Market Week in Review

S&P 500 1,198.11 +.18%



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was mixed. I view the week's action as a healthy consolidation after recent gains. The advance/decline fell slightly, sector performance was mixed and volume was below average on the week. Measures of investor anxiety were mixed. The Tech sector underperformed for the first time in a number of weeks even as Intel and Texas Instruments boosted forward guidance. As well, positive developments with GM failed to boost stocks. The AAII % Bulls fell and is back to average levels. Mortgage rates continued to drop and are now only 35 basis points away from all-time lows set in June 2003. Long-term treasury yields rose as Fed Chairman Greenspan made positive statements about the US economy, leading investors to conclude the Fed would continue hiking rates at a "measured" pace. There are still a number of important data points between now and the June 30 Fed meeting. I continue to believe the Fed will raise 25 basis points at the June meeting and remove the word "measured" from the policy statement, thus paving the way for a "pause" in their rate of hikes. Commodity prices fell on the week as the US dollar strengthened. Considering oil inventories fell for the third time in 17 weeks and a possible hurricane moved towards the Gulf, the decline in crude was welcome. I continue to believe the recent commodity rally will be short-lived as global growth falls more than is generally expected, supplies increase and the US dollar rises further.

Weekly Scoreboard*

Indices
S&P 500 1,198.11 +.18%
DJIA 10,512.63 +.49%
NASDAQ 2,063.00 -.41%
Russell 2000 626.33 +.97%
DJ Wilshire 5000 11,865.65 +.27%
S&P Equity Long/Short Index 1,016.95 +.50%
S&P Barra Growth 576.78 -.11%
S&P Barra Value 616.95 +.45%
Morgan Stanley Consumer 582.00 -.28%
Morgan Stanley Cyclical 720.50 -.20%
Morgan Stanley Technology 479.07 -.76%
Transports 3,521.49 -2.97%
Utilities 373.16 +1.09%
S&P 500 Cum A/D Line 7,392.00 -1.94%
Bloomberg Crude Oil % Bulls 43.0% -2.27%
Put/Call .71 -28.28%
NYSE Arms .89 -40.67%
Volatility(VIX) 11.96 -1.56%
ISE Sentiment 163.00 -4.12%
AAII % Bulls 45.98 -5.41%
US Dollar 88.69 +.80%
CRB 302.48 -1.38%

Futures Spot Prices
Crude Oil 53.54 -2.80%
Unleaded Gasoline 154.36 -.73%
Natural Gas 6.93 +.76%
Heating Oil 160.74 +.43%
Gold 428.90 +.12%
Base Metals 123.78 -2.54%
Copper 156.45 +.10%
10-year US Treasury Yield 4.05% +1.96%
Average 30-year Mortgage Rate 5.56% -1.07%

Leading Sectors
Oil Service +3.80%
Energy +2.51%
Networking +2.39%

Lagging Sectors
Internet -1.48%
Steel -1.96%
Oil Tankers -2.21%

*5-Day % Change

Stocks Lower Mid-day on Weakness in Tech

Indices
S&P 500 1,195.30 -.47%
DJIA 10,477.74 -.24%
NASDAQ 2,060.37 -.80%
Russell 2000 625.43 -.13%
DJ Wilshire 5000 11,842.16 -.41%
S&P Barra Growth 575.29 -.74%
S&P Barra Value 615.72 -.20%
Morgan Stanley Consumer 580.23 -.47%
Morgan Stanley Cyclical 719.76 +.22%
Morgan Stanley Technology 477.45 -1.33%
Transports 3,517.74 -.32%
Utilities 373.20 +.59%
Put/Call .71 -19.32%
NYSE Arms 1.0 +35.92%
Volatility(VIX) 12.18 +.83%
ISE Sentiment 153.00 -14.04%
US Dollar 88.68 +.69%
CRB 302.93 -.40%

Futures Spot Prices
Crude Oil 53.80 -.88%
Unleaded Gasoline 154.80 -1.49%
Natural Gas 6.99 -.71%
Heating Oil 161.70 -.53%
Gold 429.30 +.75%
Base Metals 123.80 +.45%
Copper 156.25 +1.0%
10-year US Treasury Yield 4.02% +2.03%

Leading Sectors
Gold & Silver +3.17%
Steel +.88%
Restaurants +.68%

Lagging Sectors
Software -1.24%
HMOs -1.36%
Semis -1.95%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet and Semiconductor longs. I took profits in a Base Metal short and added to an Oil Tanker short this morning, thus leaving the Portfolio 75% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are declining and volume is below average. Measures of investor anxiety are mostly higher. Today’s overall market action is negative considering the decline in energy prices, GM’s positive news and Intel’s guidance boost. The US budget deficit narrowed to $35.3 billion in may from a year earlier, a larger improvement than expected, as tax revenue soared. This was the smallest May budget shortfall since 2001. The Treasury said that tax receipts rose 32% to $152.7 billion during May compared with a year earlier. I expect the 2004 US budget deficit to come in substantially better than the $427 billion forecast by the White House. I expect US stocks to trade mixed into the close as profit-taking offsets positive fundamental developments.

Today's Headlines

Bloomberg:
- Intel will work with Nokia Oyj to develop products that deliver high-speed wireless Internet access over long distances.
- Crude oil is falling, heading for the first weekly decline in three, amid higher-than normal US inventories.
- China and the European Union agreed to limit shipments of Chinese textiles to the 25-nation bloc through 2007, repairing relations between the world’s two biggest clothing exporters.
- The US dollar reached a nine-month high against the euro after the US trade deficits in March and April were less than expected.
- US 10-year T-notes fell for the third day, the longest drop since March, on speculation yields near their lowest in 14 months don’t reflect prospects for economic growth and Federal Reserve interest-rate increases.
- GM shares are rising as much as 11% after reports that the world’s largest automaker is pressing the UAW for concessions and that the union authorized leaders to negotiate.

Wall Street Journal:
- Krispy Kreme Doughnuts’ Canadian franchise is selling the operator’s doughnut-making equipment, store leases and assets.

NY Times:
- Democratic Party Chairman Howard Dean met some Democrat senators that were concerned over his recent remarks that “Republicans haven’t earned an honest living in their lives.”
- Microsoft is nearing an agreement with News Corp.’s Twentieth Century Fox and Vivendi Universal’s Universal Pictures to produce a movie based on the Xbox video game “Halo.”
- High beer prices are promting consumers to buy chicken and pork.
- A suspected fourth case of a rare and potentially fatal nerve disorder in a patient taking Biogen Idec’s multiple-sclerosis drug Tysabri may have been a misdiagnosis.

USA Today:
- The US Army plans to double the cash bonus for some new recruits to $40,000.

Financial Times Deutschland:
Amgen is considering expanding its research into stem cells, an area in which it currently has a peripheral interest.

Trade Deficit Widens, Import Prices Decline

- The Trade Deficit for April rose to -$57.0B versus estimates of -$58.0B and -$53.6B in March.
- The Import Price Index for May fell 1.3% versus estimates of a .4% decline and an upwardly revised 1.2% gain in April.

BOTTOM LINE: The US trade deficit widened as Americans paid more for oil and bought more goods from China. However, US exports hit an all-time record. The number showing March’s deficit was narrower than first reported suggests first-quarter economic growth will be revised higher.

Prices of goods imported into the US declined in May for the first time this year, reflecting a drop in the costs of petroleum, building materials and automobiles. Excluding petroleum, the import price index declined .3%, the largest drop since August 2003. The price of imported building materials fell 3.9% in May after falling 2.0% a month earlier. Steel imports rose 30% during the first quarter versus a year earlier. This is one of the main reasons for the roughly 30% decline in prices for the metal since August of last year.