Jobless Claims Fall Back to Healthy Levels

- Initial Jobless Claims for last week fell to 330K versus estimates of 333K and 351K the prior week.
- Continuing Claims fell to 2588K versus estimates of 2591K and 2592K prior.

BOTTOM LINE: Jobless filings jumped in the prior week because of temporary layoffs in the automobile industry, the government said. The four-week average of jobless claims dropped to 331,750 from 334,500. The claims figures are consistent with much stronger hiring than the unexpectedly small 78,000 gain in May payrolls reported by the Labor Department last week, economists said. The four-week moving average of continuing claims declined to 2.587 million from 2.589 million. Finally, the uninsured unemployment rate, which corresponds with the US unemployment rate, held at 2.0%.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- North Korea is in the process of building more nuclear bombs, citing an interview with the country's Vice Foreign Minister, Kim Gye Gwan.
- Taiwan's constitutional changes passed this week could help ease tensions with China as they made it more difficult for the island to declare independence and may prod President Chen Shui-bian to improve ties with the mainland, analysts said.

Financial Times:
- The process of ratification of the European Union draft constitution will be put on "pause" for the time being, though it will be completed, citing European Parliament President Josep Borrell.

Commercial Times:
- Chi Mei Optoelectronics, Taiwan's second-largest maker of flat panel displays, plans to raise prices of large-size liquid-crystal displays because of short supply.

China Daily:
- China's government is considering measures to restrict shoe exports as tensions rise with trading partners including the European Union over surging shipments.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GE and DO.
- Reiterated Underperform on CVC.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated -.07%.

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Company/EPS Estimate
NSM/.22
NAV/.71
TOY/-.03
TOM/.24
SHFL/.18

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Various ETFs

Economic Releases
8:30 EST:
- Initial Jobless Claims for last week are estimated to fall to 330K versus 350K the prior week.
- Continuing Claims are estimated to fall to 2591K versus 2602K prior.

BOTTOM LINE: Asian indices are mostly lower, led down by exporters in the region, on apprehension ahead of comments by the Fed's Greenspan. I expect US equities to open mixed-to-lower and to rally modestly later in the day after Greenspan's comments. As I stated earlier today, I expect Greenspan to hint that the Fed will remove the word "measured" from the June policy statement. However, I expect him to make convoluted statements otherwise, giving something to the doves and hawks. I do not expect him to explicitly state that the Fed is nearly done hiking rates. The Portfolio is 50% net long heading into the day.

Stocks Finish Modestly Lower, Energy Prices Fall

Indices
S&P 500 1,194.67 -.22%
DJIA 10,476.86 -.06%
NASDAQ 2,060.18 -.34%
Russell 2000 620.47 -.53%
DJ Wilshire 5000 11,821.87 -.25%
S&P Barra Growth 576.38 -.36%
S&P Barra Value 613.87 -.08%
Morgan Stanley Consumer 581.73 -.39%
Morgan Stanley Cyclical 719.91 -.25%
Morgan Stanley Technology 479.80 -.33%
Transports 3,537.73 -2.07%
Utilities 370.27 +.04%
Put/Call .92 +9.52%
NYSE Arms .90 -22.25%
Volatility(VIX) 12.70 +2.50%
ISE Sentiment 157.00 +.64%
US Dollar 87.88 +.45%
CRB 303.73 -.81%

Futures Spot Prices
Crude Oil 52.50 -.08%
Unleaded Gasoline 149.50 -.17%
Natural Gas 7.02 +.29%
Heating Oil 154.89 -.25%
Gold 425.10 -.35%
Base Metals 123.16 -1.31%
Copper 154.60 unch.
10-year US Treasury Yield 3.93% +.82%

Leading Sectors
I-Banks +.71%
Networking +.65%
Semis +.64%

Lagging Sectors
Homebuilders -1.49%
Airlines -1.51%
Oil Tankers -1.75%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AVP.
- Reiterated Underperform on CHTR and FGP.

Smith Barney:
- Rated GOOG Buy, target $360.

Afternoon/Evening Headlines
Bloomberg:
- Caterpillar split its stock 2-for-1 and increased its quarterly dividend by 22% after sales jumped by a third last year.
- US economic growth will slow to 3.4% in 2005 from 3.9% last year, a report from President Bush’s administration says, down slightly from its December forecast.
- Scientists say they have discovered a way to make fuel cells that generate the heat they need to function, which could lead to new designs of lighter and more powerful batteries for portable electronic devices.
- John Malone, chairman of Liberty Media, resigned from the board of Cablevision Systems to avoid conflicts that might arise because both companies own television programming assets.
- US Treasuries fell today, pushing yields on 10-year notes up from near the lowest in more than a year, on speculation Federal Reserve Chairman Alan Greenspan will say tomorrow that inflation is still a threat.
- Crude oil fell for a third day as refiners increased production of heating oil and diesel, bolstering inventories.

Fox News:
- President Bush said China has signaled a willingness to adjust its currency, and the US is “serious” about blocking North Korea’s development of nuclear weapons.

Financial Times:
- Toyota Motor Chairman Okuda said he fears a protectionist backlash from the US if financial problems worsen at GM and Ford.

Globe and Mail:
- Negotiators for the NHL and its players union have agreed on a salary cap system based on team-by-team revenue.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet and Homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was modestly negative today as the advance/decline finished lower, most sectors declined and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was slightly negative. Today’s rally in the US dollar looks like it will continue in the near-term, which should help spur another decline in commodity prices.

Stocks Modestly Lower Mid-day on Rising Apprehension Ahead of Greenspan's Testimony

Indices
S&P 500 1,195.93 -.14%
DJIA 10,480.10 -.02%
NASDAQ 2,059.83 -.34%
Russell 2000 621.53 -.36%
DJ Wilshire 5000 11,832.98 -.16%
S&P Barra Growth 576.88 -.27%
S&P Barra Value 614.30 -.01%
Morgan Stanley Consumer 582.34 -.28%
Morgan Stanley Cyclical 721.19 -.08%
Morgan Stanley Technology 478.95 -.52%
Transports 3,540.87 -2.0%
Utilities 370.39 +.07%
Put/Call .84 unch.
NYSE Arms .78 -32.12%
Volatility(VIX) 12.75 +2.91%
ISE Sentiment 176.00 +12.82%
US Dollar 87.86 +.42%
CRB 304.02 -.72%

Futures Spot Prices
Crude Oil 53.27 -.91%
Unleaded Gasoline 150.20 -.90%
Natural Gas 7.08 -.66%
Heating Oil 156.90 -1.99%
Gold 426.60 -.02%
Base Metals 123.16 -1.31%
Copper 154.60 +.19%
10-year US Treasury Yield 3.92% +.73%

Leading Sectors
I-Banks +.62%
Disk Drives +.54%
Semis +.39%

Lagging Sectors
Homebuilder -1.24%
Airlines -1.87%
Oil Tankers -2.01%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet and Homebuilding longs and Energy-related shorts. I exited my QQQQ long position, thus leaving the Portfolio 50% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are lower and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is slightly negative considering the decline in energy prices from morning highs and apprehension ahead of Greenspan’s comments tomorrow. I expect Greenspan to hint that the Fed will remove the word "measured" from the June policy statement. However, I expect him to make convoluted statements otherwise, giving something to the doves and hawks. I do not expect him to explicitly state that the Fed is nearly done hiking rates. The markets should respond in a modestly positive way to this. However, if I am incorrect and Greenspan implies that the Fed will continue hiking rates at the current pace for the foreseeable future, the markets will likely have a substantial negative reaction. As well, an unexpected acknowledgement that Fisher was spot on in his assessment of the situation would likely lead to a substantial positive reaction by investors. I expect US stocks to trade mixed into the close as lower energy prices offset worries over Greenspan’s testimony tomorrow.