- Syria has ended intelligence and military cooperation with the US within the last 10 days because of what Syria says in unfair US allegations.
- California and Florida are among US states considering legislation that would increase regulation for so-called drop-off stores that house and sell items on EBay’s Internet marketplace.
- IBM plans to introduce software today that will enable companies to compare information with each other and government agencies without sacrificing privacy of individuals.
- US companies are recruiting college graduates with a range of degree at the fastest pace since 2001.

Washington Post:
- US Representative Michael Oxley plans to introduce a bill that would give a new regulator for mortgage lenders’ Fannie Mae and Freddi Mac oversight of companies’ investment portfolios.

Saudi Press Agency:
- Saudi Arabia is ready to boost crude production to keep pace with world demand and maintain “stable” prices, the kingdom’s cabinet said.

Sky News:
- The leader of al-Qaeda in Iraq, Abu Musab al-Zarqawi, is wounded, citing a statement posted on an Islamist Web site that has carried al-Qaeda messages in the past.

Existing Home Sales Hit All-Time Record

- Existing Home Sales for April rose to 7.18M versus estimates of 6.9M and 6.87M in March.

BOTTOM LINE: US sales of previously owned homes rose 4.5% in April to 7.18M units at an annual rate, an all-time record. Employment gains and 30-year mortgage rates of less than 6% are fueling demand. During the last five years, the median sales price of an existing single family home rose at an 8.1% rate. I continue to believe there is not a nation-wide bubble in housing, notwithstanding the attempts by many to suggest otherwise. I expect homebuilders to outperform through at least year-end.

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